Technology | Sector Update
Technology
Accenture 3QFY14: Encouraging kick-off to FY15
Pricing stable v/s 2Q; order bookings strong
ACN’s 3QFY14 revenue at USD7.74b grew 7.5% YoY, above the consensus estimate of
USD7.55b and its guided band of USD7.4-7.65b. Growth improved from 1-2% in the
first two quarters, as order book conversion improved.
For 4QFY14, the company gave a revenue guidance of USD7.45-7.7b, implying a YoY
range of 5.1% to +8.6% which compares with consensus estimate of USD7.56b.
ACN had new order bookings worth USD8.8b in 3Q, on the back of record 2Q, which
saw USD10.1b bookings. Consulting bookings grew 10% YoY, on the back of 4.5% in
2Q, while outsourcing bookings grew 2.2% YoY, on the back of a tough 2Q compare of
17% growth.
The company expects full year bookings to be at the higher end of USD33-36b
guidance. The ask rate to meet the higher end suggests that ACN could better the
same, going by historical 4Q bookings performance.
The pricing environment remained stable during the quarter relative to 2QFY14. There
has been no further deterioration, and on the contrary, there were also some
instances of pricing uptick. However, it remains early to call it a trend. Last quarter,
Accenture had cited incrementally higher pressure in the pricing environment,
especially in Application Services.
Takeaways for Indian IT – encouraging growth trends
Accenture’s results highlight multiple positive overtures for Indian IT, corroborating
the traction in the demand environment for IT Services:
Order bookings remained healthy even on high base of previous quarters and
Accenture remains on track to book orders at the higher end of USD33-36b
guidance. 7 USD100m+ bookings during the quarter imply healthy outsourcing
demand while traction in Consulting booking reflects the adoption of Digital
Technologies.
Last quarter, Accenture called out pricing pressure in Applications outsourcing
amid high competitive intensity in traditional outsourcing deals. Citation of
stable environment QoQ, and also sporadic instances of price increases (though
not a secular trend) are incrementally positive
Accenture upped its hiring guidance for the full year from 60,000 to 65,000. The
increase in additions is broad-based across practices.
Also, attrition rate increased to 14%, the highest in 11 quarters. This could also
be a reflection of increasing demand for talent amid healthy growth
expectations.
Ashish Chopra
(Ashish.Chopra@MotilalOswal.com); +91 22 3982 5424
Siddharth Vora
(Siddharth.Vora@MotilalOswal.com); +91 22 3982 5585
Investors
2014
26 June
are advised to refer through disclosures made at the end of the Research Report.
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Technology | Sector Update
3QFY14: Growth above consensus and guidance
ACN’s 3QFY14 revenue at USD7.74b grew 7.5% YoY, above the consensus
estimate of USD7.55b. It was also above the company guided band of USD7.4-
7.65b. The performance is in line with company expectation of stronger order
book conversion in the second half, following 2% YoY growth in 1Q and 1% YoY
growth in 2Q.
USD revenue grew 7.5% YoY, beating consensus and guided band
Source: Company, MOSL
Revenues from Outsourcing grew 9.5% YoY to USD3.65b. Consulting revenues
grew 5.7% YoY to USD4.1b. This was only the 2
nd
quarter in last 9, which saw YoY
growth in Consulting.
Revenue proportion from Outsourcing has increased to 47.2% in 3QFY14, up
from 41% in 3QFY11. Outsourcing revenues are up 32.5% during this period,
compared to 3% increase in consulting revenues.
Proportion of Outsourcing Revenues decline by 100bps, a first since 3QFY11
Source: Company, MOSL
Revenue growth was driven by Products, which grew 11% YoY (10% YoY in
constant currency) and Health & Public Services, +10% YoY. Among geographies,
EMEA led growth with 13% (+7% YoY in constant currency), US grew 6% YoY (7%
in constant currency) and while reported APAC numbers declined 1% YoY, in
constant currency, they grew 6%.
26 June 2014
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Technology | Sector Update
Guidance: Revenue growth momentum to continue in 4Q
For 4QFY14, the company gave a revenue guidance of USD7.45-7.7b, implying a
YoY range of 5.1% to +8.6% which compares with consensus estimate of
USD7.56b. It has a 1.5% positive foreign exchange impact compared to previous
year.
