Cognizant makes muted guidance, to grow at 8-11% till 2024

BENGALURU: Cognizant said it expects to grow at 8-11% annually in the next three years on constant currency, similar to its projections for this year, even as its Indian counterparts raise their guidance due to the high volumes of digital businesses flowing in in a post-pandemic world. The company, which in its own words is struggling to retain talent and win large deals, said last month it expects to grow at 9.8% for the year ending December. Infosys, on the other hand, raised its guidance for the full year ending March to 16.5-17.5%. “We continue to make strong progress in positioning the company for sustained revenue growth and margin expansion,” said CEO Brian Humphries in an investor briefing. A large part of Cognizant’s growth will be supported by digital deals, which is expected to contribute 55-60% of the topline by 2024, up from 45% currently. “Digital supports revenue growth, margin goals, increases our relevance to clients, and is core to our employee value proposition,” as per a slide presentation. Of the total growth, 6-9% would be from organic constant currency CAGR and 2% would come from inorganic contribution. Cognizant expects to close the year with $18.5 billion. Margins, as part of the process, will also get an uptick expanding by 20-40 basis points annually. That would mean in a best-case scenario, margin inching up to 17% over the next three years. Cognizant’s margins for the third quarter ended September was 15.4%. In contrast, Infosys expects margins to be between 22-24%. TCS, which does not provide guidance, is also confident of double digit growth in the coming fiscal years supported by what its CEO Rajesh Gopinathan says is a “multi-year technology upgradation cycle that will fuel the growth.” What has led to Cognizant falling behind its rivals is its unusually high attrition rate, which was 33% in the last quarter, stymieing its efforts to chase deals at a time when demand momentum is at an all-time high. The company will deploy 50% of capital (of annual free cash flow) into acquisitions between 2022 and 2024. 25% will go into share repurchases and the remaining into dividend payouts. So far Cognizant has invested $2.5 billion in digital M&A acquisitions.

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