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Cognizant may go for job cuts after slashing growth target

Cognizant is considering job cuts to slash costs and the head of its digital business, Gajen Kandiah, has left the company, after the US-listed IT company forecast the worst annual growth in its history. 

The Teaneck, New Jersey-headquartered expects 2019 revenue to grow 3.9-4.9% in constant currency terms. It had previously forecast growth of 7.0-9.0% for the year.

“As part of our realignment program, management is currently evaluating various strategies, including additional employee separation programs. The timing, nature, and magnitude of these initiatives are not finalized at this time,” Cognizant said. 

The Teaneck, New Jersey-headquartered company has been cutting jobs for the last two years. Last August, the company said it was cutting 200 senior jobs to make way for juniors to grow. In 2017, it had offered employees a voluntary separation program.

Separately, the company appointed Malcolm Frank as President of its Digital Business, a role formerly held by Gajen Kandiah. In an email to employees, CEO Brian Humphries, who took over in April, said Kandiah had decided to leave the company. 

“During 16 years with Cognizant, Gajen Kandiah made significant contributions to a number of our businesses including Business Process Services and most recently CDB, which he led for the past three years,” Humphries said in the email to employees.

The company said the revised full-year outlook was a result of lowered growth expectations in Healthcare and Financial Services. The company also pointed out Cognizant-specific execution challenges. 

“Over the coming quarters we intend to bring our cost structure closer in line with our revised revenue expectations while continuing to invest in growth, talent, and our portfolio of innovative solutions to speed our pivot to digital,” Karen McLoughlin, Chief Financial Officer said.

Cognizant’s troubles also hit the shares of its India-listed rivals. The top five IT companies lost about Rs 38,900 crore in market capitalisation, ending down 1-4%. The Nifty IT index ended down 1.9% at 16,092.9, recording its worst one day fall since February 20 this year. 

The company’s commentary on the weakness in the banking and financial services business, which is the largest source of work for Indian IT services companies, has raised concerns.

“However the risk to industry growth from the financial services vertical cannot be denied. Clients in the capital market segment of banking have turned a bit more cautious in spending outlook. In addition spending by regional banks in the US is also turning cautious,” Kawaljeet Saluja, an analyst with Kotak Institutional Equities, said in a note. However, he added that a large part of the ‘slippages’ appeared to be specific to the USlisted company.

Morgan Stanley said that while some of the issues Cognizant talked about in banking, financial services and insurance, as well as healthcare could be client-specific or portfoliospecific to the company but there is a similarity in commentary across the board with respect to deceleration in BFSI growth going forward.

Amit Khurana, Head of Research at Dolat Capital Markets believes that the market is not treating the guidance cut by Cognizant as a systemic issue but the Indian IT services companies' stocks could fall further.

"There are client specific issues which led to the guidance cut and not a system level issue. But the way it has cut the guidance and the commentary that was given by some Indian IT companies, it is not comforting so the selling may continue," said Khurana. Analysts pointed out the dramatic decrease in Cognizant’s guidance had come in a very short period of time. The company had first forecast growth for 2019 at the beginning of February. “A 3-4% tweak seems like a lot given they just guided a little over two months ago,” David Koning, an analyst with US brokerage Robert Baird said.