For the full year, Accenture narrowed its guidance band to 3.5%-4.5% (4%-5% in
constant currency) from 2.5-5.5% (3-6% in constant currency) in 3QFY14.
Consensus estimate at present stands at 3.6% YoY.
Strong 3Q growth momentum is expected to continue in 4Q given strong deal
signings in 9MFY14.
ACN increased its hiring guidance to 65,000 people in FY14 from 60,000
previously.
Order bookings remain healthy; could better top end of guided order band
ACN had new order bookings worth USD8.8b in 3Q, on the back of record 2Q, which
saw USD10.1b bookings. Consulting bookings grew 10% YoY, on the back of 4.5% in
2Q, while outsourcing bookings grew 2.2% YoY, on the back of a tough 2Q compare
of 17% growth.
ACN expects its annual order bookings to be at the upper end of its guided band of
USD33-36b. To achieve the upper end company needs to have USD8.4b of order
bookings in 4QFY14 which is the lowest of last three years since FY11 and achieved
in last year. In terms of percentage of total order bookings for the year it is
comparable to FY09 which was the lowest in last six years. This indicates a strong
likelihood of beating the guidance as the ask rate is quite low compared to historical
performance in a good demand environment.
4QFY14 Order bookings similar to last year will achieve top end of guidance
Order Bookings
in USD b
4Q
as % full year
FY09
5.55
23.2
FY10
6.50
26.0
FY11
8.44
29.3
FY12
9.20
28.5
FY13
FY14
8.40
8.40
25.2
23.3
Source: Company, MOSL
Total Order Bookings of USD8.6b – strong considering 2Q base of highest order booking of USD10.1b
Source: Company, MOSL
26 June 2014
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Technology | Sector Update
Examples of Digital Engagement
For a large European bank, Accenture is providing application development and
management services to support the bank’s repositioning to a new digital
platform. This is a major strategic IT transformation designed to increase
productivity by up to 20%.
Using Accenture interactive and Accenture analytics to help Telefonica Spain
significantly increase its online sales. In just six months, Telefonica grew more
than 50% higher sales, a year ahead of schedule.
Leveraging the assets and capabilities from recent digital acquisitions to help a
leading global fashion retailer launch a new online store based on an innovative,
e-commerce platform. The new channel, which is going to be rolled out to 50
countries, is already driving higher-than-expected revenues.
In life sciences, Accenture has developed a new cloud-based platform, which is
now being used by five major pharma companies. This solution accelerates the
clinical development process by collecting and analyzing data from across
studies.
Takeaways from Management commentary
No incremental pressure on pricing:
The pricing environment remained stable
during the quarter compared to the previous quarter. There has been no further
deterioration, and on the contrary, there were also some instances of pricing
uptick. However, it remains early to call it a trend. Last quarter, Accenture had
cited incrementally higher pressure in the pricing environment, especially in
Application Services – where it competes directly with Indian IT Service
providers. Several factors that drove the pressure include: [1] Higher pressure in
large vendor consolidation deals, [2] Instances of some pricing decline even on
the existing book, and [3] Intense competition in the new opportunity areas like
Continental Europe.
Order booking traction:
CMT and Products were key driving verticals of strong
booking performance, which positions both for continued strong growth rates.
Overall, the company continues to target a book-to-bill of 1.0-1.1x in Consulting
and ~1.2x in outsourcing.
Growth improvement in line with expectation:
The pattern of strong new
bookings was not reflecting in revenue growth in 1H. However, the company
had expected the large transformation deals to kick in revenue growth from 2H,
and that is playing out as expected.
Growth strategy:
Accenture’s growth strategy is about first operating at the
heart of clients businesses. Then capturing new opportunities in key growth
areas, especially in digital and across the different geographical markets. And
finally, investing to further differentiate capabilities and services.
26 June 2014
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Technology | Sector Update
Other result highlights
ACN signed 7 deals with a TCV of USD100m+.
Utilization was up 100bps QoQ at 88%.
Annual attrition excluding involuntary terminations was up 2% QoQ to 14%.
Overall headcount increased by 4,000 to 293,000.
Global Delivery Network headcount increased to 194,000 (v/s 192,000 in 2Q).
GDN now comprises 66.2% of the total workforce v/s 61.8% 2 years ago.
GDN headcount stands at 66.4%, +20bps QoQ
Source: Company, MOSL
26 June 2014
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Technology | Sector Update
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