Two years after arresting a revenue decline, Cognizant Technology Solutions Corp. aims for revenue growth that would place it amongst the world’s top four IT services companies, including Accenture Plc, Tata Consultancy Services Ltd, Capgemini SE, and Infosys Ltd, by FY27.
On Tuesday, as part of its annual investor meeting, Cognizant shared a four-point strategy under which it will seek to improve its profitability, gain market share, focus on large deals, and ensure revenue growth in line with the world’s four largest IT services companies.
“We want to be in the winner’s circle by 2027,” said S. Ravi Kumar, chief executive of Cognizant, referring to the club of the largest and fastest-growing IT services firms. “Our definition of the winner’s circle is to be a top-tier player,” said Kumar.
He added that the Nasdaq-listed company aims to achieve this by scaling innovation, focusing on more platforms and grassroots innovation, and accelerating growth using AI through productivity and AI agents.
“The winner’s circle is not about top-tier revenue growth. We want to gain market share. We want to keep our large deal momentum. We want to skill for the future. We want to do gradual margin expansion,” said Kumar, adding that the company’s EPS growth will be higher than its revenue growth.
Jatin Dalal, Cognizant’s chief financial officer, repeated the company’s bid to increase margins a few hours later.
“For outer years (apart from FY25), we believe we can deliver another 10 to 30 basis points of margin expansions,” said Dalal.
Teaneck, New Jersey-based Cognizant plans to improve margins by 30 basis points annually until FY27 based on improved utilisation, convincing customers to focus on outcomes, increasing the share of managed services, and enhancing productivity through AI integration.
This is one of the rare cases in the last two years in which the company has decided to boost its operating margins and revenue simultaneously.
Looking ahead
At least one analyst cheered Cognizant’s forward-looking plans.
“We believe there are several potential drivers for improved Cognizant growth, including near-term generative AI demand. Moreover, we think that morale for the company with employees and client relationships is higher today than in past years,” said Keith Bachman, analyst at BMO Capital Market, in a note dated 25 March.
These muscular projections come with a pinch of salt. Even though Cognizant recorded 4% growth in 2024 to end the year with $19.7 billion in revenue, the company has not been able to post organic growth, that is, after discounting its recent acquisitions of Belcan and Thirdera.
This lack of organic growth follows a year of revenue decline.
Hearteningly, the company’s operating margins shot up to 14.7%, an increase of 80 basis points from the year before. This was due to decreasing staff costs, as the company cut its headcount by about 10,900 last year.
“CTSH’s renewed focus on large and mega deals, coupled with a focus on driving productivity in technology through AI and sharing it with clients and consolidating out vendors where possible, can increase the competitive intensity for Indian IT in the near to medium term in our view,” said Kotak Institutional Equities analysts Kawaljeet Saluja, Sathishkumar S., and Vamshi Krishna, in a note dated 26 March, titled “Tall aspirations amid challenging demand environment”.
Kumar, 53, took over as Cognizant’s CEO in January 2023 and is tasked with bringing about a turnaround at the company. His first year was not good, as the company ended December 2023 with a full-year revenue decline. In his second year, the company grew, albeit on the back of acquisitions.
Kumar’s tenure at the company has not boded well for its operating margins over two years. At the end of 2022, the company reported profitability of 15.3%. This slipped to 13.9% the following year and jumped to 14.7% at the end of 2024.
Lagging peers
Questions have also been raised about its growth. In the last two years, Cognizant’s performance has lagged behind its peers Accenture, TCS, and Infosys. While Cognizant reported a revenue decline in 2023, its 2% growth last year was lower than that of Accenture and TCS.
Accenture grew 4% last year to $64.1 billion, whereas TCS grew 4.1% to $29.1 billion. Bengaluru-based Infosys rose 1.9% last year to $18.6 billion.
To be sure, Accenture follows a September-August financial calendar, Cognizant follows a January-December financial calendar, and Indian IT services companies follow an April-March financial calendar.
For the ongoing January-March quarter, Cognizant expects to earn $5-5.1 billion in revenue and $20.3-20.8 billion for the full year. On an organic basis, the company expects a 1-3.5% revenue growth in constant currency terms for 2025 despite clients increasing their non-essential spending.
Still, shareholders have put their faith in Kumar. Since taking over in January 2023, Cognizant shares have risen 26.7%. In comparison, Capgemini’s shares fell 10%, Accenture’s shares jumped 9.3%, and TCS’s shares jumped 9.7% to ₹3,667 a piece.
The investor day presentation comes weeks after activist investor Mantle Ridge reportedly raised its stake in the IT services company to $1 billion.
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