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Accenture’s disappointing Q1 and FY23 forecasts point to more pain for the IT sector

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  • For FY23, Accenture has forecast revenue growth of 8% to 11% in local currencies, taking into account the challenging macro environment.
  • The company expects attrition to remain an issue for the industry and has factored wage inflation into its revenue growth outlook for the next quarter.
  • Analysts believe the company’s increasing focus on cost optimization, weaker hiring and soft prospects for revenue growth in FY23 indicate some caution.
  • The labor market remains tight for the sector, with Accenture reporting a 20% turnover rate, stable quarter on quarter.

Dublin-based tech giant Accenture released a disappointing outlook for the next quarter and fiscal year, pointing to a cautious stance for the IT sector.

For FY23, the IT Major expects revenue growth of 8% to 11% in local currencies, taking into account the challenging macro environment. For Q1 FY23, the company provided a revenue forecast of $15.2 billion – $15.75 billion. Accenture follows a September-August fiscal year.

In addition, the company expects attrition to remain an issue for the industry and has factored wage inflation into its revenue growth outlook for the next quarter. “We expect wage inflation to continue, and we’ve factored that into our guidance,” said KC McClure, chief financial officer at Accenture in a transcript of a earnings conference call.

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

Particularities Q4 FY22 % growth YoY % growth QoQ
Yield (in $) $15.42 billion 15% -5%
Profit after taxes $1.69 billion 18% -7%

Analysts believe the company’s increasing focus on cost optimization, weaker hiring and soft prospects for revenue growth in FY23 indicate some caution. Tight labor markets are also a problem. Accenture reported a 20% churn, unchanged on a quarterly basis.

“Accenture turnover remained stable at 20%, implying that labor markets remain tight. Management expects wage inflation to continue in FY23. Accenture’s net workforce in the fourth quarter declined further to 11K – the lowest in seven quarters, which, while higher than pre-Covid levels, points to a moderation in growth expectations,” Jefferies analysts said.

Disappointing peer guidance Accenture also points to slowdown for the Indian IT space.

“Weak revenue expectations for Q1FY23 and FY23, below consensus expectations, point to slowing demand for the Indian IT services sector. In addition, a slowing rate of hiring in the last two quarters (despite increased turnover) implies weak demand visibility. We expect a similar slowdown in hiring to continue for Indian IT services,” said ICICI Securities analysts.

Meanwhile, the shares of most Indian IT companies were trading positively. Analysts say it was a recovery buy after a huge sell-off during the year.

“After a 30-40% drop from highs, some recovery is expected in most IT stocks. While there will certainly be some recovery after a major fall, sustaining it is a big question mark as we don’t see a remarkable recovery or possible recovery in the US and Europe,” Sanjeev Hota, vice president – head of research at Sharekhan, told https://londonbusinessblog.com/ India.

IT companies % change in six months
Mphase -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 both future margins and revenues, it’s not very promising if you see management commentary. Furthermore, there may be some moderation in the fiscal cycle for next year due to the slowdown in the US, which is why I think most of the IT stocks are moving sideways and getting negative moves,” Hota added.

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