Accenture - Outsourcing surge signals tough competition ahead; Q4FY12 Result Excerpts:: Edel

Accenture’s Q4FY12 revenue, at USD6.7bn, though within the company’s guidance, surpassed Street estimate. Operating margin, at 13.8%, dipped 100bps QoQ and was flat YoY. New order booking, at USD9.2bn, surged 9% YoY and 26.2% QoQ. For FY13 it has guided for revenue growth of 5-8% in local currency (versus 11% in FY12) and expects outsourcing revenue to drive growth during the year. Management reiterated that higher demand for transformational projects across operating groups and structural cost take-out related services drove bookings during the quarter. We believe the continued traction in outsourcing and financial services (FS) does not bode well for Indian IT players and could pose tough competition ahead.

Outsourcing revenues: TCS closing in on Accenture (ET)

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The gap in the outsourcing revenues between India's largest IT services provider TCS and global tech giant Accenture is fast narrowing.

In recent quarters, the revenue differential has narrowed down to about $300-400 million from about $800-900 mn three years ago. Ankur Rudra, IT sector analyst at Ambit Capital, feels that at this rate TCS could surpass Accenture's outsourcing revenue within the next couple of years.

A Kotak Securities report in December said that between the years 2005 and 2010, Accenture saw a compounded annual growth rate (CAGR) of 7%. The corresponding figure for TCS was 22%.

For the period January-December 2011 for TCS and December-November 2010-11 for Accenture (TCS follows an April-March and Accenture a September-August financial year) the difference in outsourcing revenues stood at around $1.5 billion. Three years ago the difference was around $3.5 bn.

Accenture, however, remains the much larger company because of its consulting revenue. Its consulting revenue is about 50% of overall revenue. TCS's consulting revenue is just 2-3% of overall revenue.

TCS's growth rate has been accelerating particularly after the re-structuring in 2008. Since late 2009, when N Chandrasekaran took over as CEO, revenues have increased from $6 bn to a likely $10 bn this fiscal. Analysts say that TCS builds strong client relationships.

A former senior official at Accenture said TCS is much more flexible in its pricing compared to global peers. Accenture, which sees itself as a high-value player, does not aggressively bid for commoditised services like application maintenance contracts unless it is a significantly large deal extending over multiple years.

TCS, like many other Indian IT players, is also said to be benefiting from the vendor churn in the industry. Many large clients who were locked in with deals are opening them up for bidding. Large deals are thus being broken down into smaller sized deals, benefiting players like TCS that offer a cost advantage.

An analyst with a leading research and advisory services firm said that Accenture perhaps does not fully realise the potential of the offshore leverage of its global delivery model. "It is also probably not able to sufficiently convert consulting contracts that give vendors an opening into company boardrooms, into downstream outsourcing revenues," he said.

A recent report by brokerage firm Nomura says that top tier Indian players like TCS and Infosys have been gaining IT market share, while global players like HP and CSC are losing out. The Kotak report says Accenture saw a 29% market share gain between 2005-10, while TCS saw a 47% gain.

While seven IT service providers captured a combined 75% of the total contract value of deals over $25 mn ten years ago, this is now distributed across 15 providers. The new entrants to this list are India's tier-1 IT players such as TCS, Infosys and Wipro.

However, not everyone is convinced that it is fair to compare Accenture and TCS as both companies are different in nature and perhaps define outsourcing revenues differently. "Though they do compete for some common bids, Accenture has a huge consulting focus unlike TCS," said Sidharth Pai, partner at sourcing advisory firm ISG.

EdelFlash: IT - Accenture results indicate growth moderation ::Edelweiss

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Accenture reported 17% YoY revenue growth for Q1FY12 at USD7.6bn. Outsourcing revenue grew 21%, ahead of consulting revenue, which surged 14%. Management commentary indicated higher demand for short-term and structural cost take-out related services. Europe is also embracing offshoring as companies focus on reducing costs. This is in line with commentary from Indian offshore vendors who continue to witness demand led by cost reduction programmes. Discretionary spending is likely to moderate in CY12 as corporate clients continue to take a regulated approach in technology spending. Accenture has maintained its FY12 guidance of 7-10% revenue growth while widening the range of Q2FY12 guidance to 11-17%, implying near-term uncertainty impacting visibility and moderation in growth.

