Accenture’s Q4 Results Read-Through: In-Line Q4; FY23 Revenue Growth Guidance Remains Healthy Amidst Macro Backdrop

* In-line revenue; Record order booking in the outsourcing business: Accenture's (ACN) revenue rose by 15% YoY to USD15.4bn (22.4% in local currency or LC) in Q4, closer to mid-point of management's guidance in LC. For FY22, revenue grew by 22% YoY to USD61.6bn (26% in LC) and was at the mid-point of the guided range of 25.5% to 26.5% growth. ACN continued to see healthy, broad-based demand across industries, services, and markets and gained market share (2x growth compared to the market), resulting in healthy overall operating performance and strong order booking. ACN posted double-digit growth in Song and very strong double-digit growth in Cloud, Industry X, and Security in Q4. Strategy and Consulting reported double-digit growth, while Technology and Operations reported very strong and strong double-digit growth, respectively, in Q4. Consulting revenue grew 14% YoY to USD8.3bn, while Outsourcing revenue grew 16% YoY to USD7.1bn. New bookings in Q4 were the second highest ever at USD18.4bn (22% YoY, book-to-bill 1.2x). Order booking was at record high in outsourcing, while it was relatively soft in consulting. Consulting bookings stood at USD8.4bn (6% YoY, book-to-bill 1.0x) and outsourcing bookings stood at USD9.9bn (41% YoY, book-to-bill 1.4x). The operating margin increased by 10 bps YoY to 14.7% in Q4. Quarterly annualized voluntary attrition was stable at 20% QoQ. The company added 10,947 employees in Q4, taking the headcount to 721,379 (1.5% QoQ/15.6% YoY).

* Broad-based growth across verticals: Growth in Q4 was driven by Products (25% in LC), CMT (23% in LC), Financial Services (22% in LC), Resources (21% in LC), and Health and Public Services (19% in LC). ACN continues to see healthy demand across its verticals and expects to sustain broad-based growth momentum in the coming quarters.

* FY23 revenue growth guidance of 8-11%: ACN has guided for revenue growth of 8-11% in LC in FY23 (organic 5.5-8.5%). The guidance assumes a negative 6% foreign exchange impact on USD revenue. The operating margin is expected to expand by 10-30bps to 15.3-15.5%. ACN expects Q1FY23 revenue to be USD15.2-15.75bn, assuming negative 8.5% foreign exchange impact (10-14% YoY in LC). The company expects OCF and FCF to be USD8.5-9bn and USD7.7-8.2bn, respectively.

* Earnings call takeaways: 1) ACN expects consulting to grow in high single digit to double digit and outsourcing to grow in double digit in FY23; 2) ACN has highlighted five forces of change, which will drive demand for the next decade - a) total enterprise reinvention, b) talent management, c) sustainability, d) metaverse continuum, and e) ongoing tech revolutions; 3) Clients are seeking compressed transformation amid uncertainties and, thus, managed services have become increasingly important as companies are looking to move faster to leverage digital platforms and talent; 4) ACN continues to gain market share and is currently growing at 2x market growth; 5) ACN has spent ~USD3.4bn on 38 acquisitions, USD1.1bn on R&D, platforms and industry solutions, and USD1.1bn on training and development in FY22; 6) FY23 revenue growth guidance assumes ~2.5% contribution from M&As; 7) ACN has signed deals worth over USD100mn with 26 clients in Q4 (100 clients in FY22 vs. 72 in FY21); 8) Management indicated that order pipeline remains strong even after the second best record bookings in Q4. The company expects seasonally soft bookings in Q1.

* Read-through for Indian IT peers: ACN's Q4 operating performance was in line with management's guidance, although it missed the level of outperformance witnessed in the past few quarters. The company has indicated broad-based demand and guided 8-11% LC (organic 5.5-8.5%) growth for FY23. Outsourcing order booking was at record high in Q4 at USD9.9bn (1.4x book-to-bill in Q4; grew 18% YoY in FY22). Strong order booking and double-digit LC growth outlook for the outsourcing business augur well for Indian IT peers. ACN saw attrition stabilizing sequentially in Q4 but expects tight labor situation and wage inflation to persist in FY23. Clients have become more amenable to price increases amid strong demand for tech skills and tight labor markets, which should support margins. Demand momentum has moderated a bit due to macro weakness but remains resilient, which should alleviate any concerns of sharp fall in demand. Our pecking order is INFO, HCLT, WPRO, TECHM, and TCS among Tier-1 companies, and MTCL, LTI, PSYS, MPHL, FSOL, ECLX, and BSOFT in mid-cap companies.