Accenture- Revenue rises 15% in fourth quarter

Accenture: Revenue rises 15% in fourth quarter

By Nomura research

Accenture recoreded $15.42 bn of revenue in Q4FY22 (+22% y-o-y in constant currency or cc terms), near the top end of its guided band of $15.0-15.5bn. Growth was strong in both consulting (54% of the revenue, which grew 22% y-o-y in cc) and outsourcing (23% y-o-y growth in cc) for Q4FY22. Ebit margin at 14.7% was up 10bp y-o-y. EPS at $2.60 was up 18% y-o-y.

o Order booking remains strong, led by outsourcing: New bookings at $18.4 bn rose 23% y-o-y. While consulting order book growth was slow at 5.4% y-o-y (first single digit y-y growth since Q4FY20), outsourcing bookings at $9.9bn were up 40.4% y-o-y. Accenture noted that the demand pipeline is strong and the book-to-bill ratio increased to 1.2x at the end of Q4FY22, from 1.1x in Q3FY22.

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o FY23E guidance indicates demand moderation, yet above pre-covid levels:Accenture has guided revenue growth for FY23E to be at 8-11% in cc terms and expects 6% cross-currency impact in reported numbers. Revenue growth guidance includes 2.5% inorganic contribution in FY23E vs 5% in FY22. Q1FY23E revenue growth guidance stood at 11-14% in cc. On the Ebit margin front, Accenture has guided for 15.3-15.5% in FY23E, representing 10-30bp y-y improvement. We note that guidance of FY23E is still above pre-covid levels of 5-8% for FY17-20.

o ACN’s guidance of 8-11% revenue growth in cc terms indicates softening of demand for IT services. ACN noted that certain industries are facing higher impact from inflation and are re-prioritising spends towards cost initiatives. In our recent report — more evidence for revenue growth slowdown — we had highlighted the impact of high inflation on tech spends by various industries, based on our channel checks. We reiterate our cautious stance on the demand outlook and believe consensus’ revenue growth estimates for FY24E will likely see downward revisions.

o Cross currency will likely continue to be a material headwind to the reported growth of Indian IT companies in FY23F. Higher depreciation of European currencies will likely negate benefit of INR’s depreciation against USD to Indian IT companies, in our view.

o Attrition remains high and sticky. Accenture reported sequentially flat attrition number of 20% (+100bp y-o-y) in Q4FY22. Net employee addition for Accenture remained low at ~12k, despite high and sticky attrition rates due mainly to supply-side headwinds. We expect attrition to remain elevated over the next few quarters for Indian IT companies.

Retain our cautious stance on the sector; prefer large-caps over mid-caps: We remain concerned on the demand outlook for Indian IT services — refer to our detailed downgrade report published in May. Recently we highlighted signs of a further weakening demand outlook.

More evidence for revenue growth slowdown . We continue to believe that investors are likely to get disappointed on margins in FY23F and on growth in FY24F. We prefer large-caps over mid-caps in the current environment. Our preferred Buy ideas are Infosys and TechM (in large caps), in that order, and Persistent (in mid-caps). Our preferred Reduce ideas are TCS (in large cap) and LTI (in mid-caps).