ACCENTURE 4QFY10: BFSI, Offshoring trend positives for Indian IT says Motilal Oswal

ACCENTURE 4QFY10: BFSI, discretionary traction and Offshoring trend positives for Indian IT companies

Accenture announced its 4QFY10 and full year results. The company reported revenues of US$5.42b (v/s guidance of US$5.15-5.35b) a decline of 2.7% QoQ (an increase of 5% YoY in US$ and 8% in constant currency - CC). Both consulting (-3.9% QoQ) and outsourcing (-1% QoQ) declined marginally after having rebounded in 3QFY10. Outsourcing is the comparable segment for Indian IT players.

The company guided for FY11 revenue growth rate of 7-10% and EPS growth of 13-16%, at US$3-3.08 (up from 12-15% guidance it provided in its Analyst Conference in April 2010). Accenture expects operating margins in FY11 to remain flattish at 13.6-13.7% (v/s 13.5% in FY10). Revenue growth guidance for 1QFY11 stands at US$5.6-5.8b. Order bookings target in the range of US$25-28b (v/s US$25b in FY10) 

c172a50186a0284d25bbfa5e81f8aaee Comments on a] systems integration b] SAP and Oracle demand and c] Work force realignment towards global delivery network, are all positives for Indian IT players.

1 Strong traction in BFSI, a core vertical for Indian IT with 14% YoY growth in CC – first quarter of double digit growth in 3 years –  a positive trend for Indian IT players. Consulting in BFSI saw 21% YoY growth – an indicator of strong traction in discretionary demand. Infosys (36% BFSI contribution) and TCS (45% BFSI contribution) could be beneficiaries.

Global delivery Network headcount increased from 100,000 in the previous quarter to 116,000, a 16% increase QoQ; confirming strong trend in MNC offshoring – a positive for Mphasis – an HP subsidiary. (Guidance of hiring ~64,000 people in FY11, dominated by hiring across Global Delivery Network). Overall headcount increased from 190,000 to 204,000 in Q4FY10.

1 Continued short term nature of outsourcing deals, caution over the macroeconomic situation and continued sluggishness of the Health and Public Services segment were negatives.

Result highlights

-          The company reported revenues of US$5.42b (v/s guidance of US$5.15-5.35b) a decline of 2.7% QoQ (and increase of 5% YoY in US$ and 8% in CC).

-          Net profit for 4QFY10 was US$445.5m, or 66 cents a share, down from $490m, or 73 cents a share, in the previous quarter, but up from US$255m same quarter previous year, which was lesser on US$256m restructuring charge. It reported EPS of US$0.66 (decline of 9.5% QoQ but up 69% YoY due to restructuring charge in 4QFY09).

-          The from EMEA were US$2.2b, up 6% YoY in constant currency (but decline of 3% in US$ terms) after many quarters of decline

-          New bookings during the quarter stood at US$6.5b, with US$3.5b in consulting and US$3b in outsourcing.

-          Guidance of hiring number similar to that in FY10. The company’s gross hiring in FY10 was of the order of 64,000 people. Accenture currently employs 204,000 people. Attrition remained flat at 17% QoQ.

CONSULTING AND OUTSOURCING DECLINE MARGINALLY AFTER REBOUND IN 3QFY10                               ACCENTURE GROWTH DIFFERENTIAL TO INFOSYS (YOY) CONTINUES TO WIDEN

                         

*Aug-10 corresponds to Sep-10 expectations for Infosys

Key positives

-          Strong traction in BFSI, a core vertical for Indian IT with 14% YoY growth in CC – first quarter of double digit growth in 3 years – is a positive trend for Indian IT players. Consulting in BFSI saw 21% growth – an indicator strong discretionary traction. Infosys (36% BFSI contribution) and TCS (45% BFSI contribution) could be beneficiaries

-          Outlook of 7% to 10% CC terms growth in FY11 (v/s guidance of -3% to 1% growth in FY10), indicates improvement in demand environment.

-          The company expects greater shift towards global delivery network, which currently has 116,000 people (v/s 100,000 last quarter). Accenture guided at an addition of a number similar to FY10 (64,000) in FY11, majority of which would be in its Global Delivery Network. We see this as greater acceptance of the offshoring trend. Though a repercussion would be increased competition for Indian IT players from MNCs. We believe Mphasis (HP subsidiary) could be a direct beneficiary of this trend in a scenario of significant upcoming deal renegotiations.  

Key negatives

-          Outsourcing deals continued to be of short term duration, implying larger deals may still be some time away.

-          Outlook on macro environment continues to be cautiously positive on a mixed set of data.