Will spend $500 mn over 4 yrs in 4 Indian cities: Cognizant
IT services provider Cognizant Technology Solutions has had a great fourth quarter. Net profits have surged better-than-expected 43% to USD 206 million. It was helped by a handsome 45% surge in revenues, which crossed USD 1.3 billion dollars.
Its 26% revenue growth guidance for 2011 is also better than expected. President and CEO of the company Francisco D'souza, in an exclusive interview on CNBC-TV18, spoke about the companys Q4 numbers and the way forward.
Excerpts from What's Hot on CNBC-TV18 Watch the full show »
Below is a verbatim transcript of his interview with CNBC-TV18s Elan Dutta and Nayantara Rai. For the complete interview watch the accompanying video.
Q: What have been the key drivers of growth and which verticals have actually contributed to the volume growth?
A: We had a wonderful 2010 and it was capped by a very strong fourth quarter. There were a few things that contributed to our strong performance in 2010.
Most importantly, we saw that after two years of under investing in technology during the recession, clients came back and started spending in technology. There is a technology refresh cycle underway with our clients, as a result of which because of Cognizants differentiated model, we were able to capture a large share of that demand and deliver a strong 40% YoY growth in 2010.
Q: Your operating margins, this quarter stands at 19.8% versus 19.9% last quarter, so a flattish number as far as the margin front is concerned. What is the plan going forward to improve the margins? Are we going to see cost efficient levers being put into place?
A: This is a very important part of the Cognizant story. We manage our non-GAAP (Generally Accepted Accounting Principles) operating margin between 19-20%. We set that as a target range because we think there are tremendous growth opportunities in our markets.
Anything above 19-20% range, we reinvest back into the business for growth. There is still a tremendous amount of runway for our company and in our industry. We think that its important to stay vibrant and to continue to stay on top of changing trends by investing in the business.
You will see us continuing to maintain our non-GAAP operating margins in the 19-20% range going forward, so that we have the ability to invest in the business and continue to grow at the rates that we have been growing, historically, above industry average.
Q: Will growth in 2011 be volume led or do you expect some kind of an uptick in prices as well? Also, which verticals are expected to do well this year?
A: We expect a little bit of both. We are clearly expecting pricing to have an upward bias in 2011. We saw a nice uptick in pricing during the fourth quarter of 2010, as a result of conversations that we had started with clients earlier in the year about increasing pricing and we expect to see an upward bias in pricing continue through 2011 also.
But, the reality is that a large portion of our growth in 2011 will be volume led as we expect there would be a significant share shift continuing as clients look to offshore and outsource more going into 2011.
Q: You have said you will be investing USD 500 million in India. Are we perhaps, going to see a new campus service? In which cities are you investing and if you could tell us a little more about these expansion plans?
A: We are very excited about our expansion plans. We have announced this morning that over the next four years, we will be spending about USD 500 million, in new facilities across four cities in India. These will be a combination of new facilities that we will build as well as expanding our existing facilities or adjacent to our existing facilities.
We will focus on, Chennai, Pune, Coimbatore and Calcutta.
Over the next four years, we expect to bring online about 8 million additional square feet of owned space. That is space that we own and that should accommodate somewhere in the range of 55 thousand new associates.
In addition to this, we continue to expand in other cities across India through leasing of space in those cities and indeed in cities around the world like our recent announcement to expand our facility in Phoenix in the United States to accommodate another thousand employees. We have a very broad based plan to expand facilities not just in India but around the world to accommodate our increasing growth over the next few years.
Q: There is a lot of analyst buzz that you are closing the gap between your company and Wipro and are going to dislodge Wipro from its third position. Your comments on that and at the same time another milestone for you, you have crossed the hundred thousand employee mark. What has that been like and how are your hiring charts looking like?
A: I often get asked that question. The reality is that our focus, and our single minded focus from the beginning as a company has been on being viewed as number one in the minds of our customers. We think that is the key metric by which we are judged. We don't look at scale per se as a goal to chase. We look at chasing customer satisfaction and we think equally, importantly, we want to be viewed as an employer of choice.
For us, the two key measures and most important operating metrics when I look at the business are customer satisfaction and employee satisfaction. Scale is a natural outcome of that and our growth rate has been a natural outcome of the fact that we have a differentiated model that allows us to keep our customers very happy on one side and employees happy on the other side. That results in industry leading growth, but we don't chase growth for the sake of growth.
