Accenture’s outlook signals challenges for Indian IT services firms

Global IT major Accenture has cut the top-end of its FY23 revenue growth guidance to 8-10% from 8-11% earlier, indicating challenges ahead for the Indian IT services companies. However, the mid-point of its organic growth guidance of 6-8% remained same as that of earlier guidance of 5.5-8.5%.

Accenture’s earnings is seen as an indicator for future performance of the Indian IT services companies.  Accenture, which follows a September-August financial year, reported a profit of $1.53 billion for the second quarter. The IT giant also announced that it will cut about 19,000 jobs.

Net headcount addition was meagre at just 425 employees, flat sequentially and up 6% annually. Accenture said the job cuts was a strategy to combat wage inflation and reduce structural costs. 50% of the job cuts were in non-billable corporate functions.

The Dublin-based company reported a revenue of $15.8 billion, beating its own guidance of $15.2-15.75 billion.

“There is no significant cut to Accenture’s organic growth guidance, with mid-point of guidance maintained, despite concerns in BFSI sector due to crisis of confidence across US and Europe. We believe that recent events in the global BFSI space may not lead to more than 2-3% EPS cut for our covered companies vs fall of about 9% in NIFTY IT in past one month. We see no significant decline in demand given Accenture’s strong bookings and healthy pipeline,” analysts at ICICI Securities said in a note.

“Client focus on cost-optimisation deals bodes well for Indian IT companies given their expertise in large cost-optimisation deals. There could be delay in deal signings or conversion of deals to revenue in next couple of quarters in our view, which is also the feedback we have got from our covered companies ahead of their silent period,” ICICI Securities said.