Revenues surge 10%QoQ to USD1,217mn, outperforming its guidance by 3.6%. Full year revenue guidance for CY10 revised upwards yet again; 39%YoY growth to USD4.55bn.

Strong sequential growth despite a stellar performance in Q2CY10: Cognizant reported revenue growth of 10.1%QoQ (42.6%YoY) to USD1,217mn for Q3CY10, outperforming its guidance
of USD1,175mn. These growth rates are despite having a stellar performance of 15%QoQ growth for Q2CY10. This includes pent-up demand for IT services which appears to come to and end in
this quarter, according to the management.

Broad based growth across verticals. BFSI vertical grew 10.5%QoQ (42.8% contribution) on the back of strong demand for regulatory and compliance work, healthcare vertical grew 7.4%QoQ
(24.9% contribution) which witnessed traction from life sciences and healthcare insurance clients. Manufacturing & retail and other verticals (telecom, hi- tech and communication) grew
13.3%QoQ and 9.4%QoQ respectively.

Sustainable operating margins in the near term: The operating margin (non GAAP) remained flat at 19.9%. There was a minor uptick of 1%QoQ in onsite pricing which offset the negative
impact of higher employee costs for the margin. Offshore pricing remains flat. The management expects the operating margin (non GAAP) to be in the range of 19-20% for CY10. Pricing is
expected to improve further towards the end of CY10.

Uptick in discretionary spend in US led by pent up demand; healthy client and employee addition: Application development surged 14%QoQ (59%YoY) and now contributes 50% of the
revenues; led by pent up demand for discretionary IT spending. Cognizant added 87 new customers in Q2CY10 to take the active client list to 697. It added 5 strategic clients; the total
number of strategic clients was 160. The net additions in this quarter were 7,000 and total headcount is 95,600 employees at the end of Q3CY10.

Cognizant delivered a stellar performance yet again in CY10. This is led by clients’ focus to increase investments in IT services. Cognizant’s USD revenue guidance of 39%YoY growth
for CY10 is way higher than Indian IT bellwether Infosys which has guided for 24-25%YoY growth in USD revenues. The management is cautiously optimistic about the demand
environment going forward which has led to a conservative guidance for Q4CY10. Infosys’ revenue growth guidance for Q3FY10 is in the range of 3.4-4.4%QoQ.

The increased demand for offshoring will continue to boost volumes for the entire top tier IT vendors. We have revised our target price upwards for most of the tier-1 Indian IT vendors in this
quarter. The improved revenue visibility and large deal pipeline has led to this revision.

Con call highlights

• Europe contributed 18.9% of revenues and grew 14.7%QoQ in reported terms and
11.6%QoQ in constant currency.
• The tax rates for CY10 are expected to be ~16.5%.
• The capex for CY10 is expected to ~USD180mn. Cash was at USD1.9bn.
• Attrition in Q3CY10 was 18.2%.
• Outstanding hedge position of USD165mn at 48.8 (INR/USD) for Q4CY10, USD780mn
(@48) for 2011, USD780mn (@48) for 2012, USD360mn (@50.1) for 2013.