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Cognizant pips Infosys for 2nd straight quarter, TCS next?


New Jersey-based Cognizant Technology Solutions is all set to overtake Bangalore-based Infosys, India's second biggest information technology outsourcer, in the global pecking order of top IT firms by revenues. Cognizant reported higher revenues than Infosys for the second straight quarter.

Cognizant, which reported its September quarter earnings on Wednesday, said revenue rose 18 percent to $1.89 billion. Infosys had reported $1.79 billion in sales in the September quarter. For the full year (2011-12), Cognizant expects revenue at $7.34 billion, up at least 20 per cent compared to 2011. In contrast, Infosys is likely to end this year with revenues of $7.18 billion, considering an optimistic 3.5 per cent sequential growth in the December quarter.

Infosys expects revenue of at least $7.34 billion, indicating a growth of 5 per cent, for the year ending March.

This will be for the second straight year when Cognizant will overtake a large Indian IT firm in terms of revenues. Last year Cognizant had pipped Azim Premji promoted Wipro to emerge as India's third-largest IT services provider behind TCS and Infosys. According to the global list of top IT companies (by revenues) published by research firm Gartner, Cognizant was ranked at 27th place in 2011. Infosys was ranked 26th on the list.

Cognizant is based out the U.S., but most of its employees are in India, setting up an interesting battle for the number two spot among Indian IT services exporters. Cognizant was founded in 1994 as a captive unit of Dun & Brad Street in India.

Cognizant may finish the year ahead of Infosys even if Infosys include the revenues of its recent acquisition - Lodestone- in its book. Lodestone had clocked revenues of $210 million in 2011.
And, considering the staggering pace at which Cognizant has grown over last few years, overtaking Infosys may just be a formality. Cognizant grew at 33.3 per cent in 2011-12 calendar year, clocking $5.9 billion in sales. In contrast, Infosys reported revenue of $6.3 billion, growing at 17.8 per cent in 2011.

Cognizant's scorching pace is not a threat to Infosys alone. TCS, India's biggest IT services exporter, which expects to grow at over 11-14 per cent in 2012-13 fiscal, is also likely to face some heat because of Cognizant's rapid rise.

"If I compare (Cognizant's) growth with all the other players in the market, whether it's TCS or Infosys or Wipro, Cognizant has been outpacing everybody, sure they still have that edge," Morningstar Inc analyst Swami Shanmugasundaram told Reuters.

Analysts have attributed Cognizant's rise to relatively lower margins as compared to Infosys or TCS. Infosys' operating margins in the September quarter stood at 26.3 percent while Cognizant's non-GAAP operating margin was 20 per cent.

“Our financial model continues to allow us to deliver robust top-line growth with stable margins, while investing in our next generation of services to ensure long-term strength,” Karen McLoughlin, chief financial officer of Cognizant said.

In an increasingly uncertain global economy, where rising competition is threatening the survival of many firms, many investors would prefer lower margins for more business. For Cognizant, that seems to be the winning mantra for now.

(With inputs from agencies)

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