Accenture Plc has guided for lower organic growth for the year ahead, compared to what it had indicated for the previous year. It has guided for overall growth of 5-8% for the year till August 2018, the same as last year, although the inorganic contribution this time around is estimated at 2.5-3%, versus 2% last year.
This just confirms the deceleration in growth for large IT companies, which provides little comfort for Indian IT stocks. Analysts at Kotak Institutional Equities said in a note to clients, “Indian IT is banking on an improvement in the demand environment to hope for a better FY2019, after disappointments and likely soft growth in FY2018. Accenture’s guidance fails to provide that comfort."
But even worse news for Indian IT companies is that Accenture is gaining market share in key industries such as banking and financial services and retail. Growth in these segments was higher than the company average last quarter. This is in stark contrast with the experience of Indian IT companies, which have sounded downbeat on these segments lately.
Also, while Accenture’s growth looks tepid at 5-8%, it must be noted that it’s roughly 2.5 times the size of large-sized Indian IT companies. As such, in terms of incremental revenues, it is far ahead of Indian peers, who are growing at similar rates in percentage terms.
“We estimate that we grew more than three times the rate of growth of a basket of publicly traded companies as we continue to take share and strengthen our position as a market leader," David P. Rowland, chief financial officer, Accenture, said in a call with analysts.
Analysts have repeatedly pointed out that the company’s nimble-footed acquisition strategy has held it in good stead. Accenture spent $1.7 billion acquisitions last year, spread over 37 transactions. For the coming year, it has allocated 25-30% of its cash flow for inorganic opportunities, or between $1.1 billion and $1.4 billion.
“Acquisitions are important to beef up skills, ease off time-to-market pressure and accelerate transition of the business model towards digital services. This is an area where Indian IT can pay more attention to," Kotak’s analysts said in their note. Digital or new services account for about half of Accenture’s revenues, whereas for large Indian IT companies, they contribute a much lower 19-23%.
All told, Accenture’s results and outlook for the coming year suggests little has changed for Indian IT companies. To add to their woes, some of them are in the midst of leadership transitions, which just add to the pressure when it comes to retaining market share.