Cognizant eyes margin improvement up to 80-180 bps in FY2021

Bengaluru, 6 February Cognizant Solutions eyes to improve its operating margin by 80-180 basis points to 15.2-16.2 percent in 2021 from 14.4 percent reported in FY2020 on the back of improving revenue momentum, cost savings initiative, and gradual recovery in the financial services segment.

The Teaneck, US-headquartered firm, which has a major chunk of its employees in India, witnessed a dip in its operating margin in FY2020 as it exited one of the large contracts, wage increases, and investment in organic & inorganic revenue growth. The company follows the January-December financial year cycle.

"We expect full-year adjusted operating margin in the range of 15.2% to 16.2%. We expect margins to be at the low end of that range and to operate within the range each quarterly period for the full year," said Jan Siegmund, Chief Financial Officer of Cognizant Solutions in a recent analyst call post announcement of its earnings.

The financial services vertical, which is the largest for Cognizant, declined by four percent on year-on-year basis to post revenue of $5.62 billion in FY2020. The dip in this segment was due to the exit of the company from a large financial services contract.

However, Chief Executive Officer of the company Brian Humphries said that the downside from the financial services segment was over in FY2020, and performance from this vertical would improve in FY2021.

"From an industry point of view, we believe financial services will see a gradual recovery in 2021, returning to growth over the course of the year, notwithstanding the anticipated exit of the engagement (from the contract)," Humphries said.