Accenture's Q4 numbers augur well for Indian IT services sector: Analysts

Outsourcing growth could get back to pre-Covid levels for the IT services sector

Accenture reported strong num­bers for its fourth quarter as well as the full year. The company also guided for a 12-15 per cent growth for FY22 as it sees demand for cloud and digital transformation driving a double-digit surge. This augurs well for the Indian IT services sector and the top four players.
 
Accenture also reported that its revenue for the quarter, at $13.4 billion, was up 24 per cent in US dollars, and for the full year, the company crossed the $50-billion mark.
 
Importantly, new bookings for the quarter were at $15 billion, and for the year, it touched $59.3 billion.

 

“Looking ahead, we expect Nifty IT to trade at a premium to the broader index, driven by: (1) likelihood of double-digit revenue growth over FY21-FY24E and medium-term growth resiliency due to increasing technology adoption; (2) increasing collaboration with large hyperscalers and SaaS (software as a service) companies; and (3) peer set companies trading at higher multiples,” said Suyog Kulkarni, senior research analyst at Reliance Securities.
 
There are two big takeaways from the Accenture results for the Indian IT services sector; one, that size is irrelevant if companies have the right business focus and offerings. Accenture has crossed the $50-billion revenue target. When it comes to size, Accenture’s total headcount is at 624,268. Also, the company has guided for a double-digit growth and some of its business verticals are growing over 30 per cent.

 
“The frequent argument of size hampering growth seems to be challenged by leaders such as Accenture and TCS. Of course, this is not to say that companies of such size can keep on growing indefinitely at double digit. However, it is also equally important to consider the following: (1) Overall market share: Indian IT leaders such as TCS and Infosys are still a small portion of the overall outsourced IT spending and (2) scale should also be paired with breadth of offerings. Leaders have a far broader set of capabilities and end up addressing a larger portion of the IT spending pool, allowing them to grow at a solid rate on a high base,” said Kawaljeet Saluja and Sathishkumar S of Kotak Institutional Equities, in their report post-Accenture results.

 
Accenture reported attrition of 19 per cent, but the management said it was not concerned as it has been hiring in large numbers. The situation is similar at several IT services players where attrition has hit an all-time high. Accenture, during Q4, hired 56,000 net associates and promoted 120,000 people during the financial year.
 
Also, outsourcing growth is slowing down, which analysts say will now go to pre-Covid levels.
 
Accenture’s management, during the analysts’ call, also said consulting for the full year will grow in double digits, but outsourcing will be in the range of high single to low double digits.

 
“Outsourcing revenue (more relevant for Indian IT) is guided to grow in ‘high single digit to low double digits.’ This hints at deceleration in the outsourcing segment vs the current year (13 per cent YoY), notwithstanding the ‘likely’ higher inorganic contribution and the residual base normalisation. In this backdrop, as the post-Covid equilibrium is reached, outsourcing growth for the industry should more or less revert to pre-Covid levels (8-10 per cent, YoY),” said Sudheer Guntupalli and Heenal Gada of ICICI Securities in their report.
 
With Accenture saying that outsourcing revenues will be in the higher single digit or low double digits, it may also impact the Indian IT players.