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.