IT services major Accenture Plc. impressed the Street with steady performance for the quarter ended May. Constant currency revenues grew 1.3% from the year ago quarter, notwithstanding the covid-19 disruption to business and service delivery in March-April. The stock gained 7.7% on the New York Stock Exchange.

With business conditions deteriorating in the last three months, many feared Accenture will again lower its revenue guidance for the full year. The company narrowed its guidance range. However, it maintained the lower end of the revenue growth guidance raising it slightly from 3% to 3.5%.

“The company’s FY20 growth guidance at the end of 2QFY20 came in a tad earlier than the announcement of lockdowns across a significant part of the globe. Thus, the street anticipating big miss for the quarter and significant downgrade for FY20 guidance was a natural occurrence. However, Accenture’s growth during 3QFY20 and narrowing of the earlier guidance band is a key positive read-through for the sector,” analysts at Motilal Oswal Financial Services Ltd said in a note.

Accenture’s fiscal year ends in August.

Encouragingly revenue growth last quarter is driven by outsourcing business, where Indian IT has greater presence. Outsourcing revenues grew 5% from the year ago quarter. Comparatively consulting, the other key business division of Accenture, clocked a 2% revenue fall.

New order bookings grew a decent 6%, led by outsourcing contracts. Accenture’s management commentary indicates delays in client decisions and deferment of work in the last two months. Despite the pressure on overall IT spends, the company is seeing increased investments in digital technologies by clients.

This is reflective of a healthy rise in revenues from new services (digital) at the company. The share of digital services in overall revenues rose from 60% in the year ago to 70% last quarter.

Comparatively Indian IT services providers derive a lesser portion of their revenues from new age services, even though contribution from this segment is rising. “Accenture’s higher exposure to digital stands out, with 70% of revenues vs. 35-40% for offshore Tier I techs,” points out Emkay Global Financial Services Ltd.

Also industry vertical wise, the revenue growth is led by just one vertical-health and public services vertical. Revenues at rest of the business verticals were either flat or dropped in the range 1-3% in constant currency.

Compared to Accenture, Indian IT firms derive a lesser portion of their revenues from healthcare business. “Growth was largely led by health and public services verticals (+12% YoY local currency, an area with limited exposure for Indian techs) as growth moderated across other business segments,” adds analysts at Emkay.

Consequently, domestic companies may not fully mimic Accenture’s performance. Even so, the decent order inflows and steady overall revenues should reassure IT investors.

News Source: Livemint


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