IT Services Major Cognizant Reported Disappointing March 2019 Quarter on All Counts

CTSH delivered weak revenue growth, missed margin targets and reported decline in cash generation in March 2019 quarter. CTSH has cut CY2019 c/c revenue growth guidance to 3.6-5.1%, down from 7-9% at the beginning of the year citing weakness in banking, healthcare and weaker execution. Delivering on medium term goals laid out at the analysts’ day seems challenging. Turnaround themes have their set of challenges; CTSH seems to be going through one with broad-based slippages.

Cognizant misses revenue growth guidance for March 2019 quarter

CTSH reported constant revenue growth of 6.8% in c/c, lower than guidance range of 7.5-8.5% for March 2019 quarter. On organic c/c basis growth was 4.2%. On a sequential basis, CTSH reported revenue decline of 0.5% to US$4.11 bn. Management indicated that revenue growth started weakening towards the second half of the quarter. The magnitude of miss for the quarter was surprising noting that guidance was laid out in the first week of February. The revenue miss was contributed by the slowdown in growth to a trickle in financial services (0.2% yoy c/c growth, 1.5% qoq USD revenue decline) and healthcare (+4.6% yoy in c/c, negligible excluding Bolder acquisition and down 3.1% qoq in USD terms). Other vertical continued robust performance. GAAP EBIT stood at 13.1% and had 290 bps impact from the recent Supreme Court of India ruling on Defined Contribution Obligation; CTSH has accrued impact of the ruling assuming retroactive application. Adjusted EBIT margin of 16% fell short of guidance primarily due to flow through impact of weaker revenue growth.

Steep cut in CY2019 revenue growth guidance, adjusted EBIT margin guidance band cut 17%

CTSH has cut CY2019 revenue growth guidance to 3.6-5.1% in c/c (guidance includes inorganic component), down from 7-9% growth guidance set out at the beginning of the year. Revised guidance bakes in 170 bps contribution from inorganic growth. Cut in guidance captures—(1) slowdown in the financial services vertical (35% of revenues) that was broad-based. Revenue decline from three of the five large banking clients continued. Regional banks are turning more cautious on spending outlook. M&A in regional bank client base also impacted revenue growth outlook. Guidance does not assume any recovery or deterioration in the financial services business and (2) healthcare vertical (28% of revenues) was impacted by M&A in the client base, accelerated movement of work to a captive center at a large North American client. Revised guidance assumes 0.5-2% sequential revenue growth in 3Q-4Q of CY2019. CTSH also cut adjusted EBIT margin guidance to 17% from 19% for CY2019. The company attributed the entire shortfall to weaker revenue growth outlook relative to initial expectations. EBIT margin expectation for 1HCY19 stands at 16% with recovery expectation in 2HCY19 (implied closer to 18%). CTSH cut CY2019 adjusted EPS guidance by 10-12% with a revised number that stands in a range of USD3.87-3.95/ share. CTSH expects to deliver 3.9-4.9% revenue growth in constant currency for June quarter.

Turnaround themes are difficult; CTSH has a few challenges at hand

CTSH’s poor performance surprised us. Weak revenue growth and guidance cut reflects execution challenges at CTSH rather than industry wide growth slowdown. The transition to a profitable growth model initiated a couple of years back had its share of challenges which have been compounded by slippages in execution. The new CEO has a challenge at hand. We would not be surprised with a few leadership changes, common in any turnaround effort. Against this backdrop, ability of the company to deliver board-backed medium term revenue growth target of 7-11% and EBIT margin of 19% with 10 bps expansion every year seems unrealistic to execute in the near term.

Timing the turnaround themes is challenging. CTSH stock may seem inexpensive after the potential correction in stock price but will have its share of bumps in performance and disappointments.

Read through for other IT services companies

Large part of the slippages seems specific to CTSH and not representative of growth across the industry. 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. Other segments of financial services are steady in our view.

