Accenture Plc’s earnings (Q1 FY20), announced last week, reiterate a decent demand environment for IT services. The company reported 9% year-on-year growth in constant currency revenue, up from 7.2% in the June quarter. It has raised revenue growth forecast for the year ending August 2020 even though new bookings increased at a tepid pace last quarter.
The company sees a strong order pipeline and expects order inflows to rebound. “We have a strong pipeline and we see strong (order) bookings in quarter two," the management told analysts.
Products, health and public services business verticals led the growth, clocking double-digit growth rate of 12-13%. Communications, resources and financial services verticals grew by 6-7%.
Encouragingly, growth at financial services, a large business vertical for Indian IT firms, improved. Compared to a 3% expansion in the previous fiscal year, revenues from this business segment grew 6% in Q1 FY20. The performance is driven by the insurance business. Continued recovery in banking and capital markets helped Accenture partially offset the weakness in Europe.
The commentary concurs local firms’ views. In recent interactions with analysts, industry leader Tata Consultancy Services Ltd (TCS) pointed to continuing challenges in the European banking and financial services business vertical.
But unlike TCS, which alluded to weakness in the US capital markets business as well, Accenture continues to hold a sanguine view on the North American market. “Overall, our financial services business, if you look at North America and the growth markets, remains robust, but we continue to expect challenges in Europe," Accenture’s management told analysts.
Similarly while quarterly growth rates at retail business moderated at TCS, the segment continues to do well for Accenture.
The varied commentaries underscore the differences in customer mix and the companies’ exposure to troubled clients.
“Accenture’s improved outlook for banking and capital markets in the US is in line with our expectations and is likely a reflection of lesser exposure to challenged clients in the region," Kotak Institutional Equities said in a note.
Also unlike Indian firms, Accenture is ahead in building new-age digital and cloud service segments. These services constitute 65% of Accenture’s revenue, compared to 30-40% for Indian firms.
In other words, persisting challenges in financial services, and varied customer and revenue mix mean Indian IT firms may not necessarily mimic Accenture’s performance, going ahead.
“Accenture’s performance was led by growth markets (~20% of revenue), where India IT has a lower presence, especially in key markets of Japan, Australia and China," adds Nomura Research.