Accenture Q3 Results Review - Confirms Weak H1 FY24 For Indian IT Industry: Nirmal Bang

Nirmal Bang Report

Accenture Plc’s guidance for Q4 FY23 (year ending August) came in lower than expected, leading to FY23 revenue growth guidance getting lowered a tad from 8-10% to 8-9% (200 basis points inorganic). Weak performance in small deals and communications, media and hi-tech vertical led to this cut.

For the first time in many quarters, Accenture hinted at pricing pressure in some pockets and endorsed statements in the recent past by Coforge Ltd.'s Chief Executive Officer (who talked of irrational pricing), Epam, Cognizant and HCL Technologies Ltd. We believe the street is not taking this into account and could weigh on margins in FY24. In our models, we have assumed modest pricing pressure, but we believe this could be a bigger issue as we go into H2 FY24.

Weak exit from Q4 FY23 (possibly 0% YoY constant currency organic growth) will set up Accenture for a weak FY24. While consensus estimates for revenue and earnings for FY24 have been brought down for Indian IT services companies, we suspect there are risks to the strong rebound expected in FY25.

We remain ‘underweight’ on the Indian IT Services sector, especially for the tier-II set whose dependence on ‘small deals’ is quite significant.

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