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Accenture's reiteration of FY12 business outlook (given in April'11) with strong set of 4Q11 results
is positive for the Indian IT. Its Outsourcing order book growth of 43% yoy in 4Q11 is a key
positive for the sector. Any significant macro slowdown in US/Europe is a key risk.
Accenture's reiteration of FY12 business outlook is positive for the sector
Accenture reiterated its FY12 business outlook (given earlier in April 2011) with revenue
growth guidance of 7-10% in local currency (vs 15% growth in FY11) despite increased macro
headwinds. Even on operating margins for FY12, company guided for 10-30bp improvement
to 13.7-13.9%.
Accenture expects new order bookings worth $28-31bn for FY12 versus order booking worth
$28.8bn in FY11 (indicating a growth of 7.5% on upper end and decline of 2.9% on the lower
end). For FY11 Accenture exceeded its new order book guidance of $25-28bn by clocking
$28.8bn bookings.
For 1Q12, Accenture expects revenue growth of 12.5-15.8% yoy (1.7-4.7% growth on qoq
basis) in reported currency with assumption of a positive impact of 3% through currency
indicating local currency growth of 9.5-12.8% yoy versus guided growth of 7-10% for FY12
(Accenture commented that revenue visibility is healthy for the initial period of FY12).
Accenture also commented that in the near term the yoy growth is likely to be higher in
consulting versus outsourcing. Accenture's 1Q12 guidance indicates that recently increased
macro headwind is unlikely to impact the Indian IT revenue visibility significantly in coming
quarter.
As per Accenture, despite moderating the growth expectation from Europe financial services
(largely from consulting/discretionary services) and management consulting for FY12 due to
increased macro headwinds post April 2011, two acquisitions in BFSI (one signed and one
about to be signed), large deal win from Nokia, high exit rate of 4Q11, faster conversion of
booking into revenues and increasing deal win ratio has lead to its reiterating the business
outlook for FY12 given earlier in April 2011
In line with comments of some of the Indian IT peers, Accenture did not witness any major
change in client behaviour in terms of decision making, project delays or any high
scrutiny/increased approvals for deal awards yet. However Accenture witnessed slight uptick
in terms of conversion of pipeline into deal awards.
Accenture expects growth from US to outperform versus Europe and vertically it expects
broad based growth going forward.
In line with our view, Accenture also commented that current slowdown is different than 2008-
09 slowdown with current slowdown emerging more from sovereign debt issues while the
financial positions of clients is in much better shape.
4Q11 order bookings up 30% yoy
Accenture reported new order booking of $8.44bn in 4Q11, yoy growth of 29.8% with
consulting order book growth of 18.9% and outsourcing order book growth of 42.7% (order
book growth was positively impacted by 9% yoy due to currency). As per Accenture, this was
helped by large order win from Nokia as well as its increasing deal win ratio.
Robust growth of 42.7% in outsourcing bookings (one of the highest in past several quarters)
in 4Q11 augurs well for Indian IT companies. Even on qoq basis new order book registered a
robust 18.9% increase with growth of 12.4% in consulting and 25.9% in outsourcing order
book. As per Accenture, most of the deal wins over US$100m were largely in outsourcing.
Book-bill ratio for Accenture now stands at 1.26x for 4Q11, one of the highest in past several
quarters with outsourcing book to bill ratio of as high as 1.52x which is positive indicator for
Indian IT companies.
Though Accenture does not expect any major change in mix of new order bookings for FY12,
it expects it to tilt towards outsourcing which again augurs well for Indian IT.
4Q11 result highlights
Accenture reported 14% local currency growth (yoy) in revenues in 4QFY11. In reported
currency, revenues grew 23.4% yoy versus guidance of 18-22%. Consulting revenues
registered 16% yoy growth while outsourcing registered 13% growth in local currency during
4QFY11.
Continued higher growth in consulting (3Q11 growth of 17% and 2Q11 growth of 20%) clearly
indicates that discretionary spend still remains healthy for the sector (augurs well for Infosys
and HCL Tech).
On a qoq basis, Accenture registered a decline of 0.5% in revenues (in reported currency)
with 2.1% decline in consulting and 1.9% growth in outsourcing (generally 4Q is seasonally
weak quarter on qoq basis for Accenture).
In 4Q11, all verticals registered near to company average growth in local currency with
Products and Resources leading with 16% and 18% yoy growth respectively. Revenues from
US registered 18% growth in local currency, while EMEA registered 8% growth and Asia
Pacific registered 23% growth.
Our picks within Indian IT
We continue to remain cautiously optimistic on the sector as we believe that sector is better
poised than last slowdown given no major excesses on billing rates and IT spend by clients
post 2008-09 slowdown, expected pricing discipline amongst vendors going forward and
better health of US corporates' balance sheet.
In this state of increased macro uncertainty, we prefer stocks with relatively low valuations,
more revenue diversity and higher flexibility in managing margins. Infosys, HCL Tech and
Wipro are our top large-cap picks. Polaris is our top mid-cap pick.
