What Accenture’s Q4 performance signals for Indian IT companies

Accenture concluded FY24 with a 1 percent full year revenue growth, which stood at $64.9 billion

Accenture’s revenue growth guidance for FY25, hiring plans and bullishness on generative artificial intelligence (Gen AI) opportunities has left industry experts hopeful for a better second half of FY25 and FY26 for the Indian IT services sector.

Indian IT giants like Tata Consultancy Services (TCS), Infosys, HCLTech, Wipro are set to report their second quarter earnings for the fiscal year 2025 from October 10 onwards. Accenture’s performance is widely regarded as a benchmark for the Indian IT industry, providing a glimpse into the expected outcomes for Indian IT companies. Accenture follows September-August financial year.

Accenture concluded FY24 with a 1 percent full year revenue growth, which stood at $64.9 billion. The company has increased its revenue growth forecast for FY25 to 3-6 percent. However, the growth forecast is slightly lower than Wall Street estimates.

Overall, Accenture’s commentary on macro continues to remain cautious so far, the company expects more clarity on client’s technology budgets by January – February.

Julie Sweet, CEO, Accenture said, “The environment is really more of the same and that environment has been kind of a cautious. Right now they (clients) are going in the budget season. We'll really see in January and February but there hasn't been much of a change. The macro is kind of the same.”

“Obviously, there are some events going to come up in the fall, but there's not like a big tone change, and I think because if you look at the macroeconomic environment, FY25 is going to click down in the US, maybe a little bit better in Europe, but overall not a lot of improvement,” she added.

Accenture concluded FY24 with positive growth across most verticals, while BFSI and hi-tech and telecom continued to decline. But the company is expecting broad-based growth across verticals and business segments in FY25.

Operating margin for FY25 too is expected to be 15.6% to 15.8%, a 10 to 30 basis point expansion over adjusted FY24 results.

Also read: Accenture increases revenue forecast for FY25 on macro tailwinds

Impact on Indian IT firms

Going by Accenture’s performance, Girish Pai, head of institutional research, Bank of Baroda Capital expects a sharp pick-up for Indian players in FY26. “Current consensus expectations build in revenue going up to high-single-digit/low-teen USD revenue growth for Tier-1 players in FY26,” he said in his note.

He added that while a pick up from the mid-single-digit growth of FY25 may be on the cards if macro holds up, but he is not sure about a virtual “doubling of growth rates especially when incremental demand in FY25 has been concentrated”.

According to Pareekh Jain, founder and CEO of industry insights platform,  EIIRTrends, the worst is over and bottomed out for the sector. Though the growth estimates may not have been at par with the Street’s expectations, it is set to improve here on even for Indian IT.

“The trajectory is very clear, H2 (of FY25) and the next year will be better for us, than last 6 months,” he told Moneycontrol.

He added: “The US Fed’s interest rate cut impact is not seen on ground yet. But hi-tech, telecom verticals have turned around and grew in Q4 for Accenture. YoY may be negative but there is definitely a turnaround this quarter which is a good news for Indian IT sector.  BFSI is also expected to pick up after the interest rate cut.”

Gaurav Vasu, founder and CEO of market intelligence firm UnearthInsight, however, said that for pureplay IT service companies the worst is still not over and the growth will take another 6 to 12 month to come back.

“But for end to end consulting firms like Accenture which has businesses in technology, strategy and consulting and in operations growth will start coming in as they can offer operations/BPO to prepare for GenAI/AI for tech transformation for enterprise clients,” he told Moneycontrol.

Gen AI driving demand

Gen AI got the investors and analysts excited at Accenture’s earnings conference on September 26. The company ended FY24 with Gen AI order inflows of $3 billion and U$900 million in revenue. This is a significant jump from $300 million in order inflows and $100 million in Gen AI revenues seen in FY23.

New Gen AI bookings for Q4 came in at $1 billion.

In terms of Gen AI deal sizes too, there have been larger deals in the size of around $10 million as compared to only $1 million proof of concepts (PoCs) seen earlier.

Accenture expects a healthy revenue growth in this area in FY25 too.

During the earnings conference call, Sweet said, “We believe the introduction of GenAI signifies a transformative era that is set to drive growth for us and our clients over the next decade, much like digital technology has in the last decade, and continues to do so.”

“Not seeing a change in what the clients are spending on IT but what it is seeing is a continued trend of trying to save money on IT to free up the spending on areas of like Gen Al,” Pai noted in his report.

UnearthInsight’s Vasu highlighted that in FY25, Accenture will invest the majority of $3 billion in M&A to build capabilities across GenAI/AI & Analytics and ER&D, as these areas are critical growth engines for the next 2 to 3 years for Accenture.

Hiring plans indicate recovery

Accenture’s promise of growing demand across key businesses perhaps reflected the best in its hiring numbers. It added around 24,103 employees in Q4 alone, and plans to hire for technology across geographies but especially in India in FY25.

“The company hired over 24,000 in Q4, they are preparing for growth clearly,” Jain said.

Pai believes a lot of this headcount increase may also have been contributed by the rapid acquisitions the company made in FY24.

Vasu, said, “Accenture has added 5% net headcount for a 1% revenue growth and is investing in GenAI/AI, AI Analytics and new age technologies like cloud and so on. Hence, they are frontloading talent for a lot of future expected growth.”

He added that in this regards, Indian IT companies can't be compared to Accenture because of its depth of offerings like strategy and Consulting, technology and operations businesses.

“Indian IT will grow its headcount by 2 – 3 percent for a 3-5 percent revenue growth. Strategy, Gen AI/ Analytics and Operations are very small practices for Indian IT,” Vasu said.

Also read: Accenture’s headcount grows by over 24,000 in Q4FY24