Accenture Q4 surge in numbers sends mix signal for Indian IT players

Consulting and IT services firm Accenture’s fourth quarter revenue of $6.8 billion surpassed street guidance. Accenture expects that for FY13, outsourcing revenue will drive growth, signalling an increase in competition for peers in the Indian IT services industry.

For Accenture, its outsourcing  revenue  at  $3.1 billion, rose 10.4 per cent year-on-year. The company said that clients’focus on improving operational  efficiencies has raised demand for cost take-out related projects. The company also reported that its revenue from financial services grew 7.8 per cent year-on-year. Accenture follows a September-August calendar.

Though the numbers are good, analysts point out that there is concern for the Indian IT services segment.

“The one big positive about Accenture numbers is that the Indian IT services industry will continue to hold, since revenue is being driven from outsourcing segment. As for the competition it was always there for the Indian players especially from IBM and Accenture,” said Ankita Somani, IT analyst, Angel Broking.

But analyst pont out to some weakness in the Accenture numbers that might not go too well for the IT industry.

“Accenture’s strong growth in the outsourcing segment (up 10.4% YoY) and FS vertical during the quarter coupled with strong order pipeline in outsourcing signifies that the company has been able to hold on to its market share. Retention of renewals have gone up significantly for atleast Accenture and IBM, which is also evident from their high outsourcing order book growth. This will directly impact the revenue growth of Indian IT players who have been posting robust growth on back of market share gains driven by extremely high churns for MNCs (Accenture, IBM and others),” said Sandip Agarwal and Omkar Hadkar of Edelweiss in their report.

The other concern in the Accenture numbers is the softness in its consulting business. The company’s consulting business revenue was flat, which signals that discretionary spends will be under pressure.

“With consulting still under pressure for Accenture, this means that discretionary spends are not going to go up. Those excessively depending on consulting will see pressure on numbers. This will include Infosys as well. Whatever work is happening in the consulting space is in the infrastructure management space, where a few Indian players have presence,” said an analyst on condition of anonymity.

Analyst also point out that Accenture’s guidance of  5-8 per cent growth (local currency) for FY13 is much softer than what it has guided for. “This also means that in the coming few quarters you will not see good ramp-ups. If that’s the case for Accenture it will not be too different for the Indian IT services,” said Somani.

For companies who have managed to maintain a growth momentum perhaps the going will not be too difficult, but for companies that are still under restructuring process, things will be difficult. “TCS, HCL and Cognizant will continue to do well. But I think Wipro and Infosys are a concern,” said an analyst.

The Indian IT services industry will start announcing their second quarter numbers from next week. Infosys will begin the earnings season by announcing its numbers on October 12.