 "Accenture Q1 earnings, strong US economy bode well for IT stocks: Analysts")
On Thursday, Accenture, a Fortune Global 500 company headquartered in Dublin, posted a revenue of $17.7 billion for September-November (Q1) quarter of financial year 2024-25 (Q1FY25).
This was a 9-per cent year-on-year (Y-o-Y) growth in dollar terms and 8 per cent in local currency (LC). Besides, the topline income was around $240 million more than the top end of the company’s guided range.
Following this, Accenture has raised its LC FY25 revenue growth guidance to 4-7 per cent from 3-6 per cent earlier. The management said, the revised revenue guidance includes inorganic contribution of slightly more than 3 per cent.
"Consensus revenue growth estimates for Indian IT companies for CY25/FY26 build in improvement in discretionary spending. The revenue beat in Q1 and FY25 guidance upgrade lend some credence to these assumptions. Uptick in technology spending in CY25 hinges on confidence on macro stability and resilience of the US economy," said analysts at Emkay Global Financial Services, betting on Infosys, HCL Tech, TechM, TCS, Wipro, and LTIMindtree in large-caps.
Among mid-caps, it prefers Sonata Software, Cyient, eClerx, and Birlasoft.
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On the bourses, the Nifty IT index climbed 1.5 per cent in the morning trade to hit an intraday high of 45,647.3 on the National Stock Exchange (NSE). The index, however, was quick to reverse gains as pressure mounted in the markets. The Nifty IT index, eventually, settled 2.6 per cent lower on the National Stock Exchange (NSE) at 44,954 level. By comparison, the Nifty50 index ended 1.5 per cent down at 23,587.5 level.
Accenture Q1 earnings 2025
According to Accenture management, the strong Q1 revenue growth was driven by Health and Public Services (up 12 per cent LC Y-o-Y), Products (10 per cent Y-o-Y), Telecommunications, Media, and Technology (CMT; 7 per cent), Resources (6 per cent), and Financial Services (4 per cent).
Further, revenue from Outsourcing increased 11 per cent LC Y-o-Y, led by double-digit growth in technology managed services and high single-digit growth in operations. Consulting business grew 6 per cent LC Y-o-Y.
Region-wise, Americas (including North America and Latin America from Growth market) grew 11 per cent Y-o-Y in LC, Europe, Middle East, and Africa (EMEA) grew 6 per cent, and Asia Pacific markets (reclassified from Growth earlier) grew 4 per cent.
Bookings, Accenture said, rose 1.4 per cent Y-o-Y to $18.7 billion, including 30 client-wins, with quarterly bookings exceeding $100 million. Overall, book-to-bill was around 1.1x with Outsourcing and Consulting book-to-bill at 1.1x and 1x, respectively, in Q1FY25.
That said, while the strong revenue growth was led by ramp up of large deals, Accenture management noted the demand environment remains the same, with clients prioritising large reinvention deals and critical programs, while smaller deals remain under pressure.
"While a strong recovery of discretionary demand may take a few quarters, it is unlikely to worsen further. We expect revenue growth for our covered large-caps to improve in FY26 (at 7.6 per cent Y-o-Y), up from 3.8-per cent growth expected in FY25. Onset of the interest rate cut cycle from September 2024 and a potential thaw in decision-making by US corporates post US elections in November 2024 could provide a fillip to demand," said those at Nomura.
The brokerage has a ‘Buy’ rating on Infosys, and Wipro in large-caps, and a ‘Reduce’ rating on LTIMindtree, Mphasis, and LTTS.
Accenture Outlook
Accenture maintained its guidance for operating margin expansion of 80-110bps to 15.6-15.8 per cent in FY25. Adjusted operating margin, excluding one-time business optimisation costs of FY24, is expected to expand by 10-30bps to 15.6-15.8 per cent (guidance maintained).
Moreover, Consulting, Accenture guided, is expected to grow in a mid-single-digit and Managed Services in a mid-to-high single digit in FY25 despite competitive pricing environment and constrained budgets.
"Recent channel checks suggest that the demand environment for India IT has continued to get better, particularly in the US. We expect demand to improve gradually in other verticals as well. While near-term quarterly revenue trends may remain volatile due to deal/client-specific factors, directionally the trend is getting better," said analysts at Goldman Sachs. Infosys and LTIMindtree, they said, could be key beneficiaries of a discretionary demand revival.