Accenture’s results suggest demand for outsourcing should sustain

Accenture Plc’s better-than-expected results for the quarter ended May spells good news for Indian IT companies. The US-based company returned to positive revenue growth exactly a year ago, after five consecutive quarters of declining revenue.

Things have gotten progressively better since.

While the year-on-year revenue growth of 15% (in local currency terms) is slightly lower than the growth of 18% in the February 2011 quarter, the company continues to set new records with order bookings.
New order bookings stood at $7.1 billion, the highest in eleven quarters. Of these, over 52% were bookings made by the consulting division, which is a good sign since it points to a healthy trend in discretionary spending. The company said in a call with analysts that “many of its technology outsourcing clients are asking it to do more in enhancements and add-on work. Also, some clients are now integrating newer mobile technologies and upgrading their networks and data centers”.

The company also pointed to increased systems integration order bookings, thanks to strong growth for ERP (enterprise resource planning). ERP implementation cycles are typically long-term in nature, and it’s heartening to note that customers are willing to hand out these projects despite the uncertainty in the global economy.

Financial services revenue grew by 19% in local currency terms, on the back of a 20% growth in the February 2011 quarter. This is welcome, given Indian IT’s relatively high exposure to the banking, financial services and insurance sectors.

Chief executive officer Pierre Nanterme said in the call that globalization, increased regulation, and the need to generate efficiency are driving growth for consulting and outsourcing bookings and revenue. “(Companies) have been making some significant acquisitions in the past couple of years, and now, they would have to integrate those acquisitions to drive more synergies and more efficiency. The second big driver is around the increased regulation, and that’s something which is a kind of must-do. There is a need as well for operational efficiency. If you want to compete, you need to drive more efficiency out of your operations.”

The drive to improve efficiency is causing companies to use new technologies and solutions such as cloud computing and new mobile technologies.

All this suggests that demand for IT outsourcing should sustain. Even so, Accenture has maintained the revenue growth guidance of 7-10% for the next fiscal year, which seems to suggest some caution, considering that it is expected to end the year with revenue growth of 14-15% and order bookings of around $28 billion.

Even so, investors in Indian IT stocks may not end up cheering these results since IT stocks already discount one-year forward earnings by 20-21 times earnings.


Source:-http://www.livemint.com/2011/06/26210221/Accenture8217s-results-sugg.html

Thanks
Ankit Wani
Intern @ DENIP Consultants Pvt. Ltd.