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Managed services resilient as consulting moderates : IIFL Securities

19 Dec 2022 , 02:06 PM

ACN reiterated FY23 revenue growth guidance to 8-11% YoY CC (inorganic contribution of ~2.5%), led by double-digit growth in managed services. Q2FY23 guidance of 6-10% YoY CC reflects decelerating growth, given the ongoing macro challenges.

Growth in Q1 was led by managed services (+20% YoY CC), while consulting (+10% YoY CC) saw moderation. EBIT margin stood at 16.5% (+20 basis points YoY), with ACN maintaining FY23 EBIT margins of 15.3-15.5% (+10 basis points to 30 basis points YoY). New bookings also moderated to USD16.2 billion (+6% CC YoY), as growth in managed services (+10% YoY) was offset by decline in consulting (-14% YoY); management indicated that the pipeline remains healthy. 

ACN highlighted that given the macro uncertainty, near-term growth could be impacted by slowdown in smaller strategy and consulting deals but the medium-term focus on compressed transformations continues.

Broad-based growth across verticals

Among verticals, resources led the way, growing 21% CC YoY this quarter. Healthcare & Public Services and Products remained healthy at 15% CC YoY. Financial Services and Communication saw moderation in growth to 13%/11% CC YoY. Despite ongoing macro concerns, themes of cloud and compressed transformations remain, as per the management. Client’s focus on RoI is leading to larger transformation projects with cost agendas, rather than smaller deals focused on revenue acceleration.

Managed services new bookings remain more resilient than consulting

New bookings for the quarter increased 6% CC YoY (-3% YoY in USD terms) to USD16.2 billion — reflecting moderation in demand momentum. In Q2, there were 24 clients (26 in Q1) with over USD100 million in bookings. Bookings for managed services remained more resilient growing 10% YoY, while consulting bookings declined 14% YoY. Management indicated that they expect bookings to bounce back in Q2. ACN reiterated FY23 EBIT margin guidance of 15.3-15.5% (+10 to 30 basis points YoY).


  • Growth in North America (+11% YoY CC) was driven by double-digit growth in Public Services and Health, Consumer Goods, Retail, Travel services and Industrial.
  • Europe grew 17% YoY CC, led by double-digit growth in Industrial and Banking & Capital Markets. UK, Germany, France and Italy saw double-digit growth. 
  • Within Services, Technology led growth with very strong double-digit growth. Operations too grew at double digits, though Strategy & Consulting grew at low single digits. 
  • ACN highlighted continue seeing improved pricing in new bookings. 
  • Attrition declined sharply to 13% in Q1 (versus 20% in Q4FY22). 
  • New bookings moderated to USD16.2 billion (+6% CC YoY), as resilience in Managed Services was offset by a decline in Consulting. 
  • Management indicated that the order book and pipeline consists of more deals with the agenda of costs take-outs.

Indian IT better placed, given Managed Services resilience

Analysts at IIFL Securities believe ACN’s Q1 results and FY23 organic growth outlook of 5.5%-8.5% CC YoY (versus average FY18-20 outlook of 3-6% at its outset), combined with the resilience in Managed Services bookings bodes well for Indian IT Services companies. Overall, they believe that the focus shifting to Managed Services should benefit India IT more; growth in the medium term should remain higher than pre-COVID levels. Analysts at IIFL Securities prefer stocks with better growth visibility among large caps (Infosys) and midcaps (Persistent Systems, LTIM and Cyient).


Related Tags

  • Accenture
  • Cyient
  • Infosys
  • LTI
  • Mindtree
  • Persistent Systems
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