Accenture’s Results Suggest Robust Spending Scenario

Accenture impressed with constant-currency revenue growth of 11% in May 2018 quarter. The company also raised FY2018E revenue growth guidance to 9.5-10% from 7-9% earlier.

The company’s early participation in digital led by a comprehensive portfolio of offerings across verticals and geos is reaping rich dividends.

The company’s results demonstrate that the spending environment is robust but requires an optimum portfolio mix and capabilities to capitalise on it.

From IT companies’ perspective, the progress made by TCS is impressive but other IT companies can do more to make the most of solid enterprise IT spends.

Organic revenues were just under 9% with the balance contributed by acquisitions. Accenture’s revenue growth was powered by the communications, media & technology vertical. Growth was also strong in products and resources verticals that grew by 11% and 12%, respectively. All geos grew at a healthy rate.

Consulting and outsourcing revenues grew 12% and 10%, respectively. New bookings grew at an impressive 14.4% to $11.7 bn.

New services (digital, cloud and security services) contributed more than 60% to the company’s revenues in 3QFY18.

Strategy consulting grew in mid-single digit and applications and operations grew in double digits. The entire increase in guidance was courtesy strong organic performance in 3QFY18.

4QFY18 revenue growth guidance stands at 7-10%. FY2018 guidance builds in 2.5% contribution from acquisitions. Double-digit growth rate at such a large base is impressive. The management has retained flattish adjusted operating margin guidance for FY2018.

The strong results demonstrate that the spending environment is robust. What is helping Accenture’s growth rates includes—(1) participation in the full lifecycle of clients’ digital journey through its consulting, design and full spectrum of digital competencies that is strong across verticals and geos. This full spectrum of competencies becomes especially important in an environment of constant disruption and changes ensuring Accenture participates early in every element of change and is in sharp contrast to participation in late-cycle opportunities for technology-focused companies and (2) a portfolio that is nicely balanced between legacy and new, reducing the friction on growth. New services in fact contributed close to 60% of Accenture’s revenues in 3QFY18.

What is certain is that the spending environment is healthy. This will be construed as a positive. However, the points relevant from the perspective of IT companies are—(1) ability to participate and capitalize on increasing scale of digital programs, (2) portfolio mix, i.e. exposure to services facing severe deflationary exposure versus exposure to growth areas of digital and new services and (3) client-specific challenges, especially in the financial services vertical. On digital it does seem from the nature of digital contracts announced and broader recognition by industry analysts that TCS has broken out from the IT pack. – Financial Express