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Capgemini, Accenture outlook vastly differs Street's bright view for Infy, TCS

French tech major Capgemini employs 125,000 people in India. (Photo: Mint)Premium
French tech major Capgemini employs 125,000 people in India. (Photo: Mint)

  • Indian software companies reported stellar earnings last quarter, with multi-quarter high operating margins aided by cost rationalisation measures. However, with some costs coming back, analysts caution that Oct-Dec margin represents a peak and will decline going forward

MUMBAI: French IT services provider Capgemini recently announced earnings for 2020 and shared guidance for 2021.

Its management expects profitability growth to beat market expectations in 2021. In constant currency terms, revenue is likely to grow 7-9% in 2021, the management added. But this includes a heft inorganic contribution, adjusted for which growth is modest.

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"Capgemini's 2021 revenue growth of guidance is inclusive of an impact of 450 basis points from the acquisition of Altran and divestiture of Odigo. Organic growth is therefore 2.5%-4.5%. This is not very different from the 2- 4% organic growth guidance of Accenture for FY21," analysts at Nirmal Bang Securities Ltd said in a report on 24 February. One basis point is one hundredth of a percentage point.

In contrast, investors expect Tata Consultancy Services Ltd, Infosys, and HCL Technologies Ltd to report double-digit dollar revenue growth in fiscal 2022.

"If other large outsourcers such as Accenture and Capgemini are expecting low single digit growth, investors looking for strong double-digit growth by Indian IT firms should perhaps put a lid on their expectations," said an analyst at a domestic institutional brokerage requesting anonymity.

Indian IT firms have had a sharp recovery from the lows of the June quarter, but year-on-year growth rates aren’t very high on average. The low base of the first half of 2020 may help growth rates look decent in the first half of 2021, but sustaining high growth rates may be a challenge.

Meanwhile, Capgemini’s earnings growth is likely to be driven by digital and cloud services segment, which is a key contributor to its business. The company expects the segment to continue to benefit from pandemic-led remote working model. Also, operating margin is seen bouncing back to pre-covid levels in 2021, in the range of 12.2-12.4% range.

In the three months to December, Indian software companies reported stellar earnings. A key highlight was multi-quarter high operating margins aided by cost rationalisation measures. However, with some costs coming back, analysts caution that October-December margin represents a peak and will decline over the coming quarters.

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