Accenture does well, but that’s little solace for Indian IT sector
Accenture’s higher growth suggests that it is gaining at the expense of Indian IT firms, which have fairly insignificant presence in consulting
Accenture Plc reported revenues of $8.5 billion in its fourth quarter, ahead of consensus estimates that revenues will grow to $8.4 billion. The company had started the year with guidance of 5-8% revenues growth in constant currency terms, but ended up with a much higher growth of 10.5%.
But this is hardly any reason for investors in Indian IT companies to get excited. On the contrary, Accenture’s higher growth may well suggest that it is gaining at the expense of Indian IT firms. It has a significant presence in consulting, an area where its Indian peers are still fairly small in size. And it attributes as much as 40% of its revenues to digital, cloud and security services. For large Indian companies, the contribution of digital services is typically in the teens.
More importantly, in the outsourcing segment, which is far more comparable to Indian IT firms, Accenture reported a 4% dip in fresh bookings in the full year period and a 9% decline in the fourth quarter. “The decline in outsourcing bookings is a negative read for Indian IT”, analysts at Religare Institutional Research wrote in a note to clients.
In Accenture’s case, the decline in the outsourcing side of the business is well compensated by its consulting practice, where bookings rose by as high as 19% last year. “The strength of Accenture’s portfolio is being reflected in the company posting similar growth as tier-1 IT on an aggregate basis, despite it being near 2-5 times the size of the tier-1 IT companies. Similar trends are visible across large verticals (BFSI/retail/manufacturing/healthcare) and large geographies (North America/Europe)”, analysts at Noumra Research said in a note to clients. They also note that Accenture competes aggressively in the outsourcing space, with a large offshore headcount that’s next only to Tata Consultancy Services Ltd (TCS).
The fact that Accenture has clearly stood apart is also reflected in its stock. While the Nifty IT index has declined by around 10% in the past two years, Accenture shares have risen by nearly 50% the same period. Two years ago, TCS’s market capitalisation was 1.5-1.6 times that of Accenture; now the latter has taken a clear lead.