Signal's amber for IT as Accenture cuts guidance

Flashing a red light for Indian IT, global consulting firm Accenture on Friday lowered its revenue guidance to 3-4% for the current fiscal – the company follows a September-August financial year – from the 5-8% it had given in March.

The move comes after Accenture failed to meet the lower end of its guidance, with consulting net revenues for the quarter ended May at $3.9 billion, a decrease of 2% in dollar terms – or $400 million – compared with the corresponding quarter a year ago.

“Flat growth in consulting revenues in the quarter reflected a lower level of consulting bookings than expected and contracts converting to revenue at a slower rate overall than expected,” the company said in a statement.

The outlook for the full fiscal assumes a foreign exchange impact of a negative 1.7% – from a negative 1% guided earlier – compared with the previous fiscal.

Utilisation remained flat at 88% and overall attrition also increased marginally to 12%, from11% in the second quarter, the statement said. However, operating margins improved by 90 basis points on-year to 15.9%.

Accenture’s consulting revenues have been on a steady decline for several quarters.

However, the lowering of guidance reflects deepening concerns on the global IT environment, with slower decision-making leading to Accenture’s peers Oracle and Red Hat also reporting negative  results.

This also reflects another quarter of flat discretionary client spends.
However, Accenture’s consulting business is largely upstream, while Indian software firm’s consulting is largely downstream. Besides, consulting makes up less than 30% of revenues for most Indian IT firms.

“Consulting revenues were flat on-quarter, and outsourcing also saw growth moderate further to 7%,” Rumit Dugar and Udit Garg wrote in a note. “However, order bookings were steady at $8.3 billion, with outsourcing bookings helping make up for the weakness in consulting bookings.”

Growth in the Americas, and growth in financial services – both up 8% on-year – are also positive for Indian IT firms, which get over 50% of their revenues from North America and 55-56% from the banking, financial services and insurance vertical.

According to an analyst, healthy growth from North America and rise in revenues from financial services are positives for Indian IT, though there has been a slight decline in Europe and flat growth in APAC.

“While Accenture’s results are definitely negative for Indian IT, we would wait for Indian IT firms’ commentary before making any downgrades. That said, we are expecting most companies to expect negative results in Q1, with only a few showing marginal growth,” said Ankita Somani of Angel Broking.