We believe Indian IT companies will also post lower volume growth over the next two quarters (2-5%), in line with our expectation of growth moderation. Thus, while there could be potential downside in IT stocks in the near term (5-10%), we believe the sector’s structural attractiveness remains intact. We continue to prefer Tata Consultancy Services (TCS) due to its positioning as a primary offshore vendor and HCL Technologies (HCLT) due to its strong IMS and restructured BPO offering.   

Accenture Q1FY12 result key highlights

·         Robust revenue growth: Net revenue at USD7.6bn, up 17% YoY compared to 23% in previous quarter.

·         Vertical-wise performance: Financial services (FS) (21% of revenue) and Communications, Media & Technology (CMT) (22% of revenue) grew 8.1% and 7.2%, respectively. Health & Public Service (21% of revenue) grew 6.1% QoQ.

·         Geographical split: While EMEA at USD3.1bn led growth as revenue jumped 11.8% QoQ, APAC (14% of revenue) and Americas (43% of revenue) were subdued at 3.6% and 1.1%, respectively.

·         New order booking moderates: Accenture’s new order booking at USD7.8bn  grew 23.8% YoY (29.6% YoY in previous quarter) as outsourcing order booking at USD3.6bn grew 38.5% (44.1% in Q4FY11) while consulting order book at USD4.2bn saw tepid growth of 13.5% (17.5% in Q4FY11).

·         Employee count: The company added 8,000 employees during the quarter, taking employee count to 244,000. Attrition declined to 12% from 14% in Q4FY11.Utilisation for the quarter increased 200bps to 87% versus 85% in Q4FY11.

Technology: Accentures accelerated GDN push - positives and negatives:: Kotak Sec,

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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.

Accenture's results provide a positive datapoint in this uncertain demand environment ::Credit Suisse,

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● Accenture reported its Aug 2011 quarter results on 27 Sept.
Revenue growth of 14% YoY (constant currency) was 2% ahead
of consensus estimates. FY8/12 revenue growth guidance of 7-
10% in CC terms was unchanged and ahead of consensus
estimates. The stock closed up 3% during regular trading and 4%
in extended trading. Quarterly order bookings of $8.4 bn were an
all-time high for the company.
● Management commented that clients are well aware of the
external environment but see strong activity and investments in
new and maintenance projects that take out costs.
● Financial services business grew 13% YoY in CC terms in the
Aug-11 quarter, nearly in line with the overall 14% growth. They
continue to be cautious about their consulting business in
European financial services. Overall, there has been no indication
of increased scrutiny in spending by clients.
● While the environment continues to be uncertain, these results
present yet another datapoint that demand trends for IT services
remain solid. Reiterate OVERWEIGHT.


Robust top-line growth
4Q revenues increased 23% YoY in USD terms, 14% YoY in constant
currency to US$6.7 bn compared to consensus estimates of US$6.5
bn and guidance of US$6.4 to US$6.6 bn.
Consulting revenues, which are more relevant for Indian IT services
companies grew 16% YoY in CC terms. Outsourcing grew 13% YoY.


Financial services growth nearly in line with total, Europe
continues to be relatively weak
EMEA region continued to be the slowest growing geography in the
company. Management indicated that it had some concern with
respect to ongoing macro-economic concerns, especially with respect
to consulting business in the European financial services space.
However, it mentioned that there was significant disparity with respect
to demand environment in different European countries. While south
European countries were struggling, Germany and the Nordic
countries were doing well. We note that Indian IT services companies
have little exposure in southern Europe.
Financial services business grew nearly in line with other businesses
for Accenture.


Guidance ahead of street expectations
FY8/12 revenue growth guidance of 7-10% in CC terms was
unchanged. This is ahead of street expectations.
Strong order book
Quarterly order bookings of US$8.4 bn were an all-time high for the
company. For the full year ending Aug-12, management has guided to
order bookings of US$28 bn to US$31 bn.


Macro worrying, but no impact so far
While Accenture management recognised recent global macro risks
have increased and global growth has slowed, it had not seen any
impact on IT spending so far. Management stated that there has been
no indication of project delays or increased scrutiny in spending.
Accenture reported that its clients were highly focussed on cost
management in the macro climate and that clients had much stronger
balance sheets currently than at the time of the previous crisis and
continued to invest.
We reiterate our positive view on Indian IT companies
While clearly the global environment is uncertain, strong results from
firms such as Accenture and Oracle, results of corporate surveys in
US and Europe and positive datapoints from Indian IT companies give
us a high degree of confidence for 15-20% near-term revenue growth
potential. Europe and financial services remain areas to monitor
closely. If a recession were to occur, growth will definitely be a lot
lower and valuations will fall but our argument has been then this
segment may still be a relatively safe place to be in.

