Accenture’s second-quarter results raise warning signs for Indian IT



Accenture, the IT consultancy, recently announced second-quarter results for fiscal 2022, beating Wall Street estimates. The Dublin-based company reported revenue revenues of $15 billion, registering 24 percent year-over-year growth in dollars and 28 percent in local currency. It also saw record order flows of $19.6 billion, up 26 percent year on year in local currency. However, what surprised the markets was Accenture’s sharp upward revision in revenue guidance. The company now expects revenue growth in the local currency range of 24-26% for FY22, up from 19-22% proven in the last quarter.

It has pegged revenue growth in the 12-15% range at the start of the fiscal year. Analysts say Accenture’s strong revenue growth led by broadband demand driven by accelerated cloud and digital transformation is positive for Indian IT. The increase in growth guidance in FY22, despite the uncertainty of the Russia-Ukrainian conflict, puts higher hopes on a strong pipeline of purchase orders. Motilal Oswal Financial Services highlights that Accenture’s positive feedback indicates a good pipeline and strong spending in the areas of digital, cloud, web 3.0 and security. Only 30% of the workload is on the cloud, therefore, accelerating cloud adoption will open up more opportunities for IT companies and provide a sustainable demand environment. She also said… Given Accenture’s trend of increasing guidance over the quarter, its Indian IT services peers will be closely watched for their comments on FY23 as expectations for growth mount. However, not all is well for Indian IT companies. According to D-Street experts, although Accenture’s numbers look impressive, they highlight the pain for its Indian counterparts. For example, Accenture is posting record gains in the “large” volume segment, while Indian IT companies are focusing on medium and small order volumes. The company also saw accelerated gains in market share in fiscal year 20-2022 compared to TCS and Infosys and spoke of the industry growing three times in recent days versus twice in the past. Accenture is sure to leverage the strong capabilities across the digital domains in consulting and outsourcing, which are preferred by organizations implementing digital transformation programmes. But this has helped the company outperform the Indian IT companies of Tier 1. The second red flag for Indian IT companies comes in terms of margin routing. Accenture cut EBIT margin improvement guidance for fiscal year 22 to 10 basis points for fiscal year, indicating higher supply pressures. Given this, JM Financial says there are potential risks to margins from a potential rebound in travel expenses in the first half of FY23 itself and elevated pressures on the supply side, exacerbated by the recent Ukraine crisis. Ambit Capital expects Tier 1 IT companies to grow moderately from 17.7% year-over-year, in constant currency in fiscal year 22, to 11.7% and 8.1% in fiscal years 23 and 24. The third headwind for Indian IT emerges from outsourcing income, which accounts for a very large portion of Accenture’s revenue. Indian players such as TCS, Cognizant Technology Solutions, Infosys, Wipro, HCL Technologies and Tech Mahindra are all competing for the same. Against this backdrop, IT stocks pared gains and closed lower on Monday with Nifty IT down nearly 2% from its intraday high and closing down 07%. let’s go to business standardAvdhut Bagkar to see if these headwinds are showing any negative pressure on the technical charts. Net-net and Accenture results present a mixed picture for Indian IT operators with a vision of sustainable demand but margin pressure and market share looming large. On Tuesday, global signals and stock specific actions will affect the indices amid a lack of local events.

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