Sales: Cognizant grew at 17 per cent to $1.94 billion in October-December 2012, outperforming Infosys for the third quarter in a row. Infosys posted $1.91 billion in sales in the December quarter, but for the full fiscal Infosys is likely to clock at least $7.45 billion in sales (according to the revised revenue guidance) against Cognizant's $7.35 billion. TCS' revenues in the December quarter stood at $3 billion.
Outlook: Cognizant said sales will grow to at least $8.6 billion in 2013 implying a growth of 17 per cent over 2012. The guidance for 2013 indicates a slowdown in growth momentum. Cognizant grew at 20 per cent in 2012 over 2011 sales. However, Cognizant is still growing faster than Indian companies. TCS, for instance, is likely to grow at 11-14 per cent in 2012-13 while Infosys is likely to grow at 6.6 per cent according to the revised forecast.
Margins: Analysts have attributed Cognizant's rapid rise to relatively lower margins. Cognizant's EBIT or operating margins dipped to 18.3 from 18.8 per cent in the September quarter. Infosys' operating margins declined to 25.69 per cent against 26.3 per cent sequentially while TCS reported an increase in operating margins at 27.3 per cent for the December quarter.
Geography and verticals: The U.S. market is central to the outsourcing industry as it contributes between 60 to 80 per cent of the total sales for most companies. Among verticals, financial services is the key and often accounts for a third to half of the overall sales. Cognizant's performance in the key U.S. market and the financial services vertical was below peers. Cognizant's sales grew by 2.1 per cent sequentially in the U.S. markets, while TCS managed to grow at 3 per cent. Cognizant's BFSI vertical grew at 3.4 per cent sequentially as compared to 4 per cent at TCS and 6 per cent at Infosys.
Shares: Markets tend to give a premium to growth at the cost of margins. Cognizant's stellar performance and growth is evident in its price earnings multiple, which is at a premium to both Infosys and TCS. According to Nomura, Cognizant quotes at 19-times FY13F and 16.4-times FY14F earnings, which is a premium of 5 per cent and 15 per cent to TCS and Infosys respectively.