IT Services – Accenture 4Q11 results read through::RBS

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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.

Accenture: 4QFY11 results :CLSA

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4QFY11 results
Accenture continued to defy sceptics with yet another stellar quarter.
23.4%YY growth in revenues and record quarterly bookings of US$8.4bn
were key positives for the quarter. Economic uncertainty
notwithstanding, Accenture maintained that visibility of business was as
high as last year at least for 1HFY12. While FY12 revenue guidance of 7-
10%YY in constant currency was maintained, organic growth
expectations are lower c.f. 5 months back with acquisitions filling the gap.
Given higher expectations, adverse currency moves and likely macro
issues, an encore of last year looks unlikely for Accenture. That said, its
increasing deal win-rate and solid margin defence will likely keep it ahead
of peers. OPF stays amidst an overall challenging year for outsourcers.
Strong quarter; FY12 revenue growth target maintained
4QFY11 revenue of US$6.69bn, up 23.4%YY beat the top end of company
guidance. Record order booking of US$8.4bn and strong 1QFY12 guidance
(US$6.8-7bn) indicates that business momentum remains strong for
Accenture for now. While FY12 revenue growth guidance was maintained at
7-10%YY (constant currency terms), it now builds in lower organic growth
than assumed earlier. Acquisitions of Zenta and Duck Creek and
consummation of the Nokia deal is picking up the slack from the lower
organic growth. A section of the street has been sceptical on Accenture’s
ability to improve margins. However guidance of 10-30bpsYY improvement in
operating margin for FY12 should address that concern.
Cautiously optimistic commentary on demand trends
While confidence on near-term demand remains high, management tone
seemed a tad cautious c.f. the previous earnings call. Per Accenture, deals are
sitting longer in the pipeline than earlier but the management hasn’t seen any
significant change in client decision making cycles. Accenture has tried to
balance this uncertainty by winning a higher proportion of deals and that
remains a key driver of their superior performance. Accenture had over
US$100m in bookings from 10 of its clients in this quarter, primarily in
outsourcing. Optimistic demand commentary on outsourcing was tempered
by some caution in consulting and Europe.
Better positioned than peers
In our view, Accenture remains the best positioned IT Services provider.
Accenture has strengthened its business in the past few years, cutting
delivery costs while building on its leading position in consulting and systems
integration. Accenture’s willingness to invest in platforms/solutions should
further increase its competitiveness as the game in IT Services shifts away
from labour costs. Stabilisation in the ratio of manpower across high and low
cost locations should aid Accenture’s revenue and margin metrics ahead.

India IT Services: Strong 3QFY11 results from Accenture point to healthy demand environment for Indian IT:: JPMorgan

