Cognizant, Genpact Expanding In Latin America

According to the Everest Group, global transaction volumes in the fourth quarter of 2010 for outsourcing deals reached a three-year high. The annual contract value of outsourcing deals signed during the quarter grew 44% over the previous quarter to $4.9 billion. Outsourcing giants Cognizant and Genpact are also enjoying the good run.

Cognizant’s Financials
Cognizant Technologies’ (NASDAQ:CTSH) Q4 revenues grew 45% over the year to $1.31 billion and exceeded the Street’s estimates of $1.28 billion. EPS of $0.70 was also higher than the market’s projected $0.68. The company ended the year with revenues of $4.59 billion and EPS of $2.39.

For the current quarter, they project revenues of $1.36 billion with EPS of $0.67. The market was expecting revenues of $1.33 billion with EPS of $0.64. Cognizant expects to end the current year with revenues of $5.79 billion and EPS of $2.85. The market was expecting revenues of $5.74 billion with EPS of $2.71.

Cognizant’s Operating Metrics
During the quarter, Cognizant added 8,345 employees to end the year with 104,000. Offshore utilization excluding trainees decreased marginally from 83% to 82% for the quarter. However, attrition dropped significantly from 21.8% a quarter ago to 16%. Cognizant has put in place a series of initiatives to control attrition: They have improved their performance appraisal process to ensure “meaningful merit-based recognition and career growth.” They are also reviewing their rewards and recognition programs regularly to ensure they remain competitive and have put in place employee engagement programs.

Cognizant’s Global Expansion
As part of their geographical expansion plan, Cognizant is working to expand their offshore model to newer markets in Europe, Asia Pacific, the Middle East, and Latin America. They are increasing capacity in these locations and recently announced plans to invest $500 million in India to accommodate an additional 55,000 employees by 2014. Earlier last month, they doubled their capacity in Phoenix to 1,000 employees. They are also planning on another delivery location on the East Coast in the near future. As of now, they have more than 17,000 employees in the United States. While they have not given details, Cognizant is working to increase delivery capacity in South America and the Far East.

Geographic expansion in South America and the U.S. will help Cognizant successfully address issues of time zone and near shore management while maintaining cost competitiveness. A recent Gartner study also identified top 30 offshoring destinations and included eight countries from Latin America, with Peru and Colombia making the list for the first time ever. The research shows improving government support, labor pool, and infrastructure in the region, making these countries more favorable.

To help in talent acquisition for their growing capacity, Cognizant also improved ties with universities and began an undergraduate recruiting program in Europe and the U.S. In the U.S., they tied up with business school campuses to recruit for their business consulting practice and hired from 15 U.S. universities during the recent quarter.

The stock is trading at $74.22 with a market capitalization of $22.5 billion. It touched a five-year high of $76.49 earlier this month.

Genpact’s Financials
Genpact’s (NYSE:G) Q4 revenues grew 15% over the year to $341.5 million. EPS of $0.23 grew 21% over previous year’s $0.19. For the year, revenues grew 12% over the year to $1.26 billion with GE contributing 38% of their annual revenues. EPS for the year of $0.74 was just shy of previous year’s $0.73.

Genpact is projecting revenues of $1.38 billion–$1.42 billion with GE’s revenue share dropping to 35% for the current year. Their projections were short of the market’s revenue outlook of $1.43 billion.

Genpact’s Operating Metrics
Genpact has been hurt by growing attrition and saw the number spike to 31% for the year compared with 28% a quarter ago and 23% reported for the previous year. During the year, they added 5,300 employees to end the year with 43,900 employees worldwide.

Genpact’s Expansion Plans
Genpact too is looking to expand in Latin America. They are working to double their capacity in Guatemala, which currently houses 1,000 employees. Additionally, they want to grow in Brazil and Colombia.

The company ended the year with over $481 million in cash and equivalents. They are planning to use some of these funds to acquire $50 million–$300 million sized businesses in the healthcare, analytic services, banking, and financial services domains.

Genpact’s stock is trading at $14.51 with a market capitalization of $3.2 billion. It touched a 52-week high of $18.71 in October of last year.