Accenture Q3 numbers a positive sign for Indian IT players

Rebound in consulting business would mean an uptick in discretionary spends

Stock price of Indian IT services firms touched a high today on better-than-expected results of Accenture.

India's largest IT services provider Tata Consultancy Services' (TCS), shares touched a 52 week high at Rs 2,399 per share, up 4% during intra-day trading.

The stocks did correct since then and was trading at Rs 2398.4 per share. Tech Mahindra too hit a 52 week high at Rs 2,135 during intra-day trading. Stocks of Infosys and Wipro were also trading up.

Accenture reported revenue of $7.7 billion for the its third quarter, up 7% on a sequential basis. These numbers were ahead of the management guidance on the back of rebound in its consulting business.

According to the management comments, new bookings for the quarter were strong at $8.8 billion. Consulting bookings were $4.3 billion with a book-to-bill of $1.1 billion. Outsourcing bookings were $4.5 billion with a book-to-bill of $1.2 billion. Year-to-date bookings were $27.6 billion, reflecting 12% growth in local currency.

Accenture's revenue from Europe was up 13% and its financial services vertical was up 7% on a year-on-year basis. Both the parameters are significant for the Indian players as 30-35% of revenues for the top IT firms come from these two segments.

"Management commentary indicated that pricing was stable q/q while demand was led by digital services and strength in BPO offerings, which is similar to the commentary of Indian IT vendors. Accenture's revenue and booking performance indicates that the underlying demand in IT services remains strong and the relatively muted Mar-14 quarter was a short-term wobble," said Bhuvnesh Singh and Hitesh Das of Barclay's Equity Research in their report.

Accenture's results also bode well for Infosys, since the former has seen a rebound in the consulting business. For Infosys, discretionary spend is higher. Moreover consulting, package implementation & others makes for over 30% of Infosys' revenues.

Ankita Somani, research analyst at MSFL believes that the rebound in the consulting business of Accenture signals an uptick in discretionary spend.

"The numbers in general are positive for the industry. Accenture which had been facing challenges in consulting business has seen a rebound. It looks like discretionary spends will see an uptick. The first half of the financial year does looks to be good," she added.