Accenture's Q2FY14 results were below consensus expectations on revenue, earnings and cash flow guidance. Key positives for Accenture are increase in revenues (lower end) and earnings guidance; highest-ever consulting and outsourcing bookings in a quarter and rise in full-year bookings guidance.
Key negatives are weak consulting performance, which has declined in six of the past seven quarters; pricing pressure in application services due to acceleration of offshoring amid intense competition, deal renegotiations and the initial margin-dilutive nature of large-scale transformation deals, and reduction in its FY14 FCF guidance by USD 300 million to USD 2.9-3.2 billion, according to Nomura Financial Advisory and Securities.
''Accenture stock is down 7% currently; however, we don't expect India IT to react negatively as we believe that the results read-across is positive for the latter on strong consulting and outsourcing bookings which augur well from a future demand perspective; Accenture commentary that suggests volume is not an issue, even in consulting and indications of acceleration in offshoring, especially in Continental Europe (Germany, France, Italy and Spain) where India IT has been gaining market share,'' said Nomura.
''We do not see pricing pressure as an issue for India IT as this is essentially an effort mix shift towards offshore for Accenture and not a like-like bill-rate decline. We remain OW on India IT. Our top buys are HCL Tech (HCLT IN, TP Rs 1,700), TCS (TCS IN, TP Rs 2,600) followed by Cognizant (CTSH US, TP USD56),'' it opined.
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