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Bharat Kumar
Raja Simhan T.E.

CHENNAI, June 15

AT a time when companies are shying away from providing guidance figures (that tell you what to expect on the financials front at the end of the quarter) Cognizant Technology Solutions has revised its guidance upwards - it expects $84-86 million this quarter ending June 2003, against an earlier estimate of $82 million. It has already revised its revenue estimates for its year ending December 2003 from $300 million to $305 million-$330 million.

Moreover, it is saying all the things that analysts love to hear, and the company does not seem to be facing any pricing pressure. That means that there is no pressure on the company from its customers to lower its service fees. So what makes Cognizant tick? Business Line met up with the company's President and Chief Operating Officer, Mr Lakshmi Narayanan, for an update. Excerpts from the chat:

Your average billing rate is $24 per hour per person. How have you been able to manage this? What is your floor price?

We have no large, highly priced customer. We have never hiked prices steeply even during those good times. So, customers are able to accept our average rates, which have remained stable over time. Clearly, customers do not change vendors for saving a few basis points. Also, we do not stipulate a floor price. As long as we have a reasonable average price, we don't need to get down to a floor price. Our onsite salaries have traditionally been higher. We have always paid our personnel salaries comparable with competition within the US. So, we cannot afford low billing rates.

Does that mean you haven't had clients renegotiating prices?

Yes. For instance, if there is a shortage in SAP implementation skills, I could not have possibly gone to the customer to raise rates. Similarly, if there were a glut, he wouldn't come back to lower rates.

But does the presence of advisory firms now pose a problem to the industry? There is sudden talk of such firms urging clients to renegotiate prices downwards.

Outsourcing advisory firms have been around for a long time. There is nothing new in the role that they perform. Some offer consultancy and research, and merely guide clients on how to go about outsourcing. Others actually help clients draw up outsourcing contracts. Instances of renegotiation are far and few between and cannot be generally attributed to advisory firms.

Your company has been able to give a larger than expected bonus last year. Your comments?

There have been no changes in compensation in the last two years, except one. That is, we brought in the variable component in salaries to the lower rung also, as against an earlier model which saw variable components for middle and higher-level managers alone. Much of last year, the fixed portion of salaries didn't vary much. But at the end of the year, with revenues being healthy we offered the bonus. So, salaries, technically, jumped some 10 per cent. The current year appears to be as good as last year. On geographical differences in compensation, we usually see a lower rate of increase in salaries for US operations. For, salary jumps are based on inflation rates, which are lower in the US.

Cognizant announced its plans to hire about 1,000 more people this year. How have your utilisation rates been?

There has been no big change in the rates recently. Utilisation rates are seasonal - they slump between September and March due to intake of trainees and peak between April and August. The last quarter, the average rate was about 60 per cent.

Has your revised guidance for the quarter been possible to any new orders or due to expansion of existing projects?

Both. However, relationship expansions contribute a majority to the additional chunk of revenues.

How have your sales, general and administrative expenses fared? What have you done to cap them?

Our SG&A has remained flat over the last three to four quarters. Last year, it was about 23 per cent of revenues. We have for some time invested on the sales front. So there is no additional pressure to do more of that now. However, with our plans to move into our own space, we will save a bit on expenses due to leasing space and infrastructure.

Can you give us an idea of the large requests for proposals floating around?

Obviously, I can't name names. But there about three to four orders - all in the US - with order sizes of $10 million annually.

Does the rupee strengthening against the dollar pose problems since you have a huge exposure to dollar?

About 82 per cent of Cognizant's revenues are in dollars. But we don't need to convert our revenues. What we need to look at is how much we spend in rupees. The impact is not significant since our expenses are roughly only 25 per cent of revenues.

We are led to believe that in Europe, Indian firms do not figure too prominently in RFPs. Is this accurate?

Of late, US firms have been beating European vendors in securing orders in Europe. A spate of large acquisitions has made things uncertain for European vendors. So, this is an opportunity for India to position its offshore centric model.

Do clients insist on vendors having an offshore-onsite model so that rates come in at levels they like?

Many customers are asking for this. All other things being equal between two competing vendors, a client would obviously favour one with the offshore model.

On the BPO front, how active are you? Media reports talk of acquisitions but nothing concrete has emerged. What are you looking for and where exactly do talks break down?

We are actively evaluating acquisitions. We are looking for capability among BPO firms. Then, we also look if that is sustainable across clients and over time. So, we look for a factory that can scale up.

Which means that there isn't too much choice here?

Yes. So, we are open to options in other countries such as the Philippines or the US.

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