Accenture Q1 show suggests demand environement is strong

Reports 10% revenue growth in Q1; outsourcing and digital revenues grow in double digits

The business of software services is in the throes of a big shift and the impact is not only visible in the earnings trajectory of Indian companies but even in legacy players like Accenture.

The good news is with digital becoming the core of all businesses, there are ample opportunities for all kinds of service providers, evident from Accenture’s first quarter earnings for FY15. Last week, the company's dollar revenue grew seven per cent year-on-year to $7.9 billion and 10 per cent in local currency growth. The growth was broad-based and outsourcing continued to grow at a healthy pace. The IT (information technology) services behemoth has said it expects FY15 revenue growth in the range of five-eight per cent in local currency, against the four-seven per cent guidance earlier. The upward shift in the revenue guidance has brought cheer to the sector, grappling with growth challenges over recent years. More than the change in guidance, what is interesting is the pace of growth in the outsourcing and consulting segments. In the first quarter, growth has been driven by outsourcing, which grew 14 per cent, while consulting grew seven per cent in local currency terms. Cross-currency movements did impact local currency revenues by three per cent, claim analysts.

Among verticals, communications and media, BFSI, health, and public services and products grew 10-15 per cent. According to JM Financial, the first quarter growth was led by communications and high-tech (up 15 per cent), health care (up 13 per cent) and financial services ( up 11 per cent). Geographically, revenue growth was balanced across regions, with the Americas leading with 12 per cent year-on-year growth. Motilal Oswal Securities says: “Digital prowess is driving performance at Accenture. Growth in digital-led services of 20 per cent, on an annualised base that exceeds $5 billion, came as a positive surprise even to the management.

The quarterly performance suggests the demand pipeline remains robust, which should bode well for Indian outsourcing companies, too. The strong growth in outsourcing will go a long way building confidence among investors. Motilal Oswal Securities says Q1FY15’s beat-and-raise would understandably colour Accenture’s positive commentary. It partly mitigates concern around spending in the current environment, which should rub off positively on Indian IT.