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Demand remains muted; FY24 guidance soft in Indian IT sector: IIFL Securities

29 Sept 2023 , 11:13 AM

Accenture’s (ACN’s) Q4FY23 revenue growth moderated to +4% YoY CC, at the mid-point of its guided range of 2-6% YoY CC. Management indicated that growth was impacted by continued soft discretionary spend and delayed decision-making. ACN expects FY24 revenue growth to be 2-5% CC YoY (inorganic contribution of ~2%). Q1FY24 guidance of -2% to +2% CC YoY, reflects further deceleration in growth on a tough base amid continued macro uncertainty. In Q4, growth continued to be led by Managed Services (+10% YoY CC) while Consulting (-2% YoY CC) saw further moderation. Adj. Ebit margin stood at 14.9% (+20bps YoY), and ACN expects FY24 adj. Ebit margin to be 15.5%-15.7% (+10bps to +30bps). New bookings moderated further to USD16.6bn (-10% CC YoY), with book-to-bill of 1.04x. Managed Services bookings declined by 18% YoY, while Consulting bookings were broadly flat. ACN highlighted that there continues to be caution among clients, given the macro uncertainty; but structural drivers of Cloud, Data, AI and Security hold steady. 

Comm, Media & Hi-tech sees second-straight quarter of sharpest decline: 

Among verticals, Healthcare & Public Services led the way, growing 13% CC YoY in Q4. At 10% CC YoY, resources stayed healthy. Products and Financial Services saw growth moderating to 5%/3% CC YoY, while Communications saw a decline of 12% CC YoY. Management indicated that they saw continued weakness in discretionary spending by clients and broad-based slowdown in Communication, Media & Hi-tech verticals. Within Services, Strategy and Consulting continues to see YoY decline. 

New bookings moderate due to slower decision-making: 

New bookings for the quarter declined 10% CC YoY to USD16.6bn, reflecting slower decision-making by clients. In FY23, there were 106 clients (100 in FY22) with over USD100mn in quarterly bookings. Bookings growth for Managed Services fell 18% YoY, while Consulting bookings were broadly flat. Management indicated that smaller discretionary deals continue to get pushed out, while Managed Services deals are lumpy. In Q1FY24, new bookings are expected to be higher YoY. ACN expects FY24 adj. Ebit margin to be 15.5-15.7% (+10 to +30bps YoY).


1) Growth in North America moderated to 1% YoY CC as strength in Public Services, Health and Utilities was offset by weakness in Communication, Media & Hi-tech and Banking. 2) Europe grew 7% YoY CC, led by growth in Industrial and Public Services. Germany and France led growth. 3) Within Services, Operations led growth in high-singledigits while Technology grew in mid-single digits. Strategy & Consulting declined mid-single digit. 4) Attrition inched up to 14% in Q4 (vs 13% in 3Q). 5) ACN continues to invest in GenAI and is currently working on over 300 projects with a total revenue size of USD300mn. ACN believes adoption of AI to result in increased digital core transformations for enterprises — an opportunity similar to Cloud.

Near-term outlook cautious: 

Analysts of IIFL Securities believe ACN’s Q4 results and soft FY24 organic growth outlook of 0-3% CC YoY, combined with the sharp decline in Managed Services bookings highlight the lack of tailwinds in the near-term demand environment. This corroborates with the recent commentary from Indian IT Services companies, which they believe could lead to a lacklustre finish to FY24. Analysts of IIFL Securities continue to prefer stocks within their coverage with either valuation comfort (INFO), or better growth visibility (TCS, PSYS and COFO); though analysts of IIFL Securities have limited upside across their coverage at the current levels.

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  • IT
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