Infosys Could Topple Cognizant To Become India’s Second Largest IT Services Company

Infosys is at the heels of India’s second largest IT services company as Cognizant continues to struggle with its revenues. 

Cognizant in Q2 FY23 posted revenue growth of 5.6 per cent, which was below guidance of 7.5-8.5 per cent as execution challenges hit performance. Growth in key verticals including financial services and healthcare has slowed down to low-to-mid single digits for Cognizant too. 

The company has cut revenue growth guidance once again to 7 per cent in c/c for CY2022E from 8.5-9.5 per cent.

“Infosys is catching up with Cognizant in size, with the gap between the two down to just 6 per cent in revenues,” said Kotak Securities.

Cognizant has ceded wallet share in key verticals. “Not much read-through for other IT services companies from these results,” added Kotak Securities.

Cutting Of Guidance

Cognizant has cut its CY2022E revenue growth guidance to 7 per cent from 8.5-9.5 per cent in the June 2022 quarter, and 8.5-11.5 per cent at the beginning of the year. The guidance includes a 100 bps contribution from acquisitions, unchanged from the levels indicated after the June 2022 quarter results. 

EBIT margin guidance of 15.6 per cent is largely unchanged and assumes a 20 bps expansion over CY2021. The company has cut EPS guidance to US$4.43-4.46, down from USD 4.51-4.57, due to the revenue miss and adverse cross-currency movements. Revenue growth guidance for 4QCY22 stands at 2-3 per cent in c/c.

“The deterioration in outlook is visible from: (1) weak bookings at USD 23.1 billion on ttm, representing growth of 6.5 per cent on YoY comparison; bookings declined 2 per cent YoY on a quarterly basis, (2) relatively high attrition seeping into execution challenges, and (3) key verticals such as financial services showing no signs of revival. Growth has slowed down even in stronger verticals such as healthcare, while CMT has shown a sharp decline in revenues sequentially. Growth in North America is down to a trickle at 4 per cent,” noted Kotak Securities. 

So far, Cognizant has had a good lead over Infosys in terms of revenues but the lead has been narrowing. The gap has come down to just 6.6 per cent. 

“Infosys’ quarterly revenue run-rate of USD 4.555 billion is just USD 300 million away from Cognizant’s revenues. Infosys’ headcount at 345,000 employees is just 4,000 shy of Cognizant,” said Kotak Securities. 

“We would not be surprised if Infosys reclaims revenue leadership over Cognizant in the coming quarters,” it added.