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 Accenture (covered by our US IT analyst Tien-Tsin Huang) reported a robust
Q3 meaningfully ahead of consensus and J.P. Morgan (revenue) estimates,
pointing to continued healthy spending environment. The company reported
impressive  revenue  growth and bookings  for both consulting and  outsourcing
businesses.  Management  suggested  that  discretionary  spending  continues  to
grow  and  macro  economic  concerns  do  not  seem  to  have  impacted  clients’
willingness/ability to invest for future growth. Public sector revenues were light,
which is  understandable  given  difficult  fiscal  situation  (in the US  and  certain
European countries); however it is not likely to impact overall revenue growth
meaningfully.  Management  pointed  out  that  clients  continue  to  spend  to
position  themselves  for  global  opportunities,  to  be  compliant  with  new
regulations,  to  increase  efficiency  to  remain  competitive  and  to  build
capabilities in themes like cloud, analytics and mobility.
 Strong  revenue  growth  and  bookings  point  to  healthy  demand
environment. Accenture  reported  impressive  Q3  revenues  of  $6.7  bn,
significantly ahead of consensus estimate of $6.4 bn and upper end of guidance
($6.5  bn).  Consulting  revenues  were  particularly  robust (growing  17% y/y in
local currency and 23% y/y in USD) pointing to strong discretionary spending,
while Outsourcing business was healthy with 12% y/y revenue growth in local
currency (17% in USD). Bookings were strong (particularly for outsourcing) at
$7.1 bn, and positively, the company guided  for even stronger booking (about
$8 bn) next quarter (management is likely to have significant visibility for next
quarter  bookings  now). Notably,  BFSI growth  (which  had  some  concerns
regarding  sustainability  of  growth) was impressive  (19% in local currency) as
acquisition  integration  and  compliance  projects  continue  to  grow,  this  bodes
well for TCS & Cognizant, which derive over 40% of their revenues from BFSI.
This also helps assuage concerns that BFSI spending might be slowing down.
 Discretionary  spending  continues  to  grow. Management  suggested  that
system  integration  work  exhibited  strong  growth  driven  by  ERP  for  helping
global expansion and for data management and analytics. The driving factors for
consulting  growth  include intent to  target  new  opportunities,  revenue  growth
and rationalization of infrastructure utilizing virtualization and consolidation.
 Globalization, increased regulation, efficiency focus and themes are driving
spending  growth  despite  weak  macro  environment.  Weakening  consumer
spending (particularly in the US) and macroeconomic concerns do not seem to
have  impacted  enterprise  spending,  which  drives IT  industry  revenues.  Most
clients of IT services vendors are G2000 companies, which continue to invest in
new markets/geographies, need to be compliant with new regulations, invest for
operational  efficiency to  remain  competitive and  in  themes such  as  cloud,
mobility and analytics. Moreover, these companies have meaningful exposure to
emerging markets where growth has not meaningfully slowed down.
 Accenture  results  point  to  strong  growth  for  Indian  IT  companies. We
believe the  healthy  spending  environment  augurs  well  for revenue  growth for
Indian  IT. We  retain our  positive  bias  towards  the  sector with OW  on  TCS,
Wipro and HCL Technologies.

Implications of Accenture and Oracle results for India IT ::Morgan Stanley

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Implications of Accenture and 
Oracle results for India IT 
Quick Comment: Overall trends in outsourcing for
Accenture (revenue +8% QoQ, Bookings +7% QoQ)
and Oracle’s license revenue (+19% YoY) were
encouraging and indicate a healthy demand
environment for the India IT vendors, in our view.
What's new: Accenture reported 3Q11 revenue of
US$6.7bn ahead of its guidance (US$6.3-6.5bn) and
raised its full year revenue growth outlook to 14-15% in
local currency (vs 11-14% earlier). Oracle guided for
15% YoY F1Q12 revenue and EPS ahead of consensus
estimates.
Accenture clients continue to invest despite macro
concerns: Accenture management indicated that
despite macro challenges in US and Europe, its global
clients continue to focus on enhancements to reduce
cost of legacy systems and development for new
technologies. We believe Infosys, TCS and Wipro are
also benefitting from continued IT spending from clients
in an otherwise tumultuous macro environment.
Stable pricing environment should support
margins: We note that across large vendors the pricing
commentary is similar and indicates stable to upward
bias. Accenture management also expects pricing to
remain stable with upward bias in parts of their business.
We believe margins for India IT vendors in 2011 are
unlikely to take a step down in a stable pricing regime.
Strong growth in enterprise applications could
continue: Oracle reported F4Q11 and FY11 results.
New license software revenue grew 19% YoY in F4Q
and 23% YoY in FY11. Trends from Accenture and
Oracle results indicate that system integration and
enterprise applications revenue could continue to show
strong growth for India IT companies, in our view.
Maintain In-Line industry view: Infosys (OW) remains
our preferred stock to play the upside in India IT in 2H


Broad-based revenue growth provides comfort in demand
environment: Accenture revenue growth was broad based
across geographies and industries. In local currency terms, US
grew 14% YoY, EMEA 13% YoY, Asia Pacific 25% YoY.
Financial services grew 19% YoY, communication and hi tech
grew 16% YoY. For India IT vendors, we expect revenue
growth to be driven by Financial Services, Manufacturing and
Retail verticals with Telecom lagging the industry growth rates
in F2012.

