Jefferies highlights key takeaways from Accenture Q1 FY21 Results

Accenture's Q1 FY21 revenues were ahead of its guidance with broad based recovery seen across verticals and markets. Outsourcing was the key driver of revenues and new bookings. Demand outlook remains strong with acceleration in cloud and digital transformation. Accenture expects growth to pick up to pre-CoVID levels from the second half of FY21. Jefferies see this as positive for Indian IT services and maintain constructive stance with Infosys as their top pick.

Revenues above guided range:

Accenture's Q1 FY21 revenues of US $11.8 bn, up 4% YoY (2% YoY in ccy terms) were ahead of its guidance of -3% to flat YoY growth in ccy terms. While health and public services (+11% YoY) remained the best performing vertical, revenues from financial services and communications recovered sharply. The revenue decline in highly impacted verticals like travel, energy, Hi-Tech, Retail and Industrial moderated QoQ, however remained in double-digit.

Broad Based revenue recovery:

Accenture witnessed a strong growth in North America (+4% YoY ccy) led by health and public services and financial services. Revenues in Growth Markets (+3% YoY ccy) were driven by Financial services, health and public services among verticals and Japan and Australia among markets. Decline in revenues from Europe moderated QoQ from -5% YoY ccy in previous quarter to -1% YoY ccy. While UK revenues were flat YoY, growth in Italy and Switzerland was offset by decline in Spain and France. Hi-Tech, consumer goods, retail and travel services dragged revenues

Outsourcing driving growth:

Outsourcing revenues grew 8% YoY and drove overall revenue growth driven by strong growth in North America and Growth Markets. Accenture saw growing demand for application modernisation and maintenance, cloud enablement and managed security services as well as digital transformation. Management highlighted that revenues from cloud grew in strong double digits. New bookings remained healthy and grew 25% YoY to US $ 13bn driven by 46% YoY jump in outsourcing bookings to US $6.3 bn and also more number of smaller sized deals.

Strong demand outlook; Growth guidance raised:

Management highlighted the enterprises are going through a phase of compressed transformation where they are transforming multiple parts of their business simultaneously. Accenture is seeing secular adoption of Cloud even in highly impacted verticals. Over the next few years, Accenture expects enterprise spends to remain focused on cloud, building a digital core, security and experience.

Takeaways for Indian IT:

Accenture’s 1QFY21 results reflect accelerated spends on cloud, security and digital transformation which are key medium term growth drivers. Tier-I Indian IT firms are favorably positioned to leverage these growth opportunities. Accenture’s expectation of growth recovery from the second half of FY21 is fairly aligned with expectations for Tier-I Indian IT firms.