Sustaining FY24 guidance seems difficult for IT firms

Bengaluru Indian IT firms are likely to revise their revenue growth forecasts downwards if Accenture results are something to go by. Brokerage firms and industry analysts are of the opinion that third quarter results indicate slow technology spending environment persisting in the first quarter despite resilience.

“Given no expectation of recovery in August 2023 and in line April 2023 quarter, we believe there could be downward revision of FY24 earnings estimates for Indian IT companies,” ICICI Securities wrote in a note.

A Mumbai-based analyst, who wished not to be named, also said that it would be difficult for Indian IT firms to stick to their FY24 revenue guidance. “Despite very conservative guidance given by some of the large IT firms, it is even difficult to touch that guidance in FY24. It seems like the hope of second half recovery may not seem bright,” the person said.

Accenture, which follows a September-August financial year cycle, posted overall revenue of $16.56 billion in the third quarter, a growth of five per cent over the same period last year in constant currency term.

While its managed services saw a 13 per cent growth, there was a decline of one per cent in consulting segment. Accenture’s growth in managed services space is taken as the benchmark for Indian IT services industry.

Apart from consulting segment, Accenture saw its revenue in the communications, media & technology (CMT) segment falling by eight per cent year-on-year.

Dip in consulting and communication verticals indicated that Indian IT services companies with high exposure to these two spaces might see a slow growth. While Tech Mahindra draws around 40 per cent of its revenue from communication vertical, Wipro draws around 15 per cent of its top line from consulting business.

Another lead indicator, employee count of Accenture also provided a grim view of growth prospects in the current financial year.

The company saw its headcount falling by roughly 6,000 people from last quarter, which is part of its plan to layoffs 19,000 staffers as part of its cost optimisation plan announced last quarter. The company’s headcount now stands at 7.32 lakh. Accenture has more than 3 lakh employees operating out of India.

“We did not add any people between Q2 and Q3, which is what we expected. And then this Q4, we don’t really see a need to grow our overall headcount as we continue to focus on the automation and reskilling,” KC McClure, Chief Financial Officer of Accenture has said in the analysts call post earnings. This fall in headcount is likely to be reflected across domestic IT firms, which are likely to see negative to marginal growth in headcount in the first quarter ending June.