Key highlights from earnings call

* Commentary on BFSI: BFSI vertical registered flay yoy growth in constant currency. The vertical is affected by insourcing among CTSH’s BFSI clients. The company reported conservatism in spending among several regional banking clients in North America with some banks impacted by M&A activity. Slowdown in decision making particularly around larger deals in the pipeline due to executive transitions in several clients impacted growth in insurance. Softness in three out of the top five clients is expected to continue in the near term. Management expects pressure on banking spends in 2HCY19 due to moderating growth outlook in the business.

* Life sciences and healthcare. M&A related activity accelerated movement of work to captives in a large client and ramp down of an account in which CTSH is a subcontractor impacted growth in the vertical. The company expects further deterioration in the next quarter and reported sluggish outlook for the full year. Softness was mainly in the healthcare payers business. The company reported strong double-digit growth in life sciences sub-vertical.

* Commentary on products and resources and communication & media verticals. The company reported strong double-digit constant currency growth in retail and consumer goods, travel and hospitality as well as in manufacturing, logistics, energy and utilities. Retail sub-vertical was strong despite bankruptcies in a few smaller clients. Growth in digital services for media and entertainment clients offset slower growth in the communication industry which is affected by consolidation trend.

* Margin levers. The company expects margins to improve in 2HCY19 on the back of procurement optimization, better utilization, improved pricing, simplification of business unit overhead structure, rationalization of delivery costs and shift to higher value services such as digital

* Digital. Digital business now accounts for 33% of overall revenue and is the primary driver of growth. Digital revenue growth in the quarter was strong at 20+%. Core modernization, digital engineering, AI and analytics, intelligent process automation, platform solutions, interactive customer experiences and IoT form the core of Cognizant’s digital strategy

* Senior management. Ex-CEO Frank D’ Souza who is currently in the role of Executive Vice Chairman will transition to Vice Chairman of the Board at the end of June 2019. Raj Mehta has stepped down as president. Malcolm Frank has been appointed as the new President of Cognizant’s digital business. Prasad Chintamaneni, EVP and President of Global Industries and consulting will additionally manage the banking business on an interim basis.

Linium Receives Award for Delivering Outstanding Value in Digital Transformation, innovation

Linium, a Ness Digital Engineering Company and a leading provider of digital business, engineering, experience and transformational consultancy services, has been recognized by ServiceNow as the 2019 ServiceNow Americas IT Workflow Partner of the Year. The achievement is the result of demonstrating overall excellence in expanding the breadth and depth of its IT Transformational Cloud Practice size.

The ServiceNow Global Alliances and Channel Ecosystem recognizes the achievements and contributions of its best in class partners who have successfully grown its ServiceNow business through transformation or innovation in business, technology and customer success. This year's awards are based on partner performance in 2018 – a combination of revenue contribution, product line expansion, workflow and skill growth, and business innovation or transformation.

“Always doing the right thing for our customers, employees, and partners is core to Linium’s culture and integral to sustained success,” said Joe Burke, president, North America at Linium. “This award reflects our comprehensive approach to helping our customers leverage ServiceNow as part of their overall digital business strategy. Our deep roots in software engineering help us guide our customers and take into account a range of areas from data and analytics to DevOps and automation. Today’s organizations need to elevate employee experiences and reshape customer service, and Linium is fully committed to making this a reality for our customers.”

With over 3,500 successful enterprise transformations since its inception in 2000, Linium enables modern workforce experiences and empowers organizations to make better decisions faster by enhancing collaboration, reducing manual tasks, aligning work to business priorities, and resolving issues quickly and proactively. Converging 4,000+ strategic thinkers, exceptional technologists, and user experience experts from around the globe, Linium is dedicated to creating the most value-driven experience for its customers by applying non-traditional thinking to solve traditional business challenges. From designing cutting-edge modern service experiences to mitigating compliance risk; gaining financial visibility to resolving security threats; building custom applications to managing operations, Linium solves complex business challenges across the enterprise.

Judith McKenna Walmart CEO Visits Flipkart Campus in Bengaluru

Judith McKenna, President and CEO of Walmart International, on Friday visited Flipkart campus in Bengaluru and interacted with Flipkart Group leadership and employees to mark the first anniversary of Walmart’s partnership with Flipkart.

Judith was accompanied by Richard Mayfield, CFO Walmart International and Leigh Hopkins, International Strategy & Business Development Head.

