Why Accenture’s Steady Revenue Guidance Bodes Well For Indian IT Companies

Accenture Plc aims to maintain its revenue growth in the year ending August 2020, indicating that the impact from global headwinds, such as the U.S.-China trade war, may be minimal. That bodes well for the Indian IT companies.

The New York-listed IT firm, which follows the September-August fiscal year, has guided for 5-8 revenue growth in FY20 on the back of a strong order book for its outsourcing business. Accenture’s overall deal-booking in the quarter ended August rose to a record $12.9 billion, according to Edelweiss Securities estimates.

Accenture Q4 Results FY19: Highlights (year-on-year)

• Revenue grew 5.3 percent in dollar terms to $11.05 billion.
• Revenue growth was 7.2 percent in constant currency terms—at the higher end of its 5-8 percent revenue guidance.
• In sequential terms, revenue declined 0.4 percent.
• Operating margin expanded 20 basis points to 14.2 percent
• Earnings per share increased 10 percent to $1.74.

Its Indian peers, however, have registered higher revenue growth in key segments.

While revenue of Accenture’s digital cloud and security solutions arm grew at 20 percent in the year ended August 2019, the corresponding growth rates for Tata Consultancy Services Ltd. and Infosys Ltd. for the year ended March 2019 were 48 percent and 32 percent, respectively.

That, according to Goldman Sachs, implies market share gains for Indian IT companies as they have the added advantage of lower cost-per-employee compared to their global peers.

However, tepid revenue growth of Accenture’s financial services unit—which rose 4 percent year-on-year—could pose downsides for its Indian counterparts, for whom the vertical is the largest sources of revenue.

TCS and Infosys have been talking about volatility and have of late indicated softness in their BFSI (banking financial services and insurance) portfolio, Morgan Stanley said.

According to Edelweiss, Accenture’s growth has been broad-based with its strength lying in North America, the largest market for Indian IT companies as well. “Europe for now is the only geography that lags.” That, Edelweiss said, corroborates their “stance that the slowdown in the (BFSI) segment is limited to a few top clients”.

Accenture, however, is betting on “improvement in its capital markets business”, said Morgan Stanley.