IGI Logo

Uncertainty manageable, but waiting on a new technology cycle

ACN upgrades lower end of guidance even as bookings come in weak

Accenture (ACN) reported revenue growth of 7% YoY cc in 3QFY25, beating consensus estimates and coming in at the top end of its quarterly guidance. ACN upgraded the bottom end of its FY25 revenue growth guidance to 6-7% cc (vs. 5-7% earlier; assumes inorganic contribution of 3%, unchanged). Deal bookings in managed services, however, declined 10% YoY, reflecting perhaps the uncertain environment in Apr-May and federal business pressure.

Read-through for Indian IT: ACN’s revenue beat on revenues and another upgrade in guidance bode well for Indian IT; however, its commentary around clients diving head-first into GenAI-led programs is in contrast to Indian vendors' stance that deals still remain centered around cost takeout.

For ACN, the impact of a tariff-related pause was milder than earlier feared. This is also corroborated by movement in stock prices of Indian IT services companies over the past two months — the broader Nifty IT Index is now 6% above its pre-liberation day level, indicating that the fears of US tariffs have not materialized and the market has quickly digested this issue. As we argue in our note dated 28th Apr’25 titled “What lies ahead for Indian IT: The good, the bad, and the unlikely”, a re-rating in the sector depends on a new technology cycle emerging, client spends moving from ‘run-the-business’ spends to ‘change-the-business’ spends and meaningful earning upgrades.

Upgrades bottom end of FY25 guidance to 6-7% cc growth (vs. 5-7% earlier); outsourcing deal wins down 10% YoY

* Revenue performance: Revenue stood at USD17.7b, up 7% YoY CC (~4% organic YoY CC) in 3QFY25, at the upper end of the guided range of 3% to 7%. Managed services revenue grew 9% YoY CC, while consulting services grew 6% YoY CC.

* Bookings: ACN reported outsourcing bookings of USD10.62b, down 10% YoY, while consulting bookings declined 1.3% to USD9.1b. The book-to-bill ratio came in at 1.2x in 3QFY25, in line with the average of 1.2x over the past four quarters. Generative AI new bookings stood at USD1.5b.

* Revenue guidance: ACN expects 4QFY25 revenue growth in the range of 1% to 5% YoY CC and has raised the lower end of its FY25 guidance to 6-7% CC from 5- 7% CC provided in the previous quarter. With an estimated FY25 inorganic contribution of ~3%, the organic growth guidance for FY25 stands at 3-4% cc.

* Vertical-wise performance: Growth was led by Financial Services (13% YoY CC) and Healthcare & Public Services/Products (7% YoY CC), while Communications/ Resources verticals grew 5%/4% YoY CC.

* Operating margin performance: EBIT margin was up 90bp YoY at 16.8% in 3Q. For FY25, margin is expected at ~15.6%, an expansion of 80bp YoY.

* Headcount trend: ACN workforce decreased 1% QoQ at ~790k, attrition increased by 300bp to 16% (vs. 13% in 2Q), and utilization stood at 92%.

Key highlights from the management commentary

* Elevated global uncertainty continues vs. CY24. Clients are navigating multiple simultaneous challenges, such as economic volatility, geopolitical shifts, and changing customer behavior.

* Pipeline remains strong going into 4Q, with a focus on cost, digital core, and AIdriven efficiency. Clients have moved from pause to focus and leapfrog, prioritizing large-scale transformations and AI-led reinvention.

* Organic momentum is improving. 3Q strength led to an upgrade in lower end of FY25 guidance (from 5-7% CC to 6-7% CC). Inorganic contribution is pegged at ~3%, implying organic growth of 3-4% CC.

* Federal business had immaterial impact on revenue and bookings. ? Clients are scaling up GenAI to build cognitive enterprise capabilities. AI agents, automation, digital twins, and predictive ops are becoming mainstream.

* ACN announced a new integrated “Reinvention Services” unit (effective 1st Sep’25): all services (Strategy, Tech, Ops, Song) unified for faster GenAI scale-up and solutions.

* There is no change in ACN’s acquisition policy. The company remains disciplined and will pursue acquisitions when there is a clear opportunity to expand capabilities or addressable market. It expects ~3% revenue contribution from acquisitions in FY25 and ~2% in the coming year.

* The company returned at least USD2.7b in cash to shareholders through dividends and share repurchases

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