Accenture fights to retain marketshare in Q4

High churn of deals seem to be slowing as multinational IT players fight back

Accenture’s fourth quarter numbers paint a picture that’s different from what Indian software services companies have been drawing for the past several quarters. The global giant’s revenues at $6.8 billion in Q4FY12 have grown ahead of the Street’s estimates. New order booking is up nine per cent year-on-year (YoY) to $9.2 billion and outsourcing revenue is up 10.4 per cent YoY to $3.1 billion. The company has said its FY13 revenues will be driven by outsourcing. Despite the strong order booking and growth in the financial services vertical, the company has guided for a lower revenue growth of five to eight per cent in FY13 compared with the 11 per cent growth it clocked in FY12.

So, what does this mean for Indian IT? For starters, the robust performance of the global behemoth indicates that the company has managed to hold on to its market share in what has been a challenging environment. Edelweiss says retention of renewals have gone up significantly for at least Accenture and IBM, which is also evident from their high outsourcing order book growth. Analysts say this will directly impact the revenue growth of Indian IT players who have been posting robust growth on the back of market share gains driven by extremely high churns for MNCs.

Some Indian IT players have been benefitting from the churn in deals and have aggressively bid for these contracts. However, by the look at Accenture’s numbers it’s now apparent that the global players like itself and IBM are putting up a tough fight to protect its market share. With demand slowing, the fight for deals is going to get fierce. Indian companies have had the hedge of a weak rupee for the last several quarters, though the benefits have not been along expected lines, the companies will now be faced with an appreciating currency. This would put further pressure on margins. Nomura says INR appreciation against the US dollar remains a risk given that Indian IT companies did not gain materially from INR depreciation, but are likely to see margin pressures if appreciation continues.

Rising competition from strong global players will make the going tough for Tier I Indian companies. Higher competition and shrinking revenue pie will challenge a lot of assumptions the market has on Indian IT and its defensive position. As a result, Kotak says the Street’s assumptions of acceleration in revenue growth for Tier-1 IT in FY2014 will be tested. The brokerage says: “At an aggregate level, FY2014 consensus revenue growth forecast assumes acceleration from FY2013 levels. Acceleration is predicted on an increase in discretionary IT spending and some recovery in spending on financial services, a hypothesis that would be tested over the next few months.”