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Accenture Q4FY20 earnings: Five key takeaways for the Indian IT companies

Most info know-how (IT) shares have been buying and selling agency on Friday, a day after Accenture, a worldwide behemoth in the consulting and IT providers, introduced its fourth-quarter outcomes for the fiscal 2020 (Q4FY20). While the firm missed estimates for fourth-quarter gross sales and projected current-quarter income beneath Wall Street expectations, sturdy traction in the outsourcing enterprise, sturdy order bookings, and inspiring administration commentary have been the key positives from the trade’s standpoint.

Accenture reported revenues of $10.8 billion, down 2 per cent year-on-year (YoY) and 1 per cent YoY in fixed forex phrases after together with the 2 per cent influence from the decline in reimbursable journey prices resulting from Covid-19 disaster.

Here’s how main brokerages have interpreted the numbers and extrapolated them to the Indian IT sector.

Stressed verticals

Analysts at Nomura word that Accenture’s weak spot is restricted to confused verticals comparable to retail, manufacturing, journey, and power, which contributed almost 20 per cent of revenues for the firm at the finish of FY20.

“Momentum is intact in seven verticals that contributed nearly 50 per cent of Accenture’s revenues as of 4QFY20 and the traction is strong in healthcare. India IT has a limited presence in healthcare and stressed verticals such as retail, manufacturing, and travel contributed nearly 30-35 per cent of revenues for Tier-1 India IT as of June 2020 quarter data,” the brokerage stated.

New bookings

New bookings grew 9 per cent YoY to $14 billion, their second-highest ever, and got here as a constructive shock, word analysts at Jefferies. New bookings in consulting and outsourcing elevated by 7 per cent and 10 per cent to $6.5 billion and $7.5 billion, respectively. Its book-to-bill ratio of 1.3x was the highest in 25 quarters. Management highlighted that just about 70 per cent of bookings have been in digital, cloud, and safety associated providers. “Accenture’s sharp rebound in new bookings reflects accelerated spends on digital transformation which in turn will be a key medium-term growth driver and Tier-I Indian IT firms are favorably positioned to leverage these growth opportunities,” analysts at Jefferies stated.

FY21 outlook

The firm has guided for income development of two–5 per cent YoY in fixed forex (CC) phrases in FY21 (Sep’20–Aug’21) and margin growth of 10–30 foundation factors (bps), which is encouraging, say analysts at Motilal Oswal Financial Services (MOFSL). “H2FY21 (Mar–Sep’21) is expected to see high single-digit to low double-digit growth. This is a positive for Indian IT companies and further solidifies our expectation of a better FY22 outlook,” the brokerage stated in a word dated September 24.

Cloud enterprise key focus space

The US-based agency indicated that Covid-19 has accelerated the adoption of Cloud and expects penetration in public Cloud to extend from 20 per cent at the moment to 80 per cent over the subsequent 5 years at enterprises. This is constructive for Indian IT companies as the shift to Cloud, based on Nomura, will construct a basis for digital transformation and deflates prices that may be reinvested by enterprises to fund their digital transformation initiatives.

High money conversion

Accenture reported free money circulate (FCF) / web revenue (NI) of almost 150 per cent as the Days Sales Outstanding (DSO) improved by 6 days QoQ to 35 days. Indian IT companies have been following a disciplined collections course of too, and have reported related enhancements not too long ago. DSO ought to proceed to be largely secure for them going ahead.

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