scorecardAccenture’s disappointing Q1 and FY23 forecasts indicate more pain for the IT sector
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Accenture’s disappointing Q1 and FY23 forecasts indicate more pain for the IT sector

Accenture’s disappointing Q1 and FY23 forecasts indicate more pain for the IT sector
Business5 min read
  • For FY23 Accenture has forecast revenue growth of 8% to 11% in local currency factoring the challenging macro environment.
  • The company expects attrition to continue to be an issue for the sector and has factored wage inflation in the revenue growth guidance for the next quarter.
  • Analysts believe that the company’s rising focus on cost optimization, weaker hiring, and soft FY23 revenue growth guidance suggests some caution going ahead.
  • The labour market remains tight for the sector with Accenture reporting attrition levels of 20%, steady on a quarterly basis.
Dublin-based tech major Accenture gave out disappointing guidance for the next quarter and fiscal year, indicating a cautious road for the IT sector going ahead.

For FY23, the IT major forecast revenue growth of 8% to 11% in local currency factoring the challenging macro environment. For Q1 FY23, the company gave a revenue guidance of $15.2 billion-$15.75 billion. Accenture follows a September-August financial year.

Moreover, the company expects attrition to continue to be an issue for the sector and has factored wage inflation in the revenue growth guidance for next quarter. “We do expect wage inflation to continue, and we have factored that into our guidance,” KC McClure, chief financial officer at Accenture said in a transcript of an earnings conference call.

On Thursday, Accenture reported fourth-quarter (June-August) revenue that was largely in line with estimates and better-than-expected profit.
Particulars

Q4 FY22

% growth YoY

% growth QoQ

Revenue (in $)

$15.42 billion

15%

-5%

Profit after tax

$1.69 billion

18%

-7%


Analysts believe that the company’s rising focus on cost optimization, weaker hiring, and soft FY23 revenue growth guidance suggests some caution going ahead.

Tight labour markets are a problem as well. Accenture reported attrition levels of 20%, unchanged on a quarterly basis.

“Accenture's attrition remained steady QoQ at 20%, implying that labour markets remain tight. Management expects wage inflation to continue going into FY23. Accenture's net hiring in 4Q moderated further to 11K - the lowest in seven quarters, which although higher than pre-Covid levels, does indicate moderation in growth expectations,” said analysts at Jefferies.

Disappointing guidance by peer Accenture indicates slowdown for the Indian IT space as well.

“Weak revenue guidance for Q1FY23 and FY23, below-consensus expectations, point towards slowing demand ahead for the Indian IT services industry. Plus, slowing pace of hiring for the last two quarters (despite elevated attrition) implies weak demand visibility. We expect a similar slowdown in hiring to continue for Indian IT services as well,” said analysts at ICICI Securities.

Meanwhile, shares of most Indian IT companies were trading on a positive note. Analysts say it was a recovery buying following a huge sell off during the year.

“After a fall of 30-40% from highs, some recovery is expected to happen in most IT stocks. While some recovery is definitely going to be there after a big fall, the sustenance of the same is a big question mark now given that we are not seeing a remarkable recovery or possible recovery in the US and Europe," Sanjeev Hota, vice president - head of research at Sharekhan, told Business Insider India.
IT companies

% change in six month

Mphasis

-37%

Wipro

-35%

Tech Mahindra

-33%

L&T Technology Services

-29%

Infosys

-26%

Larsen & Toubro Infotech

-26%

HCL Technologies

-24%

Coforge

-23%

Mindtree

-22%

TCS

-19%


"For future margin as well as revenue, if you see management commentary it is not very promising. Further, there could be some moderation in the budget cycle for next year because of the slowdown in the US, that is the reason I believe most of the IT stocks are moving sideways and getting negative movements,” added Hota.

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