Cognizant expects to make fewer acquisitions this year

BENGALERU : Cognizant Technology Solutions Corp. posted 11.5% growth in March quarter net profit to $563 million and revised its revenue growth forecast for 2022 to 9-11% in constant currency terms. In an interview, Rajesh Nambiar, President and CEO of Cognizant India and President of Digital Business and Technology, said that the inorganic, mergers and acquisitions (M&A) portion of the revenue forecast had decreased as the company has become more demanding. on the objectives and the price. Nambiar discussed Cognizant’s M&A strategy, deal pipeline, and expansion into other geographies. Edited excerpts:

What do we read in Cognizant’s review of 2022 revenue growth forecasts?

We’ve kind of narrowed the revenue growth forecast range from 8.5-11.5% to 9-11% as we get closer. However, we will still be able to generate the $20 billion revenue range that we guided last quarter. The midpoint of our current readings is still the same. However, if you look at our constant currency forecast from an organic trading perspective, it has actually increased by around 0.5%. The inorganic part is what we’re changing because this year we think our M&A will be less than what we did in 2021. We want to be very selective in terms of what M&A we pursue. Traditionally, we have acquired many businesses and they have been able to bolster our broader digital portfolio. However, in the first quarter, we didn’t do a lot of M&As. This is because we want to be sure that we are only looking for good deals. We need to protect shareholder value in terms of how much money we pay for these transactions and what the right level of margins is. We continue to be very disciplined in terms of our M&A portfolio and that’s what you see in terms of the reduction in the inorganic component of our growth.

Have the clients already finalized their budgets and where are the expenses coming from?

The big trends we see haven’t changed much. Conversations with customers also remained unchanged. We look at various usage scenarios and industries such as telecommunications and insurance have been more pronounced in terms of investments. From an industry trend perspective, artificial intelligence (AI) and analytics, hyper-personalized insights and offers, and user experience, across customer journeys, are becoming priorities. From a business trend perspective, customers have moved beyond initial covid spend hesitation and are making breakthrough investments, growing their cloud adoption and sharpening their innovation cycles.

As digital transactions take center stage, how has the nature of transactions changed in terms of size and duration?

In terms of the number of transactions, large transactions have decreased. If you look at digital they tend to address a specific customer issue and therefore tend to be smaller in size. However, our booking for the past 12 months was $23.4 billion, which is a huge number for a business. This, too, we were able to achieve without any big major transactions. However, we will continue to focus on large trades at the right margin levels.

How are you expanding into markets other than the United States?

North America is our largest market and grew 8.7% year-over-year (year-over-year) in constant currency. However, we also experienced rapid growth in our other markets. For example, Europe was up 15.6% YoY in constant currency, while the Rest of the World or Global Growth Markets as we call them grew at a very fast pace at 22.2% year-on-year in constant currency. We have taken a series of steps to focus on our global growth markets over the past year. We have taken on new leaders in the UK, ANZ and Japan who have made a huge difference to us. They bring new talents and abilities, which helps us move from traditional to digital. Our digital revenue grew 20% annually and contributed 50% of total revenue in the March quarter.

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