The IT firm upgraded its guidance by 450 basis points, in addition to 700 basis points in the previous quarter, suggesting no impact of Russia-Ukraine war yet and healthy quarterly numbers ahead for domestic IT firms.
But a muted margin expansion forecast and a fall in net hiring could be a cause of concern.
Leading the growth
To be sure, Accenture has seen accelerated market share gains in FY20-FY22 compared to TCS and Infosys, indicating that its capability set is probably seeing greater market traction. Accenture today is talking about 3 times industry growth in recent days versus 2 times in the past.
“While the narrative among Indian IT players has been about mid-sized and more importantly small-sized deals over the last 12 months, the record signing of over $100 million deals in Q2FY22 indicates Accenture is gaining even greater share in mid & large deals, which are probably complex, multi-service line deals and which involve business transformation,” Nirmal Bang said.
Strong revenue guidance
Accenture reported Q2 revenues at $15 billion, up 24 per cent YoY in dollar terms and up 28 per cent YoY in local currency. The figure was above the company guidance of $14.3-14.75 billion. Dollar revenue growth came in at 0.5 per cent sequentially.
The IT firm said its consulting bookings grew 36.3 per cent YoY, up 16 per cent sequentially. Outsourcing bookings were up 8.7 per cent YoY, up 17.6 per cent QoQ.
The third quarter (December-February) dollar revenue growth guidance came in at 4.3-7.3 per cent sequentially (18.4-21.8 per cent on YoY basis and 22-26 per cent YoY in local currency).
“With this the total increase amounts to a massive 12 percentage points over the last two quarters, as Accenture continues to gain from the demand for cloud transformation. The broad-based, double-digit growth and an all-time high deal bookings provide good demand visibility for IT services,” said Motilal Oswal Securities.
The FY22 organic guidance was upgraded to 19-21 per cent YoY in local currency from 14-17 per cent, while the total guidance was raised to 24-26 per cent in local currency against 19-22 per cent earlier. Inorganic contribution is seen at 5 per cent.
On the EBIT margin, Accenture has forecast an improvement of 10 bps in FY22 over FY21 compared with an earlier guidance of 10-30 bps.
Fall in hiring
Overall headcount increased by nearly 25,000 to 699,000 while he quarterly voluntary attrition (annualised) increased to 18 per cent from 17 per cent last quarter. Utilisation rate stood at 92 per cent.
Nirmal Bang noted that there was a significant deceleration in net hiring in Q2FY22 and if it is a trend, it could portend slowdown in revenue growth beyond FY22.
“This deceleration is a bit odd in the context of record order inflow, high utilisation, elevated attrition and the fact that most new orders tend to have faster conversion times. We had highlighted in our past notes that Accenture had hoarded talent with 50,000+ net hiring for two straight quarters, putting pressure on the supply eco-system in India,” it said.
Adding the lowering of margin guidance points to greater-than-expected short-term supply pressure despite Accenture being in a position to wield greater pricing power vis-a- vis many of its Indian IT peers.
“In this context, the gentle upward tilt in consensus margin estimates for FY23 vs FY22 for the Indian IT players may have to be relooked at. Net-net, we think the Accenture results present a mixed picture for the Indian IT players,” Nirmal Bang said.
What analysts said
Nomura India said it remains positive on the demand outlook for India IT services and expects the growth rate in the medium term to be 1.5 times of pre-pandemic levels.
“In large-caps, our top picks are Infosys and Wipro. In mid-caps, our top pick is Persistent,” it said.
Edelweiss said Accenture’s outsourcing growth remains high and bookings also remain strong, which bodes well for Indian IT services companies.
It prefers HCL, Infosys and TCS among the large-caps and Coforge, LTI and Mindtree in mid-caps and Zensar, Birlasoft and Firstsource among smallcaps.
“With strong bookings, robust pipeline, strong guidance upgrade, optimistic demand commentary and no impact of Russia-Ukraine crisis on business (yet), provides strong visibility for the Indian IT Sector. We maintain Buy on TCS, Infosys and Wipro among Tier I and Mindtree, Mphasis, Persistent, LTI and Coforge among Tier II,” said Phillip Capital.
