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Accenture (ACN), a key peer of Indian IT services companies, reported 4QFY23 revenue growth of 4.0% YoY CC, marginally below the Bloomberg consensus and at the mid-point of its guidance. More importantly, the company provided a modest FY24 revenue growth guidance of 2-5% YoY CC, with weak 1H followed by a recovery in 2H. While ACN’s guidance is broadly in line with our expectation of a growth pickup for its Indian IT peers in FY25, its 4Q performance and 1QFY24 outlook would add to concerns over the near-term demand environment. Additionally, 4Q deal booking declined 3% QoQ vs. company guidance of flat growth, implying lower visibility on demand in the current environment. ACN's management highlighted CMT and North America as the key weak areas, which we see as negative for Tech Mahindra (c40% Comm. exposure). In our view, ACN’s commentary implies near-term weakness for Indian IT companies

Earnings snapshot – Weak bookings mounting pressure on FY24 guidanceEarnings snapshot – Weak bookings mounting pressure on FY24 guidance

* Moderate revenue performance: Revenue stood at USD16.1b (up 4.0% in CC/3.6% in USD YoY) in 4QFY23, 70bp below the consensus. Managed services revenue grew 10% YoY CC (slowest in last 11 quarters), while consulting services revenue declined 2% YoY CC.

* Weakness in bookings: ACN reported outsourcing bookings at USD8.2b, down 17% YoY, while consulting bookings saw a muted growth of 1% to USD8.5b.

* Muted revenue guidance: ACN expects 1QFY24 revenue growth at -2 to +2%YoY CC, while FY24 revenue growth at 2-5% in CC vs. 8% CC delivered in FY23. The FY24 revenue guidance includes 2% inorganic contribution.

* Good operating margin performance: Adjusted EBIT margin rose 20bp YoY to 14.9% in 4Q, meeting its adjusted margin guidance of 15.4% (beating consensus by 50bp YoY) for FY23.

* Stable Attrition: ACN added 950 employees in 4Q, with stable attrition and utilization rates at 13% and 91%, respectively

Managed services growth to outpace consulting services growth

* Managed services to outperform Consulting: Despite weak bookings for consulting in 4Q, the management is optimistic about the growth opportunity for managed services and expects mid to high single-digit growth vs. low to midsingle-digit growth for consulting services in FY24. Clients have a strong intent for spending on managed services, with a focus on cost-saving projects to reutilize those savings in cloud and transformation projects.

* Discretionary spending weighs on growth: ACN has seen greater caution, slower decision-making and cut-down in discretionary spending among clients. These factors are weighing on overall growth. Small-size SI and consulting deals continue to see deferrals, while execution in large deals remains fairly strong.

* Demand for key verticals remains muted: Demand for Financial Services and CMT, which have been the key verticals for Indian IT firms, remained weak in 4QFY23. CMT reported a 12% CC YoY decline in 4Q vs. an 8% CC YoY decline in Q3.