Accenture reported revenue growth guidance amidst uncertainty

Accenture reported revenue growth guidance amidst uncertainty

Indian Market

Accenture reported revenue of $15 bn, up by 28% in c/c (22-26% guidance range) on a YoY basis and flattish on a sequential basis in a seasonally weak quarter. Growth was broad-based with all verticals, geographies, and services growing in strong double-digits. Growth was led by products and communication technologies which grew 34% and 32% respectively. Europe and growth markets both grew 30% and above North America which grew 26%. Consulting revenue grew 31% outpacing outsourcing revenue which grew 20%. The operating margin was flat YoY at 13.7%. Bookings grew 22.4% YoY and hit a record high of $19.6 bn.

Accenture increased FY2022E revenue growth guidance to 24-26% from 19-22% earlier implying additional $2-2.5 bn of revenue. Inorganic contribution is retained at 5%. The company is set to add $10 bn organic revenue in FY2022E. Margin guidance was pulled back by 10 bps — 10 bps expansion from 10-30 bps expansion earlier.

Accenture’s commentary on the drivers of strong demand was unchanged— (1) compressed transformation across industries post-Covid and (2) deep expertise across domain and technology and (3) access to quality tech talent at scale. Cloud and digital transformation are still at early stages. Only 30% of workloads have moved to the cloud. The opportunity beyond cloud migration is large. Companies are advancing transformation programs as they realize value from early initiatives. Industry 4.0, cyber security, ESG, etc. provide new large opportunities. 

Updated guidance embeds to factors (1) immediate impact of discontinuation of Russian operations, not a material contributor to revenue in our view, (2) assumption that the current situation will not deteriorate further or lead to significant headwinds for Europe revenue. Clients have not resorted to knee-jerk reactions and cut spending due to the conflict and continue to be guided by a longer-term vision around transformation. Guidance bakes in strong double-digit growth in Europe. 

Share gains from Ukraine-based IT service providers could be a tailwind for Accenture. We believe Accenture will be the largest beneficiary of disruption to IT services in Ukraine given the global delivery model, likely client overlap, and strength in applications and digital engineering services. However, the incremental revenue opportunity may not be a significant driver of growth given the large revenue base. For example, the entire Ukraine IT export revenue of US$6.8 bn in 2021 is just 11.3% of Accenture’s current revenue run rate. 

The company has been able to secure contractual pricing increases from clients. The benefits of the increase will flow through the P&L with a lag even as the cost inflation is front-ended. This largely explains the cut in margin expansion guidance to 10 bps from 10-30 bps earlier.

Accenture has impressed with strong execution on-demand with the net addition of ~130k employees or 24% headcount in the past three quarters (partly augmented by acquisitions) despite headwinds from the war for talent and high attrition. Strong hiring is helping meet elevated demand. The supply shortage has been a bottleneck for growth for Indian IT though the situation is improving. 

Key highlights from the call:
-Accenture spent US$1.8 bn cash on 21 acquisitions in 1HFY22 and is on track to spend US$4 bn on acquisitions in FY2022
-Clients are focusing on costs as well as growth due to macro factors such as higher inflation and Ukraine war uncertainty. Accenture is well-positioned to aid with cost efficiencies as well innovation agenda. 
-Accenture is getting higher pricing on new bookings. These will offset higher wage costs but with a lag.
 

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About the Author

Shreya Anaokar is a Content Writer at 5paisa. She has completed her Master’s in Finance and Graduation in Statistics from the University of Mumbai. 

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