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3 min read | Updated on March 26, 2024, 19:19 IST
SUMMARY
Accenture PLC reported cuts in guidance in revenues for FY24 from 2-5% to 1-3%. The slash in the guidance impacted Indian IT players which have high exposure to global IT spending.
Accenture cuts revenue guidance for FY25
Accenture (ACN), a global peer of Indian IT companies, downgraded its FY24 forecast sighting weakness in global macro environment translating into cut in IT spends. Consequently, its share price fell ~5.6% while American Depository Receipts (ADRs) of Indian IT companies like Infosys and Wipro fell between 2-4% on March 21st.
As we show below, high global exposure for domestic Indian IT companies, financial weakness, and elevated valuations could translate to fear among investors. As such, we believe investors should remain vigilant and re-assess their investment thesis before making any further decisions. While it is easy to get carried away with all the new AI excitement, we note that AI contribution is currently not a significant revenue driver. For ACN total AI order bookings for H1FY24 were lower than 5% of its total new order bookings.
Earnings guidance and commentary by global IT companies have a much wider read-through not just for wider economy but also for the Indian IT sector. Below are some of the key highlights
Global uncertainty has already impacted their financial performance – with revenues growth slowing down or even contracting.
Further, as seen in Exhibit 3, this has started to trickle down to earnings, where resilience is weakening.
Weak earnings growth coupled with higher valuations could hamper price performance.
Particulars | Current PE* | 6 months | 1Year | 2Years | 3Years |
---|---|---|---|---|---|
Price to earnings | 30.8 | 29.1 | 26.3 | 26.4 | 27.5 |
Premium / (Discount) | 6% | 17% | 17% | 12% |
On March 21, ACN announced its Q2FY24 (3 months ended February 29, 2024) result. Key takeaways:
Absolute new order bookings were the second highest ever, though growth remains muted
Particulars | Old (Q1 FY24) | New (Q2 FY24) |
---|---|---|
FY24 Revenue growth forecast (%) | 2- 5 | 1-3 |
GAAP Operating Margin (%) | 14.8 - 15.0 | 14.8 |
GAAP EPS ($ ) | 11.41- 11.76 | 11.41- 11.64 |
Overall quarterly earnings snapshot can be seen in the below
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