Accenture’s Q3 Beat Bodes Well For Indian IT, High Attrition A Concern: Analysts
Accenture saw its revenue rise 27% over the year earlier to $16.2 billion in constant currency terms.
Accenture Plc’s higher-than-expected growth in the third quarter, hike in revenue growth guidance for the ongoing fiscal and healthy deal bookings indicate better demand outlook for the Indian IT peers, but high attrition is a key concern, according to analysts. Most of them prefer Infosys Ltd. among the large-cap tech firms.
The New York-listed firm—which follows the September-August fiscal—saw its revenue rise 27% over the year earlier to $16.2 billion in constant currency. Revenue growth in the consulting segment was 30% year-on-year, while outsourcing clocked 23% growth in constant currency.
Accenture raised its revenue growth guidance for FY22 from 24-26% to 25.5-26.5%.
The company’s focus on cost savings is another positive for Indian IT firms as cost optimisation is a key driver of offshoring, analysts said.
The Nifty IT Index, however, declined almost 1% on Friday even as the Sensex and Nifty gained nearly 1%.
All the 10 constituents of the Nifty IT fell, with Mindtree Ltd. seeing the worst drop. The large caps lost less than 1%.
Here’s what brokerages have to say about Accenture’s Q3 FY22 earnings and the potential implications for Indian IT:
ICICI Securities
Sees clear signs of moderation in YoY revenue growth rate across verticals and U.S. geography as well.
Believes that slowdown in headcount addition, decrease in book-to-bill ratio and moderation of revenue growth point at normalisation of growth momentum for the I.T. services sector.
Believes revenue momentum is likely to slowdown in H2FY2022-23 for Indian I.T. services due to delay in new projects.
Expects attrition to remain at elevated levels due to wage hikes and margins to remain muted due to high onsite wage inflation for Indian I.T. services sector.
Reiterates 'underweight' stance on Indian I.T. services.
Believes deployment in I.T sector to be very slow and gradual due to macro uncertainty.
Prefers TCS in largecap and Coforge in midcap.
Motilal Oswal
Accenture reported a better-than expected Q3, with revenue growing 27% YoY in constant currency terms.
The company upgraded FY22 revenue growth guidance by 100 bps.
Weak employee addition and moderation in deal bookings are major concerns for the sector despite strong revenue growth.
The company reported strong growth in consulting as well as outsourcing segments.
Management did not indicate any slowdown in demand due to the weakening macro environment.
The company expects a shift in spends toward cost savings compared to growth focus.
Views the shift in spends toward cost savings as a positive for Indian IT services peers as cost optimisation is a key driver of offshoring.
Expects impact of price hikes to support margin, with a lag.
Accenture’s commentary implies that the demand environment remains positive and weakening macro environment has not yet started hurting growth in the IT sector.
Maintains positive stance on the IT sector and expects sustained growth with stable margin.
Identifies Infosys, HCL Technologies, Tata Consultancy Services as preferred picks within the Indian IT space.
Jefferies
Accenture’s Q3 revenue growth of 27% YoY beat estimates.
Healthy deal bookings with pricing increase and 50-150 bps increase in FY22 revenue growth guidance indicates strong growth outlook for the sector.
Supply-demand mismatch is easing as exemplified by moderation in net hiring and fall in utilisation.
Prefers Infosys given its strong growth outlook.
Accenture’s broad-based growth across all verticals indicates strong demand environment in the sector.
InCred Equities
Accenture’s Q3 revenue beat driven by growth across segments.
The company logged double-digit growth in strategic priorities of cloud, IndustryX, interactive and securities segments.
While growth in bookings at 10.3% YoY was healthy, it has moderated significantly from 26% in the last two quarters.
Moderation in growth in bookings is seen across both consulting and outsourcing segments.
While Accenture’s revenue guidance hints at robust demand, moderation in bookings, net employee addition trend and persistent high attrition rate in India are key monitorables, given the uncertainty in macro conditions.
Nomura
Accenture’s Q3 results indicate robust near-term demand with growth in both consulting and outsourcing segments.
The company indicated that cost has become a prominent theme in client discussions.
Order booking remains strong with new bookings at $16.9 billion, up 10% YoY.
The company tightened its revenue growth guidance from 24-26% to 25.5-26.5% YoY, representing 50 bps rise in the upper band.
Accenture’s commentary shows that the demand outlook remains strong, particularly for transformational services and cloud adoption.
Cross-currency could be a material headwind to the reported growth in Indian IT companies.
The attrition will remain high over next few quarters for Indian IT companies.
Recently downgraded Indian IT sector due to expectations of slower revenue growth in FY24F.
Continues to prefer large caps over mid caps.
Infosys and Tech Mahindra remain the only ‘buy’ calls in the sector.
Emkay Global
Accenture's Q3 revenue rose 27% in constant currency terms, ahead of its guided range.
Strong, broad-based growth across industries, services and markets hints at healthy demand environment.
Company's strong Q3 performance and upward revision of revenue growth guidance for FY22 augurs well for Indian I.T. peers.
Healthy growth in both consulting and outsourcing business implies strong demand.
Elevated attrition and volatility in foreign exchange pose challenges to earnings in the near term for the sector.
Pecking order in Indian I.T.: Infosys, HCL Tech, Wipro, Tech Mahindra and TCS among Tier-I names and Mindtree, L&T Infotech, Mphasis, First Source, Persistent, Route Mobile, Birla Soft and eClerx in mid-caps.
Kotak Institutional Equities
Accenture reported a beat in Q3 revenue growth, beating upper end of guidance.
Order book growth was good but lower than revenue growth at 15% in constant currency terms.
Management expects strong booking and revenue growth to continue in Q4.
Believes that the immediate impact of deteriorating macro environment is not visible from the results.
