IGI Logo

Accenture 2QFY25 results: A cautious outlook for Indian IT

Guidance tightened to 5-7% CC amid discretionary spending constraints

Accenture (ACN) reported 2QFY25 revenues of USD16.7b, up 8.5% YoY CC (~5.5% organic YoY CC terms), near the upper end of the guided range of 5% to 9%. ACN has narrowed its revenue growth guidance to 5-7% CC (from 4-7% CC) for FY25 (~2-4% organic YoY CC). ACN's top end of the guidance (unchanged) bakes in no recovery in discretionary spending. The results reinforce the cautious sentiment around discretionary spending in IT services, which remains constrained, particularly for smaller deals. As we argue in our 11th Mar’25 report (Recovery stuck in second gear), the expectation that discretionary spending would revive in areas like US Banking, Healthcare, and Hi-Tech due to factors such as rate cuts, a business-friendly administration, and pre-GenAI spending has not fully materialized, as the landscape over the past six months has shifted—US rate cuts appear less imminent, and geopolitical/tariff risks have introduced new uncertainties for enterprises in the US and Europe. ACN's commentary suggests that clients remain focused on cost efficiency and large-scale transformation rather than incremental IT services spending. 

Guidance narrowed to 5-7% (from 4-7%); outsourcing deal wins down 6% YoY

* Revenue performance: Revenue stood at USD16.7b, up 8.5% YoY in CC (~5.5% organic YoY CC terms) in 2QFY25, near the upper end of the guidance range of 5% to 9%. Managed services revenue grew 11% YoY CC, while consulting services grew 6% YoY CC.

* Bookings in 2Q: ACN reported outsourcing bookings of USD10.4b, down 5.6% YoY, while consulting bookings were flat YoY at USD10.5b. The book-to-bill ratio came in at 1.3x in 2QFY25, in line with the average of 1.2x over the past four quarters.

* Revenue guidance: ACN expects 3QFY25 revenue growth in the range of 3% to 7% YoY CC and has narrowed its FY25 revenue growth guidance to 5-7% CC from 4-7% in CC given in the previous quarter. With an estimated FY25 inorganic contribution of ~3%, the organic growth guidance for FY25 stands at 2-4%.

* Vertical-wise performance: Growth was led by Financial Services (11% YoY CC) and Healthcare & Public Services (10% YoY CC), while Products/Communications/Resources verticals grew 9%/6%/5% YoY CC.

* Operating margin performance: EBIT margin was up 50bp YoY to 13.5% in 2Q. For FY25, margin is expected to be in the range of 15.6% to 15.7%, an expansion of 80bp to 90bp YoY.

* Muted headcount addition: ACN workforce growth was flat QoQ at ~801k, attrition increased by 100bp to 13% (vs. 12% in 1Q), and utilization stood at 91%.

Focus remains on cost-optimization, with selective uptick in discretionary spending

* Discretionary spending remains subdued: While there have been some improvements in banking and capital markets, overall discretionary spending remains largely stable. Smaller deals continue to face headwinds due to cautious client budgets. On top of that, macroeconomic and political factors—like tariffs and shifting consumer sentiment—are adding to the uncertainty.

* Managed Services to outperform Consulting business: Management continues to anticipate stronger growth in Managed Services compared to Consulting, with the former projected to grow in the high single digits and the latter in the midsingle digits YoY. In this quarter, Managed Services expanded by 11% YoY in local currency, while Consulting saw a 6% YoY increase. Managed Services bookings stood at USD10.4B (down 6% YoY), with demand largely driven by digital core transformations and AI-driven efficiencies.

* Key verticals driving growth: Growth in 2Q was led by Financial Services (+11% YoY CC) and Healthcare & Public Services (+10% YoY CC), while the Products, Communications, and Resources verticals grew 9%, 6%, and 5% YoY CC, respectively.

* Banking and capital markets, particularly in the Americas, performed well, with early signs of an uptick in discretionary spending. That said, the broader landscape remains tough, as companies continue to focus on cost take-out deals and efficiencies rather than making new discretionary IT investments.

GenAI to act as a catalyst going ahead

* ACN is seeing good traction from clients on GenAI. GenAI continues to be a catalyst for reinvention initiatives across the enterprise and building out the data foundation necessary to capitalize on AI.

* In 2Q25, ACN secured USD1.4b in new GenAI bookings and generated ~USD600m in revenue from AI initiatives (For context, ACN generated USD900m in GenAI revenue in FY24). The company is actively expanding its AI and data workforce, which now stands at ~72,000 employees, progressing toward its goal of 80,000 by FY26. ACN expects GenAI adoption to accelerate further in FY25, as clients prioritize AI-driven efficiencies and innovations.

* A strong data foundation is essential for scaling AI capabilities, and ACN is seeing increasing demand for data modernization, security, and cloud infrastructure. We believe that companies that have already invested in data engineering and security frameworks are in a better position to integrate GenAI at scale— leading to more automation, streamlined operations, and greater efficiency.

Key highlights from the management commentary

* Recent macroeconomic and geopolitical factors, including tariffs and consumer sentiment shifts, have introduced added uncertainty.

* The federal govt. accounted for 8% of global revenue and 16% of Americas revenue in FY24. Efficiency programs by the new administration have led to a slowdown in procurement actions, which is hurting sales.

* Clients continue to prioritize large-scale transformations. ACN saw 32 clients with quarterly bookings of over USD100m. Discretionary spending for 2QFY25 was constrained particularly in small deals, but some pockets such as BFSI and Healthcare saw improvement.

* However, the full-year guidance (5-7%) assumes that discretionary spend does not have to improve at the top end of the range.

* GenAI remains a catalyst for invention. Clients focus on building the digital core with increased AI integration. The company is seeing an increasing number of clients embracing GenAI. There is no view of sit-back on GenAI transformation.

* The macro-economic environment remains largely unchanged.

* ACN expects 3QFY25 revenue growth in the range of 3% to 7% YoY CC while FY25 revenue growth guidance was narrowed to 5% to 7% CC from 4% to 7% in CC given in previous quarter.

For More Research Reports : Click Here 

For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412