Stock correction resulting from further macro news flow is possible, but over the medium to
longer term we expect valuation multiples for companies in our sector coverage universe to
improve given a likely rebound in earnings growth from 2HCY12
Any sharp deterioration in the macro environment in the US and Europe is a key risk.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Accenture's reiteration of FY12 business outlook (given in April'11) with strong set of 4Q11 results
is positive for the Indian IT. Its Outsourcing order book growth of 43% yoy in 4Q11 is a key
positive for the sector. Any significant macro slowdown in US/Europe is a key risk.
Accenture's reiteration of FY12 business outlook is positive for the sector
Accenture reiterated its FY12 business outlook (given earlier in April 2011) with revenue
growth guidance of 7-10% in local currency (vs 15% growth in FY11) despite increased macro
headwinds. Even on operating margins for FY12, company guided for 10-30bp improvement
to 13.7-13.9%.
Accenture expects new order bookings worth $28-31bn for FY12 versus order booking worth
$28.8bn in FY11 (indicating a growth of 7.5% on upper end and decline of 2.9% on the lower
end). For FY11 Accenture exceeded its new order book guidance of $25-28bn by clocking
$28.8bn bookings.
For 1Q12, Accenture expects revenue growth of 12.5-15.8% yoy (1.7-4.7% growth on qoq
basis) in reported currency with assumption of a positive impact of 3% through currency
indicating local currency growth of 9.5-12.8% yoy versus guided growth of 7-10% for FY12
(Accenture commented that revenue visibility is healthy for the initial period of FY12).
Accenture also commented that in the near term the yoy growth is likely to be higher in
consulting versus outsourcing. Accenture's 1Q12 guidance indicates that recently increased
macro headwind is unlikely to impact the Indian IT revenue visibility significantly in coming
quarter.
As per Accenture, despite moderating the growth expectation from Europe financial services
(largely from consulting/discretionary services) and management consulting for FY12 due to
increased macro headwinds post April 2011, two acquisitions in BFSI (one signed and one
about to be signed), large deal win from Nokia, high exit rate of 4Q11, faster conversion of
booking into revenues and increasing deal win ratio has lead to its reiterating the business
outlook for FY12 given earlier in April 2011
In line with comments of some of the Indian IT peers, Accenture did not witness any major
change in client behaviour in terms of decision making, project delays or any high
scrutiny/increased approvals for deal awards yet. However Accenture witnessed slight uptick
in terms of conversion of pipeline into deal awards.
Accenture expects growth from US to outperform versus Europe and vertically it expects
broad based growth going forward.
In line with our view, Accenture also commented that current slowdown is different than 2008-
09 slowdown with current slowdown emerging more from sovereign debt issues while the
financial positions of clients is in much better shape.
4Q11 order bookings up 30% yoy
Accenture reported new order booking of $8.44bn in 4Q11, yoy growth of 29.8% with
consulting order book growth of 18.9% and outsourcing order book growth of 42.7% (order
book growth was positively impacted by 9% yoy due to currency). As per Accenture, this was
helped by large order win from Nokia as well as its increasing deal win ratio.
Robust growth of 42.7% in outsourcing bookings (one of the highest in past several quarters)
in 4Q11 augurs well for Indian IT companies. Even on qoq basis new order book registered a
robust 18.9% increase with growth of 12.4% in consulting and 25.9% in outsourcing order
book. As per Accenture, most of the deal wins over US$100m were largely in outsourcing.
Book-bill ratio for Accenture now stands at 1.26x for 4Q11, one of the highest in past several
quarters with outsourcing book to bill ratio of as high as 1.52x which is positive indicator for
Indian IT companies.
Though Accenture does not expect any major change in mix of new order bookings for FY12,
it expects it to tilt towards outsourcing which again augurs well for Indian IT.
4Q11 result highlights
Accenture reported 14% local currency growth (yoy) in revenues in 4QFY11. In reported
currency, revenues grew 23.4% yoy versus guidance of 18-22%. Consulting revenues
registered 16% yoy growth while outsourcing registered 13% growth in local currency during
4QFY11.
Continued higher growth in consulting (3Q11 growth of 17% and 2Q11 growth of 20%) clearly
indicates that discretionary spend still remains healthy for the sector (augurs well for Infosys
and HCL Tech).
On a qoq basis, Accenture registered a decline of 0.5% in revenues (in reported currency)
with 2.1% decline in consulting and 1.9% growth in outsourcing (generally 4Q is seasonally
weak quarter on qoq basis for Accenture).
In 4Q11, all verticals registered near to company average growth in local currency with
Products and Resources leading with 16% and 18% yoy growth respectively. Revenues from
US registered 18% growth in local currency, while EMEA registered 8% growth and Asia
Pacific registered 23% growth.
Our picks within Indian IT
We continue to remain cautiously optimistic on the sector as we believe that sector is better
poised than last slowdown given no major excesses on billing rates and IT spend by clients
post 2008-09 slowdown, expected pricing discipline amongst vendors going forward and
better health of US corporates' balance sheet.
In this state of increased macro uncertainty, we prefer stocks with relatively low valuations,
more revenue diversity and higher flexibility in managing margins. Infosys, HCL Tech and
Wipro are our top large-cap picks. Polaris is our top mid-cap pick.
Stock correction resulting from further macro news flow is possible, but over the medium to
longer term we expect valuation multiples for companies in our sector coverage universe to
improve given a likely rebound in earnings growth from 2HCY12
Any sharp deterioration in the macro environment in the US and Europe is a key risk.
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