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Accenture reports strong Q2; revises upwards overall revenue guidance for FY22

ICICI Securities 21 Mar 2022

What’s Buzzing:

Accenture reported strong Q2 numbers wherein the outsourcing business (proxy for Indian IT companies) grew 19% YoY. The company has increased overall revenue guidance upwards to 24-26% in local currency compared to 19-22% given earlier (not taking account any impact from current geopolitical issues between Russia and Ukraine).

Context:

The overall revenue for the company grew 24.5% YoY to US$15 billion (bn) wherein outsourcing business, (proxy for Indian IT companies, 45% of revenue mix) grew 19% YoY to US$6.7 bn while consulting business grew 29.2% YoY to US$8.3 bn. New bookings (net new order book) were at US$8.7 bn for the quarter for the outsourcing business, grew 8.5% YoY. The company’s net adds (billable) were at 22,000 for the quarter, taking its global billable headcount to 504,000. Geography wise, North America market (47% of revenue mix) continues to be the growth driver as it grew 25.7% YoY for the quarter, while Europe and growth markets reported growth of 24.3% and 22% YoY, respectively. Utilisation improved 100 bps on a QoQ basis to 94% while attrition increased 300 bps QoQ to 12% for the quarter. The company closed its Russia operations and will continue to support its 2,300 employees there.

Our Perspective:

The demand environment continues to be strong. This is reflected in the strong net billable headcount additions of 31,000 for H2FY22, more than 3x of net adds the company did in FY21. The book to bill ratio of 1.3x for outsourcing business also continue to be healthy, which is driven by strong new bookings. The demand environment was driven by some of the bold transformation programmes being undertaken by its clients, spanning multiple parts of the enterprise and in accelerated time frames, as they recognise the need to transform every part of their enterprise with technology, data, AI and new ways of working. The company continues to maintain that only 30% of workloads have been moved to cloud, which means a long tail of opportunity of cloud transformation for global IT companies, which bodes well for Indian IT companies as well. The company also mentioned about improved pricing on new bookings, which bodes well for the industry in terms of rising costs pressure amid elevated attrition.

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