IT Services: Back Up Truck on Cognizant; Accenture Outlook Solid; Capgemini's Pipeline Comment Misunderstoo: Bernstein Research,

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IT Services: Back Up Truck on Cognizant; Accenture Outlook
Solid; Capgemini's Pipeline Comment Misunderstoo


Highlights
Today's piece summarizes findings from our latest channel checks on the consulting/systems integration
and offshore markets and from Capgemini's analyst day, including offline discussions with several
Capgemini executives.  In addition, we've further studied recent concerns hurting Cognizant's stock, and we
address basic questions facing Accenture ahead of its June 23
rd
earnings report.  Key conclusions include:
 Heightened concerns of late about Cognizant's Q2 are unfounded, and we think investors should take the
opportunity to aggressively buy Cognizant following its recent pullback.  We are reinstating Cognizant
as our best idea.
 Capgemini's Analyst Day comment about "a plateau in its systems integration pipeline" has been
misunderstood.  This comment should not be cause for concerns about a "double dip" in demand, with
our view on this front confirmed by our discussion with Capgemini's CFO.
 Following its pullback off of its all-time high stock price due to Cognizant / Capgemini related concerns
that we think are unfounded / misunderstood, Accenture's risk/reward now looks more attractive ahead of
its upcoming May quarter earnings report.
Findings from Capgemini's analyst day and from our broader industry checks on the consulting/
systems integration and offshore markets

IT Services: Does It Make Sense That IBM's Consulting & SI Growth Is So Much Weaker Than Accenture's? Yes! :: Bernstein Research,

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Highlights
IBM Global Services' results for Q1:11 were mixed, but disappointing overall. This piece explains IT
services industry implications from IBM's report and our follow-up discussion with management.
On the somewhat positive side, overall Global Services revenue growth improved from 2% in Q4:10 to 3%
in Q1:11, and we see indications that add-on work is helping outsourcing revenues.

Accenture- Takeaways from Analyst Day - Upbeat Tone, In-Line Outlook: JP Morgan

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Accenture plc Overweight
ACN, ACN US
Takeaways from Analyst Day - Upbeat Tone, In-Line
Outlook


ACN held its investor conference today in NYC, which was very well attended
and included upbeat presentations from management and various business heads.
Key takeaway was that Accenture is well positioned to outperform the industry,
and we remain confident that ACN has made the right investments to take
advantage of several early-stage secular trends (e.g., globalization, mobility,
regulation, cloud) to fuel sustainable premium growth. ACN prudently guided
FY12 revenue growth at 7-10% and EPS growth of at least 12% on slight margin
expansion, which was in line with our views, but perhaps short of some bullish
expectations of a double-digit guide. We reiterate our Overweight rating on ACN
and believe the stock is set up well for potential positive earnings revisions over
the mid-term.
• In-line FY12 revenue growth guidance. FY12 local currency revenue
guidance of 7-10% (vs. our est. of 8.5% growth) compares with overall 5%
industry growth in FY12. ACN highlighted various near-term demand drivers
such as globalization (resulting in consolidation in client industries), regulation
compliance, clients looking for operational excellence (driving process reengineering
and application rationalization work), and innovation. The
company is also seeing growth from new technology trends such as cloud,
mobility, data analytics, and smart-grid. In terms of verticals, the company is
investing in healthcare, consumer goods, banking, telecom, and utilities.
• EPS guidance also in line, helped by slight margin expansion and buybacks.
The company guided for FY12 EPS growth of at least 12% (vs. our estimate of
13%). Accenture expects slight margin expansion (JPMe 9bps in FY12) driven
by improving productivity, delivery efficiency, and industrialization. ACN also
committed to returning $2.8B+ in cash to shareholders in FY12 in form of
dividends and buybacks (vs. our estimate of $2.7B). ACN also expects to lower
its share count by 2-3% through buybacks. Management also reiterated its
acquisition strategy of pursuing tactical tuck-in deals.

Accenture: Should ACN Still Qualify as Best Idea, After Anticipating Next Set of Issues to Face the Stock?

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Accenture: Should ACN Still Qualify as Best Idea, After
Anticipating Next Set of Issues to Face the Stock?


Highlights
Our January 12th research piece featured Accenture as our best idea based on: 1) analysis of Accenture's
distinctive growth, FCF, and ROC attributes compared to tech stocks in general, and 2) our favorable
demand progression thesis emphasizing that a "transformational" services demand phase would drive
significant upside to consensus. This piece also asserted that our $57 target price was conservative after
accounting for Accenture's distinctive attributes (conveyed by evaluating metrics across tech stock
universe) and our expectation of upward revisions to Street estimates. Today, we are raising our target
price to $62.75. And, based on reasons explained herein, we are keeping Accenture on Bernstein's bestidea
list, while also recognizing that Accenture's stock is not as "best" of an idea today (compared to
January) due to its recently heightened valuation and due to other factors we anticipate will become
pertinent – i.e., factors, such as supply-side reasons to somewhat govern Accenture's growth, which could
cause incrementally more patience to be required for substantial additional stock appreciation.