Judith praised the creativity and passion of the team and commended the leadership for its commitment in bringing ecommerce to more Indian consumers. She was impressed with how Flipkart as a group is innovating to create world class experiences for customers using technology and making a huge difference to the whole ecosystem including sellers and manufacturers across the country.

Flipkart Group CEO Kalyan Krishnamurthy said Flipkart’s partnership with Walmart is helping the Group better serve Indian customers and accelerate its growth with products and solutions that solve real problems in the country. These include supply-chain infrastructure that is disrupting the industry to benefit local consumers, suppliers and manufacturers.

Delhi, Mumbai and Bangalore Remain Top Job Creators in India: Shine.com Jobs Report

IT/Software, Education/Training and BFSI sectors have shown promising growth since 2018; Delhi, Mumbai and Bangalore remain top job creators in India

3rd, May 2019: In a bid to study the current dynamics of the jobs landscape, Shine.com, the second-largest online job portal in India, recently mapped the key growth areas in terms of hiring in April 2019 vis-à-vis last year. Leveraging its vast pool of data, the job search platform released its April Jobs Report that studies the sectors, functional areas and cities that are creating maximum jobs this year, in comparison with 2018.

Industry-wise growth in jobs:

An industry-wide demand analysis highlighted that the booming IT/Software sector reigns supreme by continuing to create the maximum jobs in the country. In a surprising development, however, the BPO/ Call Center industry has dropped down several places, forfeiting its 2nd position on the list to the Manufacturing industry, which has shown promising growth. Further, the BFSI and Education/Training industry has witnessed increased jobs creation, allowing them to retain their top spots in the list.

Functional areas displaying high caliber:

In terms of functional areas, the Production, Maintenance and Service sector has shown the most exceptional growth, shifting to the number one position on the top 10 list. As the manufacturing industry gains significant scale in the country, the sector’s shift to the top spot is not surprising. As the Hospitality industry in India continues to boom, the Restaurant/Hotel sector has earned a place on the list of top job creators. Additionally, with more and more professionals focusing on upskilling/reskilling themselves for new-age job roles, the Education, Training, and Language sector has also registered a significant the uptick, appearing high on the top 10 list.

In a significant movement, Sales/BD, a domain that created the most jobs in 2018, has dropped down to the 5th position on the list, as several areas such as Production, IT, Quality Testing and Customer Service take precedence over it. Furthermore, the survey registered a slowdown in job creation across numerous domains including Marketing/Advertising/MR/PR/Events, Administration/Front Office/Secretary and HR/Recruitment. These domains, which were a part of the 2018 top 10 list, were dropped out of the list in 2019 due to this slowdown.

Speaking on the changing trends, Zairus Master, CEO, Shine.com, said, “The increased focus on technological deployment across industries has truly accelerated the growth of job opportunities. We are witnessing a substantial increase in jobs in domains such as IT, education, training and language, and restaurant/hotels. While metro cities such as Bangalore and Delhi continue to flourish as top job creators, it is interesting to note the increase in job opportunities for professionals in tier 2 cities like Jaipur and Chandigarh,  a trend that will continue in the years to come.”

Top performing cities:

In a city-wise analysis, Shine.com found that Bangalore, Mumbai and Delhi have retained their position as the top job creators in the country. While metro cities are absorbing maximum professionals, substantial growth in jobs is also being witnessed in tier 2 cities such as Chandigarh and Jaipur, proving that Tier 2 cities are also beginning to stake their claim in the jobs landscape. The high talent demand from emerging cities is expected to continue as these regional hubs accelerate technological deployment only to create a plethora of new, high-value jobs for skilled professionals.

Vodafone Idea Limited Strengthens Relationship with IBM to Drive Synergy and Enhance Customer Experience

Vodafone Idea Limited ("Vodafone Idea") announced signing a multi-million-dollar five-year agreement with IBM to deliver an enhanced customer experience to millions of connected consumers and businesses in India. In addition, this engagement will also contribute to Vodafone Idea’s merger synergy objectives by reducing its IT related costs.

