>INFORMATION TECHNOLOGY SECTOR: Accenture and Oracle numbers indicate at a resilient demand environment…

Accenture Q2FY2012: Seeing strong traction in outsourcing and order booking..
Accenture reported another strong set of numbers in Q2FY2012 with revenues at the upper end of the guidance and exceeding the consensus estimates for the eighth straight quarter. Revenues were up 12.3% year on year (YoY) and down 3.9% quarter on quarter (QoQ) to $6,797 million. The order booking remained strong at $7.9 billion, up 13.8% YoY and 1.8% QoQ.


Along with the strong set of numbers, the company also increased its revenue growth guidance for 2012 to 10-12% from the 7-10% growth guided earlier. In 2011, the company had started with a revenue growth guidance of 7-10% and ended up with a growth of 18%. On the new order booking front as well, the company has upgraded its expectation, coming closer to its upper end of the new booking guidance of $28-31 billion. The management commentary remains optimistic on the outsourcing side of the business which is currently driving growth and seeing an increase in new order bookings.


Oracle Q3FY2012: New license sales drive growth
For the quarter ended February 2012, Oracle reported new license sales growth of 7.2% YoY to $2.4 billion. The growth comes after a soft Q2FY2012 performance when the growth stood at 2.5%. Going forward, for the fourth quarter of 2012, the company has guided at an 1% to 11% growth, indicating an improving demand environment. The management has indicated that it is not seeing anything negative in terms of demand and that the Q4FY2012 guidance is on a conservative basis with an expectation of outperformance



Accenture’s key management commentary
Company guidance: Going forward, for Q3FY2012 the company has guided at revenues of $7.1 – $7.3 billion, up 3.7% - 6.7% on a Q-o-Q basis and 4.9%– 7.9% on a Y-o-Y basis. After increasing the guidance range in the second quarter to $300 million against its traditional range of $200 million to guard against the uncertain macro environment, the company has returned to the $200 million guidance range, which indicates at an early sign of moderation of volatility in the demand environment.


For FY2012, the company has increased its revenue guidance for a constant currency growth to 10%-12% against its earlier guidance of 7-10% implying revenues of $27.3-$28.1 billion on the back of the year to date performance and the demand expectation in the coming two quarters.


On demand environment
Management indicates at seeing a robust demand environment across most parts of the world
The company is in constant contact with its clients and is carefully looking at the macro-economic environment. The company is not seeing any significant change in client environment and also does not expect it to change drastically in the coming quarters. The clients are looking at operational efficiency and short term benefits from spends. The management expects outsourcing to drive growth with moderation in consulting growth rates.


On Europe: Europe is softer from an economic standpoint compared to the rest of the world. The company is closely tracking the financial services sector in some parts of Europe. However, the outsourcing demand is still quite strong in Europe.

Financial services: Financial services’ revenue growth reflects clients' focus on cost takeout and operational effectiveness leading to higher outsourcing. The company expects this to remain as a strong imperative across this industry globally. The company did see a modest growth in consulting and also in the overall financial services stream, mainly due to a decline in the capital markets and slow growth in banking led by Asia-Pacific.


Outsourcing business: In technology outsourcing, the company is seeing increasing demand across all geographies including in Europe. This is on account of clients continuing with the reduction and making variable their IT operating costs to enable them to channel more IT investments toward the adoption of emerging technologies.



Consulting business: The company expects that the Y-o- Y growth rate in consulting will be more in the mid-single digits kind of range next quarter. The company continues to see very good demand, as can be seen in new bookings being over $4 billion. Moderation is expected in the Americas and the Asia Pacific region with Europe remaining the lowest in terms of growth.

Valuation: Impressive quarterly numbers from Accenture and Oracle for the February ended quarter indicate at a resilient demand environment despite macro uncertainties. The headline numbers and management commentaries from both the companies suggest at a stable demand environment for the sector with increasing spend on outsourcing, which augurs well for the Indian IT sector. Meanwhile, as we run-up to the upcoming quarterly numbers for the fiscal FY2012 next month, we believe the stock performance of top tier IT companies is likely to remain weak with increased volatility owing to soft quarterly numbers and uncertainties on the Infosys’ guidance front. We continue to maintain our cautiously optimistic stance on the IT sector, with our top pick being TCS. 

RISH TRADER