Accenture plc

(New York Stock Exchange)
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Somewhat Bullish +50

Accenture q3 results: What does it mean for Indian IT sector; TCS, Infosys among 4 stocks in focus post earnings

AI-generated analysis

πŸ“ˆ Accenture reported Q3 FY22 revenue of $16.159 billion, representing a 21.8% year-on-year growth in US dollar terms.

πŸ’° The company beat management guidance with revenues reaching $16.2 billion and a 22% year-on-year increase for the quarter.

πŸ“‰ Year-on-year revenue growth moderated compared to previous quarters due to slower performance in consulting, outsourcing, and the US region.

πŸ“Š Consulting revenue grew 24.4% while outsourcing revenue increased by 18.7% year-on-year during the third quarter.

πŸ’΅ Revenue grew 27% on a constant currency basis, leading Motilal Oswal to upgrade FY22 revenue growth guidance by 100 basis points.

⚠️ ICICI Securities maintained an underweight stance on Indian IT services citing headcount slowdowns and expected high attrition rates.

πŸ“‰ The brokerage expects revenue momentum to slow in H2FY23 as enterprises delay projects due to macroeconomic uncertainties.

πŸ’Έ Margins are projected to remain muted in H1FY23 due to elevated onsite wage inflation and wage hikes driving attrition.

🀝 Motilal Oswal holds an optimistic view, stating that the demand environment remains supportive despite weakening macro conditions.

πŸ“‰ Supply-side challenges like elevated attrition and lower headcount addition are concerns, but margin guidance implies stability for FY23.

πŸ† Motilal Oswal identified Infosys, HCL Tech, and Tata Consultancy Services (TCS) as preferred stock picks from the sector.

πŸ“‰ ICICI Securities suggested sticking with TCS in large caps and Coforge in mid caps while expecting further valuation degradation.

Bullish Signals
  • Accenture reported a revenue growth of 21.8% year-on-year in the third quarter, beating management's guidance with actual revenues of $16.2 billion.
  • The company upgraded its FY22 revenue growth guidance by 100 basis points at the mid-point, signaling confidence in future performance.
  • Revenue grew 27% YoY in constant currency terms, demonstrating strong underlying demand despite macro uncertainties.
  • Consulting and outsourcing segments showed robust growth of 24.4% and 18.7% respectively, driving overall revenue expansion.
  • Motilal Oswal maintains a positive stance on the sector, expecting sustained growth with stable margins in FY23.
  • Analysts suggest investors to stick with large-cap TCS and mid-cap Coforge as preferred picks within the Indian IT services sector.
Risk Factors
  • ICICI Securities maintains an underweight stance on the Indian IT sector due to a slowdown in headcount addition and expected high attrition.
  • The book-to-bill ratio has decreased, indicating a moderation in revenue growth momentum for the industry.
  • Enterprises are delaying new projects amidst macro uncertainties, which is expected to cause revenue momentum to slow down in H2FY23.
  • Attrition levels are expected to remain elevated due to wage hikes, while margins will stay muted because of high onsite wage inflation in H1FY23.
  • Deployment in the sector is projected to be very slow and gradual as unknown risks like normalisation of tech spend loom ahead.
  • Downside risks on FY24 revenue growth could further degrade the valuation of Indian IT services stocks.
Full Analysis
Accenture reported third-quarter revenue of $16.2 billion, representing a 22% year-over-year increase that exceeded management guidance. While the growth rate moderated compared to previous quarters, particularly in consulting and the US region, constant currency revenue grew 27%. Analysts from Motilal Oswal upgraded Accenture's full-year 2022 revenue growth guidance by 100 basis points at the midpoint, citing a supportive demand environment that has not yet been impacted by macroeconomic weakening. However, brokerage firm ICICI Securities maintains an underweight stance on the broader Indian IT services sector, citing concerns over headcount addition slowdowns, elevated attrition rates due to wage hikes, and a decreasing book-to-bill ratio. They predict revenue momentum will slow in the second half of fiscal 2023 as enterprises delay projects amid macro uncertainties, expecting muted margins and potential valuation degradation. Conversely, Motilal Oswal remains optimistic about sustained growth with stable margins for FY23 despite supply-side challenges. Following Accenture's earnings, analysts identified specific stocks to watch within the sector. Motilal Oswal highlighted Infosys, HCL Tech, and Tata Consultancy Services (TCS) as preferred picks, while ICICI Securities suggested sticking with TCS in large caps and Coforge in mid caps. The consensus suggests a divergence in outlook between global leaders like Accenture and the broader Indian IT sector, which faces headwinds from wage inflation and project delays.