The collaboration will provide Vodafone Idea with a hybrid cloud based digital platform to enable more intimate engagement with its over 387 million subscribers (as of December 31, 2018), enhancing business efficiency, agility and scale plus simplification of its business processes. We believe that this new infrastructure platform will remove constraints to the exponential growth of data usage driven by increasing consumption of video, streaming and digital commerce.

Vodafone Idea is collaborating with leading global technology partners including IBM to deploy new age technologies with built-in customizations and novel innovations. We believe that use of IBM’s Hybrid and Multicloud, analytics and AI security capabilities will accelerate Vodafone Idea’s progression to an open, agile and secure IT environment. It will also provide a platform for fast-track joint initiatives in AI and IOT.

“Delivering better customer experience through digital medium is one of the focus areas for Vodafone Idea, said Balesh Sharma, CEO, Vodafone Idea Limited, speaking about the renewed strategic relationship with IBM. “This five-year collaboration with IBM, opens new opportunities for us to partner together in domains like cloud, AI and IoT.  We will also be able to leverage collateral from the cloud partnership already announced between Vodafone and IBM in Europe. Achieving synergies post-merger from the combination of Vodafone India Limited & Idea Cellular Limited is a strategic priority for us and we continue to be ahead of track.”

All of Vodafone Idea’s customers, from consumers to enterprises, will have to embrace the challenge of digital disruption over the next years. We believe that this agreement builds the foundation for both companies to address these emerging opportunities, while ensuring a continued high level of service for its customers.

IBM will continue to seamlessly deliver enhanced services for Vodafone Idea leveraging its prior capabilities with Vodafone India and Idea Cellular. It will consolidate applications, and infrastructure including Data centers, Disaster Recovery Centers, and further accelerate existing Cloud usage. Solutions deployed by Vodafone India Limited and Idea Cellular Limited earlier will be merged and big data capabilities be enhanced.

Vodafone Idea will also leverage Dynamic Automation and Robotic Process Automation to drive efficiency and standardization across IT operations. AI and machine learning based Cognitive Solutions aim to provide Vodafone Idea with a secure environment ensuring regulatory compliance, intelligent threat detection, and data protection.

IBM is also supporting Vodafone Idea with an option of extended flexible payment plan structure for the term of the contract through IBM Global Financing, its wholly owned subsidiary.

Cinépolis Announces 90% Off on the Student Combo in Collaboration with Paytm and ‘Student of The Year 2’

Cinépolis, India’s 1st international and the world’s 2nd largest movie theatre circuit in terms of attendees has collaborated with Paytm and ‘Student Of The Year 2’, to provide an exclusive offer on the popular Student Combo. The blockbuster offer was announced in the presence of the supremely talented and spunky star cast of the much-awaited release, ‘Student Of The Year 2’. The excitement was heightened as the vibrant actors unveiled the second song of the movie.

Cinepolis in sync with the popularity of the sequel ‘Student Of The Year 2’ has curated this initiative to enhance the movie watching experience for the movie buffs. Tickets for ‘Student Of The Year 2’ can be exclusively booked via Paytm to avail the 90% off on the Student Combo. The offer will be available from 10th to 12th May, with advance bookings open from 5th May onwards, across 20 cities. The offer has been customized in line with Cinepolis’ constant endeavor to engage their patrons with interesting initiatives.

Devang Sampat, Director – Strategic Initiatives, Cinépolis India said “We constantly look out for enticing offers that will not only ease the accessibility to watching movies but also truly enhance the experience. Given that ‘Student of the year-2’ is anticipated to be one of the biggest release of 2019, we want to add to the excitement of the experience by providing the most demanded combo at an unbelievable price. We look forward to our patrons availing the exclusive offer.”

Siddharth Kadam, Head of Marketing, Dharma Productions added, “We have partnered with Cinépolis to create an exciting offer for all students. SOTY2 is an anticipated franchise film and we feel the student combo offer, available India wide, across Cinepolis theatres, will be like icing to their Summer movie delight. Hope the students enjoy the film and the combo!”

