Home >Markets >Mark To Market >Accenture’s robust order wins underpin the optimism in IT stocks

Accenture Plc’s latest results strengthen the Street’s view of a recovery in the IT sector. The global IT major reported a 1% fall in constant current revenues in the quarter ending August 2020. But outsourcing revenue, where the Indian IT has greater presence, held-up growing 7% from the year-ago quarter. In the earlier quarter (Q3 FY20) outsourcing revenue grew 5%. The Nifty IT index is up 2% in Friday trade. Note that Accenture’s fiscal year ends in August.

The company saw strong orders. New bookings at $14 billion are up 9%. The orders are driven by outsourcing. Orders in the outsourcing segment grew 10% to $7.5 billion, the highest in recent quarters. In Q3, outsourcing orders grew 4%. “Sustained healthy momentum in outsourcing business revenue and booking augurs well for Indian peers," Emkay Global Financial Services Ltd said in a note.

The book-to-bill ratio is at 1.3 times, the highest in 25 quarters, points out Jefferies India Pvt. Ltd. Book-to-bill is a ratio of new orders to completed sales. A ratio above one implies strong demand.

“We understand these bookings could be lumpy, but they still indicate demand is on the path to normalization/recovery, with the worst behind us. Management hinted at a robust deal pipeline, which is encouraging for Indian IT companies as well," Motilal Oswal Financial Services Ltd said in a note.

Of course, new orders do not imply immediate boost to revenues. Moreover, economic disruption due to covid-19 means uncertainty persists. Consequently, Accenture warns its revenues can fall 3% or reach the year ago levels (zero growth) at best in the current quarter.

Accenture expects the upcoming quarter to be subdued as well. But the company sees growth rebounding and returning to pre covid-19 levels from March next year onwards.

The commentary broadly is in line with the guidance provided by the domestic IT majors, notably Tata Consultancy Services Ltd (TCS). Incidentally, TCS also announced a digital transformation deal with maurices, a women’s fashion-apparel retail chain in the US and Canada.

“(Accenture’s) management expects growth to pick up to pre covid-19 levels from 2HFY21 and sees acceleration in digital transformation and cloud migration as medium-term growth drivers. We see this as positive for Indian IT services," add analysts at Jefferies India.

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