Accenture sees a sharp decline in employee attrition. What this means for techies?

A sharp 700 bps improvement in quarterly attrition (to 13%) suggests an easing of supply environment, aiding profitability across the ecosystem, Motilal Oswal said in a note.

Accenture’s CEO KC McClure in post earnings call said: “There’s a structural pattern of attrition that typically comes down from Q4 to Q1. (But) this year came down at a tick more, and we’re really pleased with that. And that means we have to hire fewer replacement people, it means less recruiting costs, and you saw that in our improvement in G&A (general and administrative expenses) this quarter, and it’s less ramp-up time for new hires.”

“With upskilling, we may not need to hire as many people as we go throughout the year,” she said.

Salary hikes

And on wage inflation, she said, “we did see wage inflation continuing. We do have comp increases that are kicking in that we’ve planned for, of course, and included in our pricing. But they are higher than they’ve been, and that’s a statement across all industries, all geographies. And of course, that we’re no different in that regard.”

What Accenture results mean for Indian IT companies

For the quarter ending November 30, Accenture reported higher-than-expected revenue and earnings, when sales grew 5% to $15.7 billion, surpassing an average analysts’ estimate of $15.58 billion. But its weak outlook overshadowed its earnings, resulting in 6% loss for the stock on Friday. Accenture Plc warned that a pullback in spending from clients who were postponing business improvement projects, especially in retail, was hurting its consulting business.

In a note, Motilal Oswal said: “Accenture’s lower bookings adds to growth concerns but sharp drop in attrition and better pricing positive for margin.”

“Accenture (ACN), one of the key peers of IT services companies, reported a solid 15% YoY in constant currency (CC) revenue growth during 1QFY23, and retained its FY23 guidance of 8.0-11.0% in constant currency. The company reported lower bookings in the quarter (up 6% YoY CC; down 4% in USD), which is likely to add to growth concerns for IT services universe in FY24,” the brokerage said.

On the other side, Motilal Oswal said, “a sharp 700 bps improvement in quarterly attrition (to 13%) suggests an easing of supply environment, aiding profitability across the ecosystem. While the lower booking number was negative, commentary on the pipeline, better pricing, moderation in attrition, and margin outlook despite wage inflation were key positives.”

“We continue to maintain our positive stance on the sector as we expect good demand over the medium term and strong margin recovery. TCS, HCL Tech, and Infosys remain our preferred picks within the Tier I IT space,” Motilal Oswal said.

On the operating margin front, Accenture CFO said: “We are pleased with the 20 basis point expansion that we have in Q1 and really pleased to be confirming our 10 to 30 basis points expansion for the year.”