Home / Markets / Mark To Market /  Attrition falls at Accenture; can IT heave a sigh of relief?

There were two main takeaways for Indian information technology (IT) services investors from global IT company Accenture’s Q1FY22 earnings report released last week. One, there are signs of attrition easing. Two, Accenture’s management points out that demand conditions are extraordinary and robust.

To start with, Accenture’s attrition rate fell by 200 basis points (bps) sequentially to 17% in Q1FY22. This was at a multi-quarter high of 19% in Q4FY21. One basis point is one hundredth of a percentage point. The company’s fiscal year ends in August and the quarter ending November is its first.

The sequential drop in attrition rate indicates that regular compensation increases and promotions are helping Accenture retain talent, according to analysts. It also points to receding talent crunch pressures. In Q1FY22, the company added 50,000 employees, taking the total headcount to 674,325.

Sarvesh Kumar Sharma/Mint
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Sarvesh Kumar Sharma/Mint

The fall in attrition is a surprise, given the hot labour market, said analysts at Kotak Institutional Equities. “We note that a few Indian IT companies had indicated attrition levelling off in the September quarter while continuing to be at elevated levels for a few quarters. Accenture’s attrition figures emphasize the same and point to gradual easing of attrition to more manageable levels, a positive for Indian IT," said Kotak’s analysts in a report on 17 December.

The decline in Accenture’s attrition in Q1FY22 supports the brokerage house’s view that attrition risk is receding, said analysts at Motilal Oswal Financial Services Ltd. It suggests some moderation in the supply crunch, the brokerage firm said.

Attrition is pronounced at the lower end of the pyramid in India and the company has significantly lower attrition at the executive-and-above levels, noted Accenture’s management.

The company’s management has guided for a 10-30bps improvement in margin in FY22 over FY21 levels, despite supply-side pressures not being completely out of the way.

Accenture expects its operating margin for the full fiscal year to be in the 15.2–15.4% range. This would be driven by benefits from operating leverage and pricing improvements.

Accenture’s revenue growth performance was robust. Revenues increased by 27% year-on-year (y-o-y) to $14.97 billion in Q1FY22, ahead of its own guidance of $13.9 billion–$14.35 billion. With this, the company exceeded revenue growth estimate by $600 million at the upper end of its guidance range.

Further, Accenture’s management has raised its guidance for FY22 revenue growth from 12–15% to 19–22%. It also said that demand remains high. In FY22, it expects strong double-digit growth in consulting and double-digit growth in outsourcing. Earlier, the Accenture management was expecting high single-digit to low double-digit growth for the outsourcing vertical, where the company competes with Indian IT firms. Further, it also reported record deal bookings of $16.8 billion in Q1FY22, up 30% y-o-y.

This bodes well especially for tier-I technology companies such as Tata Consultancy Services Ltd, Infosys Ltd, and Wipro Ltd, as Accenture’s results are often seen as an indicator for the sector’s future performance. FY23 guidance of these companies will be closely watched, as demand is likely to remain strong, analysts said.

As such, Indian IT stocks seem to be capturing the robust demand environment adequately. The Nifty IT index has risen as much as 51% so far this calendar year, exceeding the 21% gain seen in the Nifty 50 index.

“We believe that a strong demand environment, sustained acceleration in revenue growth and robust order booking will back higher valuations," said analysts from Emkay Global Financial Services Ltd in a report on 16 December.

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