Photo: Reuters
Photo: Reuters

Accenture’s growth outlook dims, but its business is coping up well

Accenture has sharply cut its revenue growth guidance for the current fiscal year

Accenture Plc.’s latest quarterly results offer some reassurance to information technology (IT) investors, who are otherwise rattled by the coronavirus disruption.

The IT services behemoth reported 8% revenue growth in constant currency terms for the quarter ended February, at the upper end of its guided-to range. The company’s fiscal year ends in August.

For the current fiscal year, Accenture has slashed its revenue growth guidance. The midpoint of the guidance implies no growth in the quarter ending May. That is a notable fall from the 8% growth in the first half of the current fiscal year.

Graphic: Satish Kumar/Mint
Graphic: Satish Kumar/Mint

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For the full year FY20, the company expects its revenue to grow 3-6%, down from the 6-8% guidance given in 2019. The midpoint of the guided-to range implies a tepid second half.

“Pre-Covid-19, it was expecting to hit the upper end of the old guidance of 6-8% in FY20. This would have implied 7.5% revenue growth in H2 FY20. The new guidance implies 0.5% growth, year-on-year, including inorganic contribution. This signals pressure for Indian IT services in FY21, especially in H1 FY21," said analysts at Nirmal Bang Institutional Equities in a note.

Accenture’s results do not capture the business disruption in the current month, when the impact became more pronounced. Indian IT’s quarterly results next month will reflect the impact.

Even so, dig deeper and matters are not as bad as the plunge in share prices indicate. The Nifty IT index was down 26% last month.

Accenture booked new orders of a record $14.2 billion last quarter, up 20% from a year earlier. Of these, outsourcing orders, which are more relevant for Indian IT, shot up 37%.

The record orders come after tepid wins in the quarter ended November 2019. Also, looming concerns about the global economy can slow order execution and trigger recalibration of IT spending by clients.

But Accenture said the impact will be felt more by the consulting division, where Indian IT figures relatively less. “Weakness is likely to be driven by consulting. Accenture has guided to negative to low single-digit year-on-year revenue growth in its consulting business, and low to mid-single-digit year-on-year growth in its outsourcing business in H2," said analysts at Nomura Financial Advisory and Securities (India) Pvt. Ltd in a note.

Also, management commentary indicates limited disruption to services delivery till now. The company is transitioning to newer ways of working. Around 60% of its employees in India are already working from home. “Accenture’s results indicate that it is possible to manage delivery and even transition, even if a large number of teams are working from home. Companies with strong delivery processes and use of collaboration tools can sustain operations despite the severe nature of the current stress," said Kotak Institutional Equities in a note.

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