Demand strong, but cost optimisation also in focus: Accenture CEO

Cost optimisation, along with growth, is now the focus area for clients, Accenture’s leadership said in an earnings call after declaring its Q3FY22 results.

“We see strong demand and we're not seeing a change in decision-making. What we are seeing is a shift depending and the industry and the market on what clients are asking for. For example, in industries like the consumer goods industry, you're seeing a lot more focus on costs than a year ago… You're seeing more investment going into ‘help me do more with less’. At the core of that is cloud, data, AI,” CEO Julie Sweet said in the call.

Accenture on Thursday, June 23, reported results with revenue-beating estimates and coming in at $16.2 billion. However, it moderated its forecast for the fiscal on the back of negative foreign exchange impact and increasing inflation. Accenture said revenues for the quarter reflect a foreign-exchange impact of -5 percent and for Q4, expects revenue to be in the range of $15 billion to $15.5 billion, assuming a -8 percent foreign exchange impact.

Read: Accenture’s Q3 revenue comes in at $16.2 billion, beats estimates

Accenture’s results come ahead of that of India’s IT major companies and is usually an indicator of how the results of these companies will fare as well.

For the impact on Indian IT companies, Axis Securities said that revenue growth should be robust given strong investments in digital technologies, cloud transformation, IoT (internet of things), “As-a-Service, and machine learning, among others across verticals”.

The challenging macroeconomic events may present difficulties in execution and also delay automation. “The rising attrition rate may continue to remain a key concern as it may delay the current automation projects. There are some tailwinds such as weakening Rupee may offset some of the higher operating expenses,” it said.

Emkay Global said in its analysis that broad-based demand, steady revenue growth and order booking in outsourcing augurs well for Indian IT companies, while also flagging employee turnover.

“Robust demand and steady decision-making alleviate any concerns over near-term growth; however, elevated attrition and volatility in foreign exchange pose challenges to earnings.”

However, Kotak Institutional Equities said the immediate impact of a deteriorating environment is not visible from the results or the decision-making of clients, and highlighted Accenture increasing its revenue growth guidance.

“In fact, Accenture increased revenue growth guidance, reported stronger growth in Europe (perceived to be more vulnerable) and delivered better growth in bookings in consulting (considered to be more vulnerable). In a way, visible in the 12% correction in stock price in the past three months (46% correction from the peak),” it said in a report.

Employee churn continues to be high in the IT sector, with Accenture’s voluntary attrition coming in at 20 percent, driven by India. Sweet added that the company usually has an uptick in attrition from Q2 to Q3, and another uptick seasonally in Q4, adding that it is in line with the trend. The company added 11,928 employees during the quarter.

“It's primarily driven by India at the lower end of our pyramid, which is highly competitive. At the same time, we're able to hire for the demand we see. Also, as we've commented before, our overall executive retention—which is the people who are driving our business every day—continues to be high. So not a lot of change and these are really seasonal upticks,” she said.

ICICI Securities said that the pace of headcount addition has slowed from the last four quarters to levels closer to those pre-COVID.

“Slowdown in headcount addition, decrease in book-to-bill ratio, and moderation in revenue growth all point towards normalisation of growth momentum ahead for the IT services industry. We believe revenue momentum is likely to slow down in H2FY23 for Indian IT services as enterprises delay new projects amidst macro uncertainties,” it said.

ICICI Securities expects attrition to remain at elevated levels due to wage hikes, and margins to remain muted because of high onsite wage inflation for Indian IT services in the first half of FY23.