Eyes on Accenture FY23 outlook today as cost agenda is back on table for IT firms | The Financial Express

Eyes on Accenture FY23 outlook today as cost agenda is back on table for IT firms

Given the demand uncertainties due to macro headwinds, consensus estimates peg Accenture to forecast an 8.3% y-o-y growth in dollar terms for FY23.

Eyes on Accenture FY23 outlook today as cost agenda is back on table for IT firms
For Q4FY22, Bloomberg consensus estimates have pegged Accenture’s revenue at $15.38 billion with a 14.7% y-o-y growth, which is within the guidance range of $15-15.5 billion (12-15.5% y-o-y growth). Margins are expected to come in at 14.7% for Q4FY22 and 15.2% for full-year FY22, in line with guidance.

Focus on cost optimisation is likely to be back for IT companies due to a continued pressure on margins as well as global economic uncertainties. All eyes are on Accenture’s FY23 growth outlook, which will set the tone for growth expectations for the overall IT services industry. Accenture, whose fiscal year ends August 31, will announce its fourth quarter earnings after Indian market hours on Thursday.

For Q4FY22, Bloomberg consensus estimates have pegged Accenture’s revenue at $15.38 billion with a 14.7% y-o-y growth, which is within the guidance range of $15-15.5 billion (12-15.5% y-o-y growth). Margins are expected to come in at 14.7% for Q4FY22 and 15.2% for full-year FY22, in line with guidance.

Given the demand uncertainties due to macro headwinds, consensus estimates peg Accenture to forecast an 8.3% y-o-y growth in dollar terms for FY23.

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“We have seen a mild shift in management tone from aggressive demand for digital transformation to focus on cost-optimisation by clients across IT services companies in the previous earnings call. Accenture management also cited during their analyst day in April 2022 that cost agenda is back as clients try to regain competitiveness in this inflationary environment,” ICICI Securities said in a note.

Accenture’s consulting revenue growth decelerated by 5 percentage points y-o-y in Q3FY22 implying a lower discretionary spend.

Accenture’s headcount addition also slowed down in Q3 with a net addition of about 12,000 employees against an average of about 40,000 per quarter in the past four quarters. Non-billable headcount has grown 14% annually and 4% sequentially in Q3FY22, reflecting a growing bench and downtrend in utilisation.

“Potential softening in demand going ahead is indicated by Accenture’s shift in its hiring mix with plans to have 20% of entry-level hires in the US from apprenticeships so as to optimise the employee pyramid, and commentary around effectively balancing the talent supply demand,” analysts at ICICI Securities said.

Recently, Goldman Sachs downgraded its ratings on TCS, Infosys and Tech Mahindra to ‘sell’, citing a sharp cut in dollar revenue growth forecast for the IT sector. The brokerage said the high share valuation of IT companies do not factor in a ‘material’ revenue growth slowdown in FY24. It had, however, upgraded Wipro from ‘sell’ to ‘buy’.

IT stocks slumped on Wednesday with the BSE IT Index falling 0.74% to 27,354.26. Shares of TCS fell 1.30% to 3,001.75, Infosys fell 0.85% to 1,376.55 while Wipro declined 1.02% to 400.80 on the BSE.

“Given the upcoming macro slowdown (not recession), which is percolating down multiple leading demand indicators, we believe Indian IT sector’s dollar revenue growth will start to materially slow down from here, weighing on the secular tailwinds,” Goldman Sachs said in a note.

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