Genpact and Cognizant Expanding on Almost All Fronts

According to the Everest Group’s first quarter report on the global outsourcing and offshoring market, transaction volumes for global outsourcing contracts remained flat for the quarter. Overall contract values grew 11% over the year to $3 billion. The report saw improved activity in terms of contract signing within the BFSI (banking, financial services and insurance) sector, which saw transaction volumes grow 12% over the year. MDR (manufacturing, distribution and retail) vertical activities improved 9% over the year, but the healthcare vertical saw a large drop in deals signed during the quarter. International expansion continued during the quarter, with new centers being setup in Asia, Latin America and Eastern Europe.

Cognizant’s Financials
Cognizant Technologies’ (NASDAQ:CTSH) Q1 revenues grew 25% over the year to $1.71 billion, in line with the Street’s target for the quarter. EPS of $0.79 was also in line with the market’s projected earnings.

By segment, financial services revenues grew 22% to $694.7 million and healthcare revenues grew 34% to $467.4 million. Manufacturing and retail segments saw sales grow 22% to $334.8 million while other revenues grew 21% to $214.4 million. Revenues from North America grew 27% to $1.36 billion. The emerging markets of APAC were among those that performed strongly, recording growth of 47% over the year to $66.7 million. Europe continued to show slow growth, reporting 11% growth to $283.9 million.

During the quarter, the company spent $42.7 million on repurchasing 600,000 shares at an average price of $70.84 each.

Among other operating metrics, they added 2,800 net employees during the quarter, taking their headcount to 140,500 employees globally. Attrition in the quarter of 10.5% was marginally higher than the previous quarter’s attrition of 10.1%. Utilization fell marginally over the previous quarter, with offshore utilization of 67% and on-site utilization staying high at 93%. Offshore utilization excluding recent college graduates who were in training programs stood at 78% for the quarter.

But Cognizant is worried about the banking and pharmaceutical market conditions in the coming quarters. They adjusted down their current year forecasts to account for this concern. For the year, they now project revenues of at least $7.34 billion, down from $7.53 billion projected a quarter ago. EPS projections also fell from $3.43 to $3.36 for the year. The market was looking for earnings of $3.70 per share on revenues of $7.55 billion for the year. Cognizant expects the current quarter’s revenues to be at least $1.79 billion with EPS of $0.80, which were shy of the Street’s target of $1.84 billion revenues and EPS of $0.83.

Cognizant’s International Expansion
As part of their international expansion plan, Cognizant recently opened a development center in Singapore. The new center will help them focus on the APAC region and specifically Singapore, which is among the wealthiest countries in the world. The center will house 370 employees and expand based on need.

Cognizant’s stock is trading at $59.98 with a market capitalization of $18.26 billion. It touched a 52-week high of $83.48 in May 2011.

Genpact’s Financials
Genpact’s (NYSE:G) Q1 revenues grew 32% over the year to $435.5 million, with revenues from global clients growing 47% to account for 73% of their revenues for the quarter. EPS of $0.21 for the quarter was 13% higher than previous year.

Genpact ended the quarter with 56,500 employees worldwide compared with 45,500 employees reported a year ago. At 23%, the attrition rate for the quarter fell significantly from 29% a year ago.

For the current year, they expect revenues of $1.86 billion–$1.90 billion, with an adjusted operating income margin of 16%–16.5%.

Genpact’s Acquisitions
Genpact has been on an acquisition spree of late and recently announced plans to acquire Accounting Plaza and Atyati Technologies for an undisclosed sum. Europe-based Accounting Plaza provides accounting and HR services to retail chains such as Netherlands-based Ahold. The 600-employee organization has presence in the Netherlands, the Czech Republic, and Poland and will help Genpact grow their international presence. In addition, Genpact will be able to expand their retail offerings, including areas such as store and franchise accounting, inventory accounting and trade promotions.

Atyati Technologies is an India-based provider of rural banking technology services. Atyati’s products include an automated and secure banking platforms with smart card and biometrics-based authentication capabilities. The 60-employee organization has a client list of six public-sector banks and one private-sector bank in the country and caters to more than 2.5 million people in 6,500 villages. Genpact plans to expand their reach to 9.8 million customers in 16,000 villages by 2013.

Genpact’s stock is trading at $16.33 with a market capitalization of $3.64 billion. It touched a 52-week high of $18.16 in July 2011.