Accenture earning, record order bookings hint at good time for IT sector

Record order bookings and steady revenue guidance by global IT services major Accenture has brought good news for the Indian IT industry.

Market experts say Accenture’s fourth quarter earnings indicated only a marginal impact of the trade war, Brexit, or slowdown fears in the US, on client spending. 

This augurs well for Indian IT firms, most of which witnessed strong revenue growth in the June quarter.

“Accenture’s reported strong growth in outsourcing in Q4 is a boost to sentiment. The record high order booking indicates large deals are out there, and firms with the right capabilities are winning them,” said Sanjeev Hota, head (research), Sharekhan.

“Macro issues are less visible on Accenture’s earnings. If it grows at around 8 per cent, with such a large base, it is a positive for Indian IT players.”
 

The NYSE-listed firm on Thursday reported revenue of $43.2 billion for FY19 — an increase of 5 per cent in dollar terms and 8.5 per cent in local currency terms. Revenue for the fourth quarter (June-August) grew 5.3 per cent in dollar terms to $11.05 billion — a 7.2 per cent rise in constant currency terms.

Accenture, which follows a September-August accounting year, has seen record bookings of $12.9 billion in Q4. Bookings stood at $45.5 billion in FY19. 

Outsourcing deals signed in the fourth quarter rose $6.8 billion, a 46 per cent YoY rise.

“Except for the BFSI (banking, financial services & insurance) vertical and the Europe market, Accenture doesn’t seem to have been hit by macroeconomic factors. Even margins have not declined as they have for Indian IT firms, which means there is no pricing pressure,” said Pareekh Jain, founder of Pareekh Consulting.

In the quarter ended August, operating margin expanded by 20 bps to 14.2 per cent, while for the whole year, it stood at 14.6 per cent, a rise of 20 bps YoY.

Industry experts say Indian firms with larger digital services business should recognise that spends on new technologies have not slowed down, as predicted by research firms.

“We expect that as we look into next year, that the overall and the new including digital will see double digit growth overall in FY20,” said KC McClure, chief financial officer at Accenture in the analyst call post earnings announcement.

The management’s commentary on global IT spending rising 3-4 per cent was indicative of steady demand with less downside risks in FY20.

“Though Accenture’s numbers are good, any slowdown in the global economy will be reflected with a lag of 2-3 quarters,” said V Balakrishnan, chairman of Exfinity Venture Partners, and former CFO and board member of Infosys.

“BFSI is the lead indicator of any economic slowdown. In the backdrop of softness in BFSI, we can say Accenture’s earnings gives a ‘neutral signal’ to the Indian IT industry.”

On growth path:

• Indian IT firms with higher share of digital revenue may see steady demand 
• Clients giving large deals to IT firms with right consulting & execution capabilities 
• Except BFSI & retail, all other verticals are seeing healthy orders 
• Accenture's margin expansion indicates no pricing pressure on digital deals