Implications of Accenture 2Q11 Results for India IT :Morgan Stanley

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India IT Services
Implications of Accenture
2Q11 Results for India IT
Quick Comment: Our key takeaways from Accenture1
results for India IT vendors are: 1) IT services as a
sector is capable of delivering a strong revenue growth
even in the current uncertain environment; and 2) India
IT vendors have indicated that discretionary spending
with clients is picking up. Accenture's strong revenue
growth/bookings in consulting/outsourcing further add to
the trend in our view.

Accenture (ACN):: Well positioned :: CLSA

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Accenture:: Well positioned
Accenture has strengthened its business in the past five years, cutting
delivery costs and reducing exposure to the US market and financial
services. Meanwhile, the firm continues to build on its leading position in
consulting and systems integration. At 16.2xAug’11 earnings, we find
Accenture compellingly priced, especially amid a strong demand
environment for IT Services. We see five key drivers of a positive
investment thesis in Accenture over the next 2 years.

BofA Merrill Lynch: Indian IT: Accenture: Strong “offshore” offering

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India Computer Services
  
Accenture: Strong “offshore” offering 

„Accenture India: 60,000 people strong
We met with Accenture India management yesterday and believe their “offshore”
offering is comparable with the large India centric vendors. We expect large
Indian and global vendors like Accenture and IBM to continue to gain from global
sourcing gaining share. Accenture has grown rapidly to strength of 60,000 people
in India. It now recruits from engineering campuses as well and has training
facilities in-house. It believes its key competitive differentiators are its deep client
relationships, its focus on specialization and creation of software solutions, and
focus on industrializing delivery through use of tools and shared resources. It also
has a wide low cost delivery network. One of the challenges could be relatively
lower ability to offer onsite postings to junior employees and rev cannibalization
as existing revs shift offshore.

HSBC: Indian IT Services -Positive read-across for Indian IT from Accenture results

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Indian IT Services
Positive read-across for Indian IT from Accenture results 
Strong consulting bookings and pipeline suggest higher
client confidence; Accenture raises full-year guidance in 1Q
We expect discretionary spending to accelerate in 2011 as
clients invest in growth and not just cost rationalisation
Positive for Indian IT sector: Expect strong earnings growth
in FY12 led by robust volume growth and stable margins

Goldman Sachs: India IT: Accenture (ACN, Buy, $44.22)

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Accenture (ACN, Buy, $44.22) 
 Strength and rapid growth of global delivery resources – Accenture highlighted the
evolution and strength of its global delivery model – 116,000 out of the company’s
203,000+ headcount is now in global delivery locations, with 50+ delivery centers
driven and skills in al major languages, all driven by one consistent process
methodology. At 58,000 resources (2/3 IT, 1/3 BPO) at the end of FY10 India is the
largest country for ACN in terms of headcount and has grown 51% organically on a
CAGR basis over the last five years.

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.

Accenture: A sweet foretaste for Indian IT says IIFL

A c c e n t u r e: A sweet foretaste
• Accenture delivered a strong 4QFY10 with revenues at the topend
of its guidance (US$5.4bn, 5% YoY) and re-emphasised the
robust demand environment. Guidance for FY11 at 7% to 10%
YoY (constant currency) is strong and implies acceleration in
revenue growth.
• Growth in 4QFY10 was diversified and broadbased with all major
verticals registering a 7% to 16% YoY growth (constant
currency). BFSI and products practices performed strongly with
14% and 16% YoY revenue growth (constant currency)
respectively.
• Signs of a pickup in discretionary spending are also evident in its
order book. The more discretionary ‘consulting’ orders were 54%
of its 4QFY10 new bookings.
• Our channel checks indicate that attrition, though still high, has
been on the wane at Indian vendors. Indications of this can be
seen at Accenture, where attrition after increasing from 8% to
17% over the past year has been stable in 4QFY10.
• For Indian vendors, we expect a strong 2QFY11 with 6.5% to
7.5% US$ QoQ revenue growth across the top-tier vendors.
• Also, after nearly four quarters of better EBITDA growth at TCS
(vs Infosys), we expect Infosys to report materially stronger
EBITDA growth (15% QoQ vs 8% at TCS) in 2QFY11 on higher
revenue growth and strong margin expansion.
• Infosys and HCL Tech remain our top picks in Indian IT services.