Global firm Accenture’s fourth quarter results prove that the worst is behind for the Indian information technology (IT) sector, said analysts on Friday (September 27).
While the pace and the broadness of recovery is debatable, they said Accenture’s results and revenue growth guidance for the next financial year (FY25) reduce downside risks for Indian IT companies.
“While a strong recovery in discretionary demand may take a few quarters, it is unlikely to worsen.
"We expect revenue growth for India’s largecap IT companies to improve in financial year 2025-26 (FY26), registering a growth of around 7.9 per cent year-on-year (Y-o-Y) as against FY25’s estimated growth of 3.6 per cent Y-o-Y,” said analysts at Nomura.
They gave a ‘buy’ rating for Infosys and Wipro in largecaps and the same for eClerx Services in midcaps.
Accenture on Thursday reported a revenue of $16.41 billion for the June-August quarter of FY24, up 5 per cent Y-o-Y in constant currency terms.
The growth was in the upper end of its 2-6 per cent guidance band.
Consulting revenue was up 3 per cent Y-o-Y, while that for managed services grew 7 per cent Y-o-Y (both in CC terms).
Among verticals, financial services contracted 2 per cent Y-o-Y and health care and public services expanded 11 per cent to lead Q4 revenue growth.
Other verticals that reported revenue growth are products (6 per cent), communication, media and technology (5 per cent), and resources (3 per cent).
Accenture’s adjusted earnings before interest and taxes (ebit) margin was 15 per cent, up 10 basis points Y-o-Y.
New bookings were at $0.15 billion for the quarter, up 21 per cent Y-o-Y, with an overall book-to-bill ratio of 1.23x.
As demand has not changed much, Accenture’s management cautiously revised its FY25 revenue growth guidance upwards to 3-6 per cent in constant currency terms.
The guidance includes inorganic contribution of slightly more than 3 per cent and positive foreign exchange impact of 1.5 per cent on reported US dollar revenue.
Analysts view Accenture’s September-November quarter (Q1 FY25) guidance of 2-6 per cent growth as a steady start to the new financial year.
They believe the overall FY25 revenue growth guidance upgrade points to a stable demand environment amid the prevailing macro uncertainties.
“Improvement in consulting is particularly positive for Indian IT Services as it signals recovery in discretionary spends.
"We expect a sustainable strong demand environment to drive healthy earnings growth over the next three years,” said Nuvama Institutional Equities.
At the bourses on Friday, the Nifty IT index advanced 2.8 per cent on the National Stock Exchange (NSE) in the intraday trade, led by Coforge and Infosys (up 3.9 per cent each), Tech M (3.5 per cent), Mphasis (3.4 per cent), Wipro and LTIMindtree (3.1 per cent each), Persistent Systems (2.9 per cent), HCLTech (2.5 per cent), LTTS (2.3 per cent), and Tata Consultancy Services (1.9 per cent) in the intraday deals. All these stocks ended up to 1.4 per cent higher on the NSE.
By comparison, the NSE Nifty 50 closed 37 points (0.154 per cent) lower at 26,179 level.
Gen-AI boost
A feature of Accenture’s Q4 results was its gains in generative artificial intelligence (Gen-AI). The company clocked $3 billion worth of deal bookings in the technology in FY24, of which $1 billion in agreements were booked in Q4.
According to Accenture’s management, Gen-AI will drive growth in the next decade.
The company plans to increase its data and AI workforce to 80,000 by FY26 (from 57,000 at present) and increase training hours.
“The management expects IT budgets to provide better clarity on demand in January-February 2025.
"Deal wins will be a key enabler of differentiated growth for Indian IT similar to the current financial year,” said analysts at Kotak Institutional Equities.
The brokerage believes there are not enough large deals in the market to satisfy all players.
Nil discretionary demand improvement from current levels and lack of healthy total contract value conversion to revenue on net basis can lead to downside risks to Street estimates for select Indian IT in H1FY26, it said.
The brokerage believes Infosys and TCS are best positioned, while Wipro may be vulnerable.
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