Accenture's results signal weak earnings for Indian IT

Accenture numbers raise doubt over uptick in discretionary spending

Accenture’s disappointing performance in its financial third quarter of FY2013 and guidance forecast might have signalled a weak earnings quarter for Indian information technology (IT) services companies, more specifically for Infosys, since its dependence on discretionary spending is higher.

The US-headquartered IT services and consulting company, which announced its Q3 results on Thursday has reported a muted 0.6 per cent growth in revenues at $7.2 billion, primarily because of the drag from its consulting business.

The company said the consulting revenues missed its expectations, and revised its revenue guidance downwards to three-four per cent as compared to earlier projected five-eight per cent.

More important, Accenture’s management acknowledged that the business environment has not improved the way it was expected to be, especially since the clients are holding back to discretionary spending. “Accenture’s poor performance is a negative for Indian IT companies, particularly in respect of discretionary spending,” equity analyst firm Nirmal Bang Institutional Equities said in a recent report. It is clearly a negative takeaway for Indian IT discretionary revenue, particularly for Infosys in the wake of its greater exposure, it added. Accenture’s business model is somehow akin to that of the large Indian IT services companies although it reliance on consulting services revenue is more. The company derives over 55 per cent of its overall revenues from consulting services.

In a recent report by equity analyst firm JP Morgan, Accenture’s consulting practice has been growing at a tepid pace for the last five years whereas its outsourcing services revenues reported a much faster growth rate.

During the last five years, the company’s consulting business grew at a CAGR of 1.9 per cent and outsourcing revenues reported a CAGR of 7.6 per cent, said the report.

However, most of the Indian IT services companies with the exception of Infosys use consulting as an effective instrument to pursue downstream businesses.

As a part of its 3.0 strategy, Infosys had announced to transform itself as a global consulting organisation with an aim of getting into the league of Accenture.

However, after assuming charge as the new executive co-chairman of the Bangalore-based company this month, N R Narayana Murthy has announced that it would continue to grow its 'bread and butter’ application development and maintenance (ADM) business.  

Infosys will announce its FY14 first quarter results on 12 next month. Accenture disappointing numbers coupled with the devaluating Rupee and impeding visa restrictions in the US (after the Senate gave its nod to the immigration bill) impacted the performance of the IT stocks on the BSE today.

Despite the sensex going up by 2.75 per cent, the IT index marginally went up by 0.75 per cent.

Among the major IT companies, the share price of HCL Technologies was down 2.34 per cent whereas Infosys and Wipro saw a moderate increase.