Cinépolis understands the importance of a quality culinary experience and thus focusses on constantly innovating their offerings. A new lip smacking menu handcrafted by the celebrated Chef Saransh Goila was recently launched to advance the premium immersive experience for its patrons. Adding to its list of initiatives for foodies, the blockbuster offer available on Student Combo can availed through bookings on the Paytm website https://paytm.com/  and App.

AI Technology Adaption will Face ‘Iron Triangle’ in Healthcare Test to Prove its Worth

By Sanjay Pathak - Head Healthcare and Insurance Solutions, 3i Infotech

Looking at the upcoming trends globally and across industry ‘Artificial Intelligence/Machine Learning (AI/ML)’ tops the charts. Generally, first thing which comes to mind is machine/cyborg taking over human elements and this has been depicted to various degree in many sci-fi movies. While, the reality is far away from that, it will be unjust to ignore how healthcare is evolving and adopting AI in real life to reduce cost and improve patient outcomes.

In current context, AI means simulation of human elements by machines/computers, where they acquire information (learning), process it to reach reasonable conclusions (action) and adapt themselves to situations (course corrections). AI leverages various technologies like Machine/Deep learning, Vision, NLP, Robots or autonomous machines etc.

As per Gartner, most organizations are in early stage of AI adoption. Only around 6% have it in use and more than 60% organizations are still trying to understand it. It will take a while before real benefits of AI can be leveraged. Below are areas where AI has already made its way or can bring in difference in future.

Leveraging vision, deep learning on sensor based vital data, physicians will be better equipped to diagnose ailments. Medical imaging can be taken to new levels where AI on top can accurately diagnose and in some cases even predict diseases. Blood smears will use vision to count cells and anomalies. ECG & cardio data can pass through AI to predict outcomes and assist physicians in accurate diagnosis.
Hospital re-admission has been a grave concern and millions wasted due to lack of post operation care. AI can help predict situation like this and can assist providers take extra precautions.
Based on the patient case and required procedures, AI can help in planning surgery, help doctors in accurate measurements, and assist during surgery by tracking vital and other data. AI can help surgeons understand surgery outcomes better based on correlations from similar cases.
Using NLP and vision, AI can assist doctors with diagnosis, running pharmacy correlations with other drugs, allergy, food etc. AI can help physicians with transcripts and voice assisted case management. All these integrated with EHR system will bring in the best of the best values.
Virtual health assistants are tools like chat bots or a conversational service using smart speakers helping customer answer health related quires, symptoms checker or assist them with appointments etc.
AI can assist hospitals in better management of assets, emergency management and better planning of the hospital processes and functions.
In the field of telemedicine, AI can bring wonders by enabling accurate remote health monitoring, predictive diagnosis leading to cheaper & effective remote/rural health management.
If we flip to other side of healthcare, i.e., ‘insurance’, AI can bring many value added services together with care side to bring down the overall healthcare spending globally.

Outcome, risk and cost comparison for similar cases in different hospitals/cities will help insurance companies compare cost and better optimize the plans offered and their premiums.
Predictive element of care can assist providers in better reach out to patients and proactive care management, which can save significant amounts for both sides.
Predictive AI for care, claims and other information can also help providers come up with health plans, which are cheaper and more effective.
AI systems can sift through clinical and claims data to highlight errors in diagnosis, payments, frauds and workflow issues, thus providing a true value based care system.
The real test for AI system will depend on solutions’ ability to integrate with the hospital or doctors’ workflow. AI systems should not be perceived as extra process, as that will reduce the value such systems can potentially bring. Adoption of AI in healthcare, both clinical and insurance will be slow and will face some challenges like:

Ethical concerns due to reduction in Hu element - who takes the liability for a negative event?
Regulation & compliance will play a big role in adaption of AI as they will govern the process and procedures that are followed.
Initial adoption both by physicians and patients will see hiccups mostly related to trust factors, till the time both parties build confidence in such systems.
Lack of requisite skillsets for technology adoption, followed by trainings of end users.
Finally, AI or any new age technology adaption will face ‘Iron Triangle’ of healthcare (access, quality, and cost) test to prove its worth. For an industry which has always lacked skilled manpower to manage everyone’s health, AI can do wonders in times to come.