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Disappointing guidance from Accenture, bad mood for Indian IT stocks, what should investors do?

 

Accenture Guidance Impact on Indian IT Sector: The revenue of Accenture, the global peer company of Indian IT services companies, was $ 16.04 billion in Q1FY24. This has been an annual growth of 1 percent in local currency terms and 3 percent in US dollar terms. This is somewhat weaker than expected. The management has given guidance of $ 15.4-16 billion for Q2FY24 revenue (Accenture Growth Guidance) Given, which means growth of -2% to +2% YoY in terms of CC. At present, the growth guidance of Accenture has spoiled the mood of the Indian IT sector and after this today the IT stocks (IT Stocks) Selling has been seen in.

results weaker than expected

Brokerage house Axis Securities says that Accenture’s results for Q1FY24 were weaker than expected in terms of financials and operations. The company’s revenue in Q1FY24 stood at $16.04 billion and there was a growth of 1 percent on an annual basis in local currency terms and 3 percent in US dollar terms. Company GAAP EPS was $3.1, while Adjusted EPS was $3.27. New bookings stood at $18.4 billion, services books/bills stood at $9.8 billion. Consulting business bookings reached $8.6 billion.

Overall Q1FY24 bookings show that demand remains despite the uncertainty in the sector. Strong client relationships are reflected in the top 30 customers with quarterly bookings at $100 million, and new bookings at more than $450 million. The company is experiencing strong demand for Gen AI.

Management Guidance

Management has given guidance of $15.4-16 billion for Q2FY24 revenue, which implies -2% to +2% YoY growth in CC terms. Management has maintained FY2024 revenue growth guidance of 2% to 5%, indicating slower growth in FY2024 due to uncertainty in macroeconomic conditions and delayed spending. Accenture expects GAAP operating margins for FY24 to range between 14.8% to 15.0%, an expansion of 110 to 130bps from FY23 levels. Adjusted operating margin, which excludes an estimated $450 million for business optimization costs in FY4 and $1.1 billion in FY23, should be in the range of 15.5% to 15.7%, an expansion of 10 to 30bps over FY23 levels.

IT Sector Outlook

IT services certainly face near-term challenges due to inflation and a possible recession. However, the Fed’s dovish stance indicated an influx of liquidity, which would lead to a rapid recovery. Therefore, the long term outlook still remains intact, which is likely to be led by large-scale technological change and increased reliance on the system. The company is continuously seeing demand for cloud migration, ERP moderation and generative AI. The need for enterprises to implement digital transformation and under-penetration in those sectors could drive long-term growth.

Impact on Indian IT sector

Brokerage house Axis Securities says that strong investments in digital technologies, cloud transformation, IoT, generative AI and machine learning will help and accelerate the company’s revenue growth going forward. However, near-term macroeconomic headwinds could impact automation spend across all verticals. On the vertical front, the BFSI vertical witnessed a strong impact due to the decline in the rural banking sector in North America.

On the other hand, automobile, retail, pharmaceutical and healthcare industries are witnessing strong traction across all geographies. Despite near-term challenges, IT services companies in India are receiving strong deal bookings. However, the brokerage house remains optimistic about the long-term prospects of IT services companies in India. Near-term challenges may impact the pace of their revenue growth. The brokerage has selected HCL Tech and LTIMindtree from the large cap segment, while Coforge, Persistent Systems and Cyient from the mid cap segment.

(Disclaimer: The advice to invest in stocks has been given by the brokerage house. These are not the personal views of Digitnews. There are risks in the market, so take expert opinion before investing.)

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