Accenture: Deceleration in outsourcing new bookings growth; LTM attrition at multi-year high

What's buzzing:

Accenture reported 18.7% YoY growth in outsourcing revenues (proxy to Indian IT companies) for Q3FY22 while consulting revenues grew 24.4% YoY, resulting in 21.8% YoY increase in overall revenues for the quarter. LTM attrition has reached 20% now, a multi-year high.

Context:

Overall revenue for the company grew 21.8% YoY to US$16.1 billion (bn) wherein outsourcing business, (proxy to Indian IT companies, 44% of the revenue mix) grew 18.7% YoY to US$7.1 bn while consulting business grew 24.4% YoY to US$9.0 bn. New bookings (net new order book) was at US$7.8 bn for the quarter for outsourcing business, grew 6.7% YoY. The company’s net adds (billable) were at 10,000 for the quarter, taking its global billable headcount to 671,000. Geography wise, North America market (47% of revenue mix) continues to be the growth driver as it grew 22.8% YoY for the quarter while Europe and growth markets reported growth of 20.2% and 22.3% YoY, respectively. Utilisation declined 100 bps QoQ to 91% while attrition increased 200 bps QoQ to 20% for the quarter.

Our Perspective:

New deal bookings have been volatile over the years for outsourcing business but we have witnessed some lag effect in terms of new booking and corresponding revenue growth for outsourcing business. Historically, in Q3FY19, there was a sharp decline in outsourcing new order bookings on a YoY basis, which impacted outsourcing revenue in Q3FY20. We witnessed some downward trend in order bookings in Q2FY22 and Q3 FY22. Hence, we cannot rule out a slowdown in outsourcing revenue in subsequent quarters, provided the downward trend in the new order bookings continues. It could be also on account of attrition reaching a multi-year high at 20%, which may impact revenue growth, going forward. Geographically, on overall revenues (consulting+ outsourcing) we have been witnessing a downward trend. Accenture reiterates that it continues to gain market share. We believe that outsourcing revenue slowdown and market share gain for Accenture is not good news for Indian IT companies, which may also witness slower revenue growth from H2FY23 onwards due to possible tech spending cut from some its large clients in US and Europe. IT companies were also hoping for pricing led benefit, which seems to be a missed opportunity now.