Cognizant explores India IPO, listing to make it India’s 2nd largest IT company

“Cognizant’s board and management team regularly assess opportunities to enhance shareholder value. Towards this end, we have been assessing a potential primary offering and a secondary listing in India, with our legal and financial advisors,” chief financial officer, Jatin Dalal told analysts in a post-earnings interaction.

The company, which ended last year with $19.74 billion in revenue, has over two-thirds, or 241,500, of its employees in India.

For now, a public listing in India is a long-term project.

“We view this as a long-term project. While no decision has been made and any offering and secondary listing would be subject to market and other factors, we continue to assess and review the idea, and are committed to acting in the best interest of our shareholders,” said Dalal.

For now, only Bengaluru-based IT titans Infosys Ltd and Wipro Ltd have their shares listed in both the US and India, and an India listing would make Cognizant the third.

Valuation gap

At the heart of an American firm like Cognizant looking to list its shares in India despite all IT services firms getting over 90% of their business from outside India, is the better valuation in the country. Cognizant‘s current price-to-earnings ratio is about 13, while homegrown IT services firms like Tata Consultancy Services Ltd and Infosys Ltd trade at 22-23 times.

“India is always a very richly valued market compared to global markets, and similar companies and businesses in India trade at a far higher multiple than they do globally,” said Shankar Sharma, veteran market investor and founder of GQuant Investech, a wealth management firm. “So if you look at food delivery companies in the US or the UK and compare them to Zomato, you will understand, and the same goes for all the FMCG companies, also and for automotive companies. So, it is highly possible that Cognizant is looking at a valuation arbitrage,” Sharma added.

Cognizant’s potential India listing also follows the February 2025 public listing of Carlyle-backed Hexaware Technologies Ltd. Hexaware was the second IT services firm to do so after Ashok Soota-founded Happiest Minds Technologies Ltd, which listed on the bourses in September 2020.

Dalal’s comments came as Cognizant reported better-than-expected performance in the July-September period, with revenue growing at the fastest pace in four quarters, primarily due to faster growth in the IT products and platforms and energy resources business.

Cognizant, which follows a January-December calendar year, ended the third quarter with $5.42 billion in revenue, up 3.24% sequentially and 7.36% year over year. With this, the company beat analyst estimates, as a Bloomberg poll of 25 analysts expected Cognizant to report $5.32 billion in revenue for the third quarter.

The management sounded cautious about the demand environment, as visa-related uncertainties and changing tax laws in the US force clients to hold back on non-essential tech spending.

“With respect to the demand environment, trends in Q3 were consistent with the last quarter. Clients across industries are navigating elevated levels of uncertainty around trade policy and the resulting impact to their businesses,” said Dalal. “We are also seeing clients carefully evaluate technology investments, which is resulting in a lower pace of discretionary spending in certain areas, like products and resources,” he said.

This was in line with Indian peers who called out lingering uncertainty.

Infosys CEO Salil Parekh has said the environment remains “uncertain.”

“What we see today is some changes in where the global environment, the macro is looking. We still see in some of our large markets that there is growth, but there’s also some inflation, job creation which is constrained. In some other markets, there are cost constraints. Some industries are seeing that. So that’s a mix,” Parekh said at the company’s post-earnings press conference on 16 October.

Growth outlook

Cognizant raised its full-year revenue guidance from the prior quarter. It now expects revenue of $21.05-$21.1 billion for the full year, translating to 6.6%- 6.9% annual growth, up from the earlier range of 4.7%–6.7%. This marks the third consecutive quarter that the company has raised its full-year guidance.

While growth is slowing in constant currency terms, Cognizant’s reliance on acquisitions has decreased, and its organic growth has consequently improved. Cognizant reported 8.2% year-on-year growth in the January–March period, 7.2% in the April–June quarter, and 6.5% last quarter. Constant currency does not account for currency fluctuations.

Much of this growth came from acquisitions in the first half of the year. Growth from its Belcan and Thirdera acquisitions contributed 4% in Q1, and Belcan alone added a similar share in Q2. However, in the last quarter, the Belcan acquisition accounted for 2.5% of its growth, suggesting that the reliance on acquisitions is declining, allaying investor concerns that growth was driven by acquisitions.

Cognizant acquired Ohio-based Belcan last August for $1.3 billion. The engineering and development services firm derives more than three-fourths of its revenue from commercial aerospace, defence, and space sectors, with 40% coming from US federal contracts. Certain analysts are concerned that Belcan’s growth may slow due to US government spending cuts.

However, concerns mounted over its net profit, which declined by more than half on a sequential basis to $274 million, on account of higher one-time income tax expense, mostly due to the US President Donald Trump’s One Big Beautiful Bill Act, signed into law on 4 July.

Operating margin jumped 40 basis points to 16%. Much of this was caused by a depreciating Indian rupee and disciplined expense management. This increase was in line with trends seen across the sector. TCS, Infosys, and HCL Technologies Ltd reported operating margins of 25.2%, 21%, and 17.4%, up 70 basis points, 20 basis points, and 110 basis points, respectively.

The Indian heritage company ended last quarter with 349,800 employees, up 6,000 from the previous three months. The increase in headcount comes after US lawmakers have clamped down on hiring practices, and TCS cut its headcount by almost 20,000.

On 24 September, Republican senator Charles E. Grassley and Democratic senator Richard J. Durbin targeted several companies, including TCS and Cognizant Technology Solutions Corp., for their hiring practices. The senators wrote joint letters to Cognizant CEO Ravi Kumar, seeking responses on allegations of race-based discrimination and substitution of American workers with low-cost H-1B employees.

The management pointed out that it was not impacted.

“Cognizant has significantly reduced the dependency on visas while increasing local hiring and our nearshore capacity. We also kept up our investment in automation in AI productivity tooling. We, therefore, do not expect a material impact to our operation or financial performance in the near term, as a result of the recent policy changes in the US,” said Dalal.

Cognizant was the seventh-largest beneficiary of the H-1B programme, which allows highly skilled, non-immigrants to work in the US on a temporary basis. The company got 2,493 H-1B approvals as of June this year, according to US Citizenship and Immigration Services data.

Investors cheered the company’s results, with Cognizant shares opening 6% higher on the Nasdaq at $71.92 as of 7:22 pm Indian Standard Time.