Top brokerages remain mixed on IT after Accenture’s Q1FY23 | Jobs Vox

Accenture’s Q1 numbers had mixed signals for Indian IT companies.

Accenture Plc’s healthy revenue and earnings came in even better than estimates, but its second-quarter sales forecast highlighted demand-side pressure from macroeconomic uncertainty.

As noted by brokerage Motilal Oswal Financial Services, Accenture’s revenue was $15.7 billion, up 15 percent year-on-year (YoI) in CC terms and 5.2 percent year-on-year in dollar terms. It was 100 basis points ahead of management’s guidance of 14 percent CC and Bloomberg consensus estimates in Q1FI23.

But the focus was on lower bid bookings.

The company reported lower booked deals at $16.2 billion in the quarter (book-to-bill ratio of 1x), down 4 percent year-over-year (lowest in five quarters), Motilal Oswal said.

Brokerage houses have different views on the IT sector

Brokerages see some positives and negatives in Accenture’s numbers and guidance.

Kotak Institutional Equities he went so far as to say that Accenture’s results confirmed what was previously known — the impact of worsening macro is creeping into discretionary spending, while a focus on cost isolation will lead to growth in managed services.

Kotak expects moderation in the growth of its coverage universe, although stocks in our coverage universe have corrected over the last six months due to margin risks, slowing growth rates and increasing interest rate environment.

Kotak believes that the risks to margins have already played out and expects margins to increase in the coming year.

“We believe the slowdown in growth rates is also related to share prices.” We expect growth rates of 5-8 percent in FY2024E, versus 11-16 percent in FY2023E for Tier 1. A deeper recession has implications for multiples and is not fully priced. In terms of risk-reward framework, we find Infosis, HCL Tech and Mphasis attractive and are our top picks,” Kotak said.

On the other hand, Motilal Oswal he underlined that Accenture’s management pointed to a healthy process and high spending in the areas of digital and cloud. Managed services are expected to outgrow S&C (strategy and consulting), which is positive for Indian IT. Although bookings were lower in Q1FY23, the company indicated strong bookings in Q2FY23.

Motilal Oswal opined that a sharp improvement of 700 basis points in decline and Accenture’s margin guidance implies a softening supply scenario and strong margin performance for the Indian IT industry.

“We continue to maintain our positive view on the sector as we expect good demand in the medium term and strong margin recovery.” TCS, HCL Tech and Infosys remain our preferred choices in the Tier 1 IT space,” said Motilal Oswal.

Brokerage firm ICICI Securities believes that from Q3FY23, comments from Indian IT services management will begin to weaken and impact on revenue growth will be visible in Q1 and Q2 FY24.

“We believe that Indian IT services should always accumulate when the US macro is at its peak and the next six-nine months (or a further decline in the index by 10-15 percent) will give investors a good opportunity to accumulate the desired bets,” ICICI said Securities.

“We have Ciient as our top pick in our coverage universe, followed by HCL Tech as they offer a good risk-reward ratio. For other stocks in our coverage universe, we will wait for better entry levels,” ICICI Securities said.

Brokerage services Emkai Global he pointed out that amid macro uncertainty, clients are becoming wary, leading to a slower pace of spending, delays in decision-making and pauses in smaller deals. This would limit the short-term growth trajectory. Demand has clearly moderated due to macro weakness, but remains resilient; this should ease any concerns about a sharp drop in demand, the brokerage said.

Emkai prefers Wipro, Tech Mahindra, Infosis, HCL Tech and TCS in the tier-1 space, and Mphasis, Birlasoft, Firstsource Solutions and Persistent Systems among mid-tier companies.

Nuvama Wealth Management (formerly Edelweiss Securities) noted that while Accenture continued to face challenges in the consulting vertical, the outsourcing vertical continued to see strong growth. He also noted a decline in outflows, reflecting an easing of the supply-side situation.

“Overall, the results are positive reading for Indian IT services companies. The strong performance and upbeat demand comments further provide strong visibility for the sector. We maintain our positive view on the sector and expect a sustained strong demand environment to drive strong demand. earnings growth in the sector over the next three years,” said Nuwama Wealth.

Disclaimer: The views and recommendations given in this article are the views of the brokerage firms. This does not represent the views of MintGenie.