Accenture earnings ‘as good as it gets’. Will Indian IT companies follow suit?

Accenture, which follows the September-August financial year, reported “impressive” earnings numbers for its third quarter results, which bodes well for Indian IT services companies.

The US-based IT major that also has substantial operations in India reported revenues of $16.2 billion, up 22 per cent year-on-year (YoY). The IT major’s operating income was up 23 per cent at $2.6 billion, and operating margin was 16.1 per cent. The company also reported its second-highest deal bookings of $17 billion.

Accenture also raised its revenue forecast for 2022 to 25.5-26.5 per cent from 24-26 per cent. Earlier, Infosys had also given a strong growth forecast for FY23 in April, though nowhere close to Accenture numbers.

Kawaljeet Saluja of Kotak Securities believes Accenture's forecast to be “impressive”.

"The immediate impact of a deteriorating environment is not visible from the results or decision making of clients. 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),” he said. “In a way, the results and outlook are as good as it gets, especially in the context of lowered expectations.”

Shares of Accenture have taken a beating in the last few months, along with all IT companies. They are down 12 per cent in the past three months and 46 per cent from the peak. Most of the Indian IT stocks are also down substantially. In fact, Nifty IT index is one of the biggest losers in the current calendar year.

Coming just days ahead of the beginning of June quarter earnings season of India Inc, analysts noted that Accenture's numbers should put a smile on investors, especially those who hold IT stocks in their portfolio.

Mukul Garg, research analyst at Motilal Oswal, said Accenture’s commentary suggests that the demand environment remains supportive, and the weakening macro environment has not yet started impacting growth in the sector.

“While supply-side challenges remain a point of concern, with elevated attrition and lower headcount addition, Accenture’s margin guidance implies a stable margin performance in FY23. We maintain our positive stance on the sector as we expect sustained growth with stable margin,” he added.

The analyst said Infosys, HCL Tech, and TCS remain his preferred picks among top IT companies.

The management of Accenture indicated a healthy pipeline and strong spends in the areas of digital, cloud, sustainability, and security. According to analysts, while it did not indicate any slowdown in demand due to a weakening macro environment, it sees a shift in spends towards cost savings as against a growth focus earlier.

This shift can be beneficial for Indian IT companies as they provide more cost efficient solutions.