Published on 23/09/2022 12:24:48 PM | Source: ICICI Securities Ltd

Update On Accenture Ltd By ICICI Securities

Posted in Special Event Reports| #IT Sector #Accenture #ICICI Securities #Company Result

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Read through for Indian IT- Rough road ahead

Accenture (ACN) started FY23 (ending Aug’23) with lower than expected guidance for Q1FY23 as well as for the full year factoring-in the impact of a challenging macroenvironment. Q1FY23 revenue guidance stood at US$15.2bn-15.75bn, +10-14% YoY CC, much below Bloomberg consensus estimate of US$16.1bn. For the full year, ACN expects to deliver 8-11% YoY CC revenue growth, including 2.5% inorganic contribution, and assumes foreign exchange impact to be at a negative ~6%. This implies 2-5% YoY USD growth, much below Bloomberg consensus expectations of 8.3%.

ACN reported 22.4% YoY CC (15% YoY USD) revenue growth to US$15.424bn, near the top-end of guidance, in Q4FY22. However, YoY revenue growth further decelerated for the consulting (22% YoY CC) whereas outsourcing revenue growth remained stable at 23% YoY CC. Management expects consulting revenue growth to moderate in Q1FY23 as well to high-single to low double digits, and outsourcing growth to be in double digits. Surprisingly, geography-wise, growth was led by Europe at 26% YoY CC while the US business grew 18% YoY CC. In terms of verticals, growth was led by communications & high-tech (23% YoY CC), products (25% YoY CC) and financial services (22% YoY CC). However, there was further moderation in YoY growth rates across verticals and markets compared to last quarter.

ACN reported strong deal bookings worth US$18.4bn (22% YoY USD, 31% YoY CC) led by outsourcing bookings at US$9.9bn (39.4% YoY) and book-to-bill ratio at 1.4. But consulting bookings growth was soft at 5% YoY to US$8.4bn, book-to-bill at 1, accounting for 45.7% of total bookings. Consulting bookings contribution to total bookings fell below 50% for first time in last 8 quarters. Slowing consulting bookings growth and consulting revenue growth imply lesser demand for discretionary spends. Management mentioned that within consulting, strategy & consulting part is expected to grow at low single-digit in Q1FY23.

Net headcount addition remained soft at 10,947 (+2% QoQ) vs ~40k quarterly run-rate from Feb’21 to Jan’22. It used to be 8k-10k per quarter pre-covid. This is the second consecutive quarter of low headcount addition despite attrition staying at elevated levels of 20% (quarterly annualised basis). It also signals the company’s cautious outlook given the uncertain macro-environment. We expect similar moderation in hiring for Indian IT services as well. Focus on cost optimisation continues in the consumer goods industry. Management mentioned that the Healthcare Provider companies too are now focusing on cost optimisation.

ACN reported operating margin of 14.7%, +10bps YoY in Q4FY22 and 15.2% for FY22, in line with the guidance. Management provided margin guidance of 15.3%-15.5%, +10-30bps YoY, for FY23. Management mentioned that it expects wage inflation to continue in FY23. Plus, it expects the currently tight labour market conditions to persist in the near term. Given this backdrop, we expect margin pressures to continue for Indian IT services.

We maintain our underweight stance on Indian IT sector and prefer stocks that are less vulnerable to slowdown and have the potential to continue gaining market share even in business downturns.


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