Accenture's FY16 Growth Forecast Hits Infosys, Wipro Shares

IT stocks were under pressure on Monday, underperforming the broader Sensex. The IT sub-index on the Bombay Stock Exchange closed 1.3 per cent lower as compared to 1 per cent dip in the broader Sensex. Among Nifty stocks, Infosys fell over 3 per cent, while Wipro closed 1.7 per cent lower. Both Infosys and Wipro have been laggards among frontline Indian IT companies.

The weakness in domestic outsourcers was attributed to IT major Accenture’s revenue guidance for fiscal year ending 2016. Accenture’s annual guidance of 5-8 per cent for FY16 was much lower than the 11 per cent YoY (constant currency) growth the company posted in FY15.

Traders said Accenture’s muted guidance raises concerns about the ability of domestic IT companies to clock double-digit revenue growth. Domestic IT companies will start reporting their September quarter numbers in a fortnight.

Domestic brokerage Motilal Oswal said higher volatility in macroeconomic environment, shorter duration in digital projects and consulting (leading to lower visibility at the beginning of the year), and deterioration of economic condition in Brazil and China, where Accenture has sizeable base ( nearly 4 per cent) are the reasons for muted guidance.

Accenture’s guidance implies lower growth in forward quarters, suggesting that visibility is lacking, the brokerage added.

“This is a likely overhang for the industry, which may not be show-cased in the near term performance. But going forward, the performance of Indian counterparts too may get more uncertain, considering the dual volatility of macro and short-cycles of digital projects,” Motilal Oswal said.

The guidance is a sentiment negative for Indian IT, another domestic brokerage Religare said.

Muted Guidance, but Solid Growth

Accenture may have been conservative in its guidance, but its Q4 performance beat estimates. The company reported 12 per cent constant currency revenue growth to clock $7.9 billion in sales in Q4. For the full year ending August 31, 2015, Accenture posted sales of $31 billion, the double of what TCS posted for fiscal year ending March 2015. Accenture’s EBIT or operating margins in Q4 were flat at 13.9 per cent.

Revenue growth was led by Digital related services, which grew by nearly 35 per cent year-on-year and now sums up to around $7 billion (23 per cent of total revenues), said Motilal Oswal.

A string of aggressive acquisitions over the last few years has helped Accenture boost its growth. Accenture announced 18 acquisitions in the last year, and in the last three years, it spent $2.5 billion on acquisitions, Motilal Oswal added.

“The company invested $800 million in 11 acquisitions during the quarter to scale up capabilities in key growth areas. FY16 guidance assumes 2 per cent contribution from inorganic initiatives,” said Rumit Dugar and Saumya Shrivastava from Religare.

Accenture posted double-digit growth across geographies (US, Europe and Growth Markets) as well as verticals (communications, health and public service, financial services).

Headcount stood at 358,498 employees, a 6.9 per cent increase over the previous quarter. Utilisation remained flat at 90 per cent and overall attrition improved marginally to 14 per cent compared to 15 per cent in Q3.