Accenture’s Q2FY22 revenue growth of 28% y-o-y cc vs 22-26% guidance, deal bookings of $19.6 bn (+22% y-o-y) with pricing increase and 400-500bps increase in FY22 growth guidance to 24-26% y-o-y cc suggest strong growth outlook for Indian IT in the near term. Moderation in net hiring alongside strong demand suggests that supply-demand mismatch is easing at the margin. We prefer Infosys and TechM given their strong growth outlook.
Revenue growth ahead of guidance: Revenue growth of 28% y-o-y cc was well above the top end of its guided range of 22-26% y-o-y cc and implies a 16% CAGR over Q2FY20 revenues in cc terms. Growth was broad-based with all verticals witnessing 20%+ growth in cc terms.
Strong demand and improved pricing: Accenture’s deal bookings reached an all-time high of $19.6 bn (+22% y-o-y). Outsourcing deal bookings at $8.7 bn (+9% y-o-y) were also at an all-time high. Mgmt highlighted that deal bookings were driven by technology consulting and strategy and operations. It noted that strong bookings have been accompanied by improved pricing too. It highlighted that the tough macro-environment has not impacted IT spending among its clients thus far.
Revenue guidance raised: Accenture has raised its FY22 revenue guidance by 400-500bps to 24-26% y-o-y cc (5% inorganic) vs. consensus estimate of 21.5% y-o-y growth. The revised guidance effectively raises the H2FY22 guidance from 13.5-17.5% y-o-y cc to 20.5-24.5% y-o-y cc. Accenture’s Q3FY22 growth guidance of 22-26% y-o-y cc implies 4-7% q-o-q growth in Q3FY22 suggesting strong near-term growth outlook. Management did highlight that this guidance does not include the impact of geopolitical risks.
Steady attrition; hiring catching up with demand: Accenture’s attrition levels have remained steady in the 17-19% range over the past four quarters, implying that while labour markets remain tight, they are not worsening.
Furthermore, while Accenture’s growth outlook has improved, its net hiring in Q2 has reduced sharply from 50k employees in Q1 to 24k employees in Q2, suggesting that employee hiring is catching up with demand.
Takeaways for Indian IT: Accenture’s Q2FY22 performance and guidance suggest a very strong demand environment over the next few quarters. It also provides some comfort with respect to concerns over growth in client IT budgets amidst worsening macro. However, as highlighted in our recent note, margins are likely to be under pressure. We continue to prefer Infosys and TechM given their strong growth outlook.