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Accenture expects consulting growth to moderate to low single-digits in the latter half of FY20 with outsourcing moderating toward low to mid-single digits positive growth.
Accenture expects consulting growth to moderate to low single-digits in the latter half of FY20 with outsourcing moderating toward low to mid-single digits positive growth.

Accenture May quarter outsourcing performance provides hope for Indian IT

  • Outsourcing bookings were at $4.8 billion, up 8% in local currency, and 5% in US dollars with a book-to-bill ratio of 1. Outsourcing revenues were at $5 billion, up 3% in dollar terms and up 5% in local currency

MUMBAI: US-based software consulting major Accenture’s results for the quarter ended 31 May provides some hope for Indian information technology (IT) majors, given the company's strong outsourcing business performance. Accenture reported robust growth in its outsourcing income, accounting for 44% of total revenue, as well as deals signed during the quarter compared to consulting business which accounts for the rest of the revenue.

Indian IT stocks had soared on Friday following Accenture's results, with Infosys gaining 6.9%, TCS 5.2%, Wipro 3.1%, HCL Tech 2.3% and Tech Mahindra 1.2%. Indian IT companies are largely into outsourcing.

Accenture's consulting bookings totalled $6.2 billion, up 5% in local currency, and 3% in US dollars with a book-to-bill of 1. Whereas, consulting revenues for the quarter were at $6 billion, down 4% in US dollars and down 2% in local currency, which includes a reduction of approximately 3 percentage points from a decline in revenues from reimbursable travel.

Outsourcing bookings were at $4.8 billion, up 8% in local currency, and 5% in US dollars with a book-to-bill ratio of 1. On the other hand, outsourcing revenues were $5 billion, up 3% in US dollars and up 5% in local currency.

“Between consulting and outsourcing we saw a similar pattern in Q3 in this. We had the lower sales in Strategy and Consulting in Q3 and we're going to have some lower sales in Q4. We sort of expect that, as we continue," said Julie Sweet, CEO, Accenture.

Accenture expects consulting growth to moderate to low single-digits in the latter half of FY20 with outsourcing moderating toward low to mid-single digits positive growth. The company also said orders have not been hit by remote working and the order book is largely stable.

It has large offshore delivery centres across India and the Philippines which were hit by the covid-19 measures, with staff moved to work from home.

"Accenture’s Q3 performance and guidance came broadly in-line with expectations and suggests no incremental deterioration in demand. New bookings grew at healthy 6% CC YoY in Q3 despite Covid-19 uncertainties. A potential weak start to the year, along with soft demand, and some supply disruption due to visa restrictions would weigh on the near term growth," wrote Sbicap Securities in a note to investors.

The only concern, analysts noted, was Accenture getting its incremental revenue from a lot of “new" technology and consulting-based deals while Indian peers continued to gain share in low margin legacy and outsourcing deals. If Accenture is forced to turn to outsourcing business for growth in the coming quarters, Indian IT will have to be ready to get even more price competitive.

"Customers seem to be focused on shoring up what they already have as opposed to thinking about the next generation of customer experience. However, this spending will eventually come back. We should see similar trends for Indian heritage players too," noted a report by Nirmal Bang Securities to investors.

Also, the Donald Trump administration recently announced that it will suspend H-1B and other work permits for immigrants for the rest of the year. "While this limits Accenture's ability to bring the workforce from India to the US, compared to its Indian rivals, Accenture is less dependent on offshore employees. This could help the firm to gain share from its Indian peers that are more severely hurt by the visa restrictions, wrote analysts at Financiele-Diensten.

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