Accenture's record bookings positive for Indian IT companies

Infosys, HCL Tech are top picks on growth and valuation parametres

Accenture’s stellar results in the second quarter (Dec-Feb), record deal wins, and the revision of the growth guidance indicate that the demand environment remains strong for Indian IT services players.

Accenture, whose financial year ends in August, reported 5 per cent YoY growth in revenues ($12 billion) in constant currency terms. This was driven largely by growth in the outsourcing segment, which posted an 11 per cent constant currency increase. The performance of the segment was the best in six years and the management expects the double-digit growth rate to sustain in the second half of its financial year. Outsourcing remains a key segment for Indian IT firms.

In addition to revenue growth, the firm announced record new bookings of $16 billion, which was up 13 per cent YoY. 

This translates into a book-to-bill ratio of 1.3, giving it revenue visibility for the year ahead. 

The company also raised its revenue growth guidance for the second time over the past year and is now looking at a growth rate of 6.5-8.5 per cent YoY in constant currency terms from 4-6 per cent earlier. 

In addition to strong bookings, Rishit Parikh of Nomura Research expects the company to benefit from recovery in spending on stressed verticals,  reversing the impact of reimbursable travel costs.

With growth rebounding over the last two quarters for Indian IT, Accenture’s second-quarter showing reiterated the fact that this demand remains a structural trend, which can reflect on the near-term performance of Indian IT peers as well, say analysts at Motilal Oswal Research. 

Though growth is expected to be strong, the margins of Indian IT companies could come under pressure. 

Accenture had highlighted higher attrition, which could increase the employee costs. Further other levers such as utilisation, which are at record levels, increased travel costs and salary hikes would be the headwinds.

Most brokerages choose Infosys and HCL Technologies as their top picks, given their growth prospects and reasonable valuations.