IGI Logo

Accenture: Robust outsourcing growth

Accenture posted very strong Q1FY22 results and raised its FY22 guidance from 12–15% to 19–22%. Revenue jumped 27% YoY to USD15bn, beating its own guidance of USD13.9–14.35bn and Street’s forecast by more than USD600mn. Operating margin expanded 20bp YoY to 16.3%. EPS stood at USD2.78, up 20% YoY.

Management highlighted that demand remains extraordinarily high. New bookings came in at record USD16.8bn, up 30% YoY. Consulting revenue shot up 33% YoY (USD) to USD8.39bn and Outsourcing revenue spiked 21% YoY (USD) to USD6.57bn. Such robust growth in outsourcing reaffirms our tech upcycle thesis, and we believe it would rub off on Indian IT stocks. Accenture is ‘not rated’.

Strong double-digit growth across dimensions of business

Revenue growth was very strong across industries and services. Cloud, Industry X and Security were the drivers of growth with very strong double-digit growth. Accenture reported North America, Europe and growth markets revenues of USD6.91bn (up 26% YoY), USD5.1bn (up 28% YoY) and USD2.96bn (up 30% YoY), respectively (in CC). Communications, Media and Technology (CMT)/Financial services/Health & Public Services (HPS)/Products/Resources grew 32%/24%/23%/ 34%/17% YoY (In CC). It added 15 new diamond clients, bringing the total to 244, which indicates more complex transformation required by clients.

Solid guidance upgrade in Q1FY22 a big positive

Accenture has raised revenue growth guidance to 19–22% from 12–15%. The company expects operating margin for the full fiscal year to be 15.2–15.4%. For Q2FY22, Accenture expects to clock revenue of USD14.3bn–14.75bn, i.e. 22–26% growth in local currency. Management expects the current demand environment will sustain for many years as only about 30% of companies have completed their cloud migration journey. The company believes the acceleration in the quarter was much higher than what they anticipated, hence they are upgrading the FY22 guidance, anticipating extraordinary demand ahead.

Outlook: Positive for Indian Tech industry

In our latest report dated 15th December, we had highlighted our key findings based on comprehensive ‘Feet on Street’ research: i) Supply-side constraint is real, but the attrition situation is easing off vis-à-vis last quarter. ii) Attrition peak is behind, and we expect attrition rates to edge down to pre-covid levels over the next two–three quarters. iii) Demand continues to be unbelievably strong, and this quarter even furloughs are likely to remain low. Price hikes would thus start showing up in EBIT in Q3FY22 itself.

Accenture’s blockbuster performance and solid commentary support our thesis of robust tech upcycle that would continue for four–five years. We prefer HCL, Infosys and TCS among large-caps, Coforge, LTI and Mindtree in mid-caps and Zensar, Persistent, Birlasoft and Firstsource in small-caps. (Accenture in not rated.)

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.edelweiss.in/disclaimer

SEBI Registration No. INH000000172

Above views are of the author and not of the website kindly read disclaimer