Robust Results From Genpact, Cognizant

According to a recent report by Gartner on global IT spending, worldwide IT spending is projected to grow 3.7% in 2012 to $3.8 trillion. Earlier estimates had pegged the year’s growth at 4.6%. Revenues from IT services are expected to grow at a comparatively slower pace of 3.1% to $874 billion. Gartner expects the Eurozone crisis to impact technology spend. Despite these worrisome predictions, IT services outsourcers are continuing to surpass market expectations.

Cognizant’s Financials
Cognizant Technologies’ (NASDAQ:CTSH) Q4 revenues grew 27% over the year to $1.66 billion, marginally shy of the Street’s target of $1.67 billion. EPS of $0.78 was ahead of the market’s projected $0.78.

During the quarter, Cognizant added 7,300 employees worldwide, ending the year with more than 137,700 employees globally. Attrition in the quarter fell significantly from 13.4% in the previous quarter to just over 10%.

They ended the year with revenues increasing 33% over the year to $6.12 billion. EPS also grew from $2.51 in the previous year to $3.07.

The pressure in Europe was cited as a cause of concern by the management. Cognizant believes growth in European segment revenues will be muted and are not expecting any recovery during the current year. For the current quarter, they are projecting revenues of $1.7 billion with EPS of $0.79. The market was looking for revenues of $1.72 billion with EPS of $0.79. For fiscal 2012, the company projects annual revenues of $7.53 billion with EPS of $3.43, ahead of the market’s projected $7.48 billion revenues and EPS of $3.42.

Cognizant’s Strategy
To continue to grow in spite of economic concerns, Cognizant has laid out a three-pronged strategy called Horizons. As part of the Horizon 1 approach, they are focusing on improved service offerings and increased productivity through best-in-class tools and services and at competitive- and performance-oriented pricing models. Horizon 2 includes expansion across consulting, business process outsourcing and IT infrastructure services. They are offering clients a large-scale, end-to-end transformational capability in business processes by integrating these processes with consulting and IT services. Finally, within Horizon 3, they are investing in emerging offerings, including newer markets such as Latin America, new IT architecture such as enterprise analytics and cloud, mobile and social computing, and newer delivery models that move away from the linear relationship between headcount and revenues to platform-based approaches. They are investing in business process solutions and advanced analytics so that they can leverage their platform to process client transactions.

Cognizant’s stock is trading at $70.72 with a market capitalization of $21.36 billion. It touched a 52-week high of $83.48 in May 2011.

Genpact’s Financials
Genpact’s (NYSE:G) Q4 revenues grew 30% over the year to $442.7 million. EPS of $0.32 grew over previous year’s $0.23. The market was looking for revenues of $437.4 million with earnings of $0.24 per share. They ended the year with revenues growing 27% to $1.60 billion and EPS of $0.81 compared with $0.63 in 2010.

Revenues from global clients continued to grow. For the year, Global Client revenues grew 43% compared with 2% growth in revenues from GE. Global Clients now account for 70% of their revenues, and the remaining 30% revenues were contributed by GE.

For the current year, Genpact projects revenues of $1.84 billion-$1.88 billion, compared with the market’s projected revenues of $1.88 billion.

Genpact ended the year with 55,400 employees worldwide, up from 43,900 in the previous year. Attrition remained flat for the quarter and declined slightly over the previous year’s 31% to 30%.

Genpact’s International Expansion
As part of the company’s expanding international footprint, the number of Genpact’s onshore employees increased to 3,000. During the past year, they also opened centers in Brazil and Dubai. Recently, they also announced plans to expand in China and entered into a strategic partnership with the government of Qingdao province to build China’s first domestic global process innovation center. Genpact is also evaluating expansion in tier-2 cities in India by opening new centers in the state of Madhya Pradesh.

Genpact’s stock is trading at $15.77 with a market capitalization of $3.51 billion. It touched a 52-week high of $18.16 in July 2011.