Accenture - Mixed Trend For Indian IT Firms; RTB Growth Seen Robust - Nirmal Bang

Global consulting major Accenture announced its 4QFY13 results (August-ending financial year). The global consulting major posted a decent performance on the revenue front, at US$7.1bn, up 3.7% YoY, above the top-end of its range of US$6.7-US$7.0bn. Consulting revenue grew 1.7% YoY, while outsourcing revenue increased 6% YoY. FY14 revenue growth guidance was, however, lower than expectations at 2%-6% YoY. Segment-wise, consulting bookings stood at US$3.8bn (US$4.3bn in 4QFY12), while outsourcing bookings were at US$4.6bn (US$4.9bn in 4QFY12). Accenture's commentary reflects challenges in consulting, which could have impact discretionary spend for Indian IT companies in FY14. However, outsourcing appears to be in good shape, signifying that FY14 revenue growth is likely be led by run-the-business (RTB) services for Indian IT companies. In this regard, HCL Technologies (HCLT) is wellplaced, given strong deal wins of US$4bn over the past one year (85% of FY13 revenue) and good positioning in infrastructure management services (IMS), a key run-thebusiness (RTB) service (highest revenue among top-4 IT companies).

Revenue growth above guidance; good traction in RTB services: Accenture posted a 3.7% YoY growth in 4QFY13 net revenue (similar growth in constant currency or CC terms) at US$7.1bn. This was above its guidance of US$6.7bn-US$7.0bn, a positive feature, signifying that clients are taking decisions on their IT budgets and more importantly, spending their budgets as well. Nonetheless, there are clear pockets which are witnessing sluggishness, such as consulting and ERP services. On the other hand, outsourcing appears to be in better shape, with revenue growth at 6% YoY (7% in CC terms), indicating that RTB services are seeing good traction and clients are willing to continue spending on such services. Americas region grows at a decent pace, but Europe subdued: From a geographical perspective, the Americas region grew by a decent 8.4% YoY (9% in CC terms). However, Europe witnessed a subdued 2.4% YoY revenue growth (flat in CC terms). Nonetheless, this is an improvement from a 4.4% YoY revenue decline witnessed in 3QFY13 and signifies some stability and improvement in the region.

FY13 consulting bookings subdued, but outsourcing strong: For FY13, Accenture witnessed bookings to the tune of US$33.3bn, close to the upper end of its guidance of US$31bn-US$34bn. Of this, consulting accounted for US$16.3bn bookings (US$16.6bn in FY12), while outsourcing bookings stood at US$17bn (US$15.6bn in FY12). Consulting bookings declined 2% in US dollar terms and 1% in CC terms, while outsourcing bookings grew by a healthy 9% in US dollar terms and 10% in CC terms. Thus, this reflects good traction in outsourcing and clearly shows that RTB services are witnessing good traction, whereas discretionary spending is hazy at this juncture. For 4QFY13, Accenture witnessed new bookings amounting to US$8.4bn, which included US$3.8bn of consulting bookings and US$4.6bn of outsourcing bookings.

FY14 guidance subdued, reflecting soft consulting and ERP growth: Accenture provided revenue growth guidance of 2%-6% YoY for FY14, which is below expectations. It reflects a soft environment for consulting and ERP services. However, outsourcing appears to be witnessing good traction, with clients clearly willing to spend their RTB budgets.

Mixed read-through for Indian IT firms, RTB traction positive for HCLT: Accenture's commentary reflects challenges in the consulting business, which could have an impact on discretionary spending for Indian IT companies in FY14. However, outsourcing appears to be in good shape, signifying that FY14 revenue growth is likely be led by RTB services. In this regard, HCLT is well-placed to post healthy growth, given strong deal wins amounting to US$4bn over the past one year (85% of FY13 revenue) and strong positioning in IMS (highest revenue among top-4 IT companies). We prefer HCLT among the top-tier IT companies in the wake of better-than-industry revenue growth, strong positioning in IMS and healthy EPS CAGR of 17% over FY13-FY15E. Among mid-caps, we prefer Infotech Enterprises owing to likely acceleration in revenue growth in 2QFY14, improving cash flow through lower debtor days and capex optimisation, and good downside protection owing to cash per share of Rs61 (over 30% of market capitalisation) and dividend yield of nearly 5% (FY15E).

Source : Equity Bulls

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