Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Technology
India
Accenture’s accelerated GDN push – positives and negatives. Accenture’s strong
Aug 2011 quarter earnings report, robust FY2012E guidance and upbeat commentary
suggest sustained strength in demand environment for outsourced/offshore IT services.
More importantly, however, we note the recent acceleration in Accenture’s global
delivery network (GDN) headcount addition, bulk of which presumably is happening in
India. Client-demand-led (somewhat) forced adoption of the global delivery model by
Accenture may just be turning into a warm embrace of the model. This has positive and
negative connotations for the Indian offshore pure plays.
Accenture’s GDN headcount addition has accelerated in recent quarters
Accenture’s adoption of the global delivery model (or global delivery network as Accenture calls it)
has historically not been a comfortable one for the company, both from a strategic and execution
viewpoint. Volume shift in favor of GDN from the traditional onsite-delivery model has revenue
cannibalization impact. More importantly, the company has had internal challenges in the form of
changes required to mindset & incentive structures and getting the sales and delivery model right –
these have prevented a full-fledged embrace of the global delivery model in the past, in our view.
We note that the company has experimented with multiple sales and organizational structures in
India in the recent years.
However, Accenture’s recent headcount addition numbers suggest a marked change – the
company has added 60,000 people to its GDN over the past eight quarters, more than 100% of its
total headcount addition in the timeframe. To put it in context, TCS has been the only other IT
outsourcing company to have seen a similar net headcount addition in the past eight quarters.
The company’s outsourcing revenues have growth at 5% CQGR over the past four quarters, versus
<1% over the previous 12. Outsourcing bookings for the Aug 2011 quarter were up 43% yoy. In
summary, recent headcount and outsourcing revenues/ booking metrics suggest clear acceleration
of the company’s offshore push – a combination of greater strategic intent and higher comfort on
execution, in our view.
Implications for Indian offshore pure plays – both positive and negative
Lest we are misunderstood, we are not suggesting that Accenture has suddenly become a
player to watch out for from an IT offshoring perspective. However, it is important to note
the recent acceleration in their GDN push. Now, this could be a result of two factors
Lack of choice with clients increasingly demanding more and more services to be delivered on a
global delivery model.
Accenture getting more comfortable with selling and delivering services on global delivery
model – from a strategic as well as execution perspective.
We believe it is a combination of both. The 1st one, validating the secular shift in favor of IT
offshoring, is an unqualified positive for the Indian offshore pure plays. The 2nd one can be viewed
as a reason to worry though – more aggressive competition, both on the demand as well as supply
side. Accenture has deep relationships with majority of F/G-500 clients. Their low margin targets
and aggressive offshore push can impact incremental market share gains for the Indian players, to
an extent. Also, while Accenture and other global SIs are not a meaningful factor as far as campus
recruitments are concerned, they have the potential to disrupt the supply scenario in the laterals
market, especially for niche high-demand skill sets.
We view Accenture earnings read-through as positive for the Indian players, on
balance. Reiterate positive coverage view on Infosys and TCS
Accenture’s earnings report does however validate two structural positive theses we have on
Tier-I Indian IT services names – (1) secular market share gains for offshore players and (2)
resilience of IT outsourcing/ offshoring demand unless decision making comes to a complete
halt – such an event would require a Lehman-type shock (or possibly something worse). We
find the valuations of Tier-I names, especially Infosys and TCS, attractive in this light.
Reiterate positive view on both.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Technology
India
Accenture’s accelerated GDN push – positives and negatives. Accenture’s strong
Aug 2011 quarter earnings report, robust FY2012E guidance and upbeat commentary
suggest sustained strength in demand environment for outsourced/offshore IT services.
More importantly, however, we note the recent acceleration in Accenture’s global
delivery network (GDN) headcount addition, bulk of which presumably is happening in
India. Client-demand-led (somewhat) forced adoption of the global delivery model by
Accenture may just be turning into a warm embrace of the model. This has positive and
negative connotations for the Indian offshore pure plays.
Accenture’s GDN headcount addition has accelerated in recent quarters
Accenture’s adoption of the global delivery model (or global delivery network as Accenture calls it)
has historically not been a comfortable one for the company, both from a strategic and execution
viewpoint. Volume shift in favor of GDN from the traditional onsite-delivery model has revenue
cannibalization impact. More importantly, the company has had internal challenges in the form of
changes required to mindset & incentive structures and getting the sales and delivery model right –
these have prevented a full-fledged embrace of the global delivery model in the past, in our view.
We note that the company has experimented with multiple sales and organizational structures in
India in the recent years.
However, Accenture’s recent headcount addition numbers suggest a marked change – the
company has added 60,000 people to its GDN over the past eight quarters, more than 100% of its
total headcount addition in the timeframe. To put it in context, TCS has been the only other IT
outsourcing company to have seen a similar net headcount addition in the past eight quarters.
The company’s outsourcing revenues have growth at 5% CQGR over the past four quarters, versus
<1% over the previous 12. Outsourcing bookings for the Aug 2011 quarter were up 43% yoy. In
summary, recent headcount and outsourcing revenues/ booking metrics suggest clear acceleration
of the company’s offshore push – a combination of greater strategic intent and higher comfort on
execution, in our view.
Implications for Indian offshore pure plays – both positive and negative
Lest we are misunderstood, we are not suggesting that Accenture has suddenly become a
player to watch out for from an IT offshoring perspective. However, it is important to note
the recent acceleration in their GDN push. Now, this could be a result of two factors
Lack of choice with clients increasingly demanding more and more services to be delivered on a
global delivery model.
Accenture getting more comfortable with selling and delivering services on global delivery
model – from a strategic as well as execution perspective.
We believe it is a combination of both. The 1st one, validating the secular shift in favor of IT
offshoring, is an unqualified positive for the Indian offshore pure plays. The 2nd one can be viewed
as a reason to worry though – more aggressive competition, both on the demand as well as supply
side. Accenture has deep relationships with majority of F/G-500 clients. Their low margin targets
and aggressive offshore push can impact incremental market share gains for the Indian players, to
an extent. Also, while Accenture and other global SIs are not a meaningful factor as far as campus
recruitments are concerned, they have the potential to disrupt the supply scenario in the laterals
market, especially for niche high-demand skill sets.
We view Accenture earnings read-through as positive for the Indian players, on
balance. Reiterate positive coverage view on Infosys and TCS
Accenture’s earnings report does however validate two structural positive theses we have on
Tier-I Indian IT services names – (1) secular market share gains for offshore players and (2)
resilience of IT outsourcing/ offshoring demand unless decision making comes to a complete
halt – such an event would require a Lehman-type shock (or possibly something worse). We
find the valuations of Tier-I names, especially Infosys and TCS, attractive in this light.
Reiterate positive view on both.
No comments:
Post a Comment