Posts Tagged ‘Accenture’

Koramangala IT Cos bet on price tweak tactics

January 27th, 2015

In a bid to compete against global IT majors like IBM and Accenture, Koramangala-based IT majors are playing the price card on delayed risk on fees pattern.Outsourcing58

Industry experts say that milestone-related payments have become a norm in the IT industry, while, bank guarantees that the vendors need to provide upon winning projects, have increased to as much as 20 percent of the deal value from the earlier 5 percent. Their strategies include coughing up money upfront to sweeten the deal and win large contracts.

T Umakanth Rao, director, Zarlina Systems, said, “India’s top IT outsourcers, including the traditionally conservative Infosys and Wipro, are becoming increasingly risk-taking as they chase commoditised contracts. While cut-throat competition is giving more bang for the buck for customers, technology vendors are risking future cash flow and locking up resources.”

Commenting upon the risk on fees or milestone related payments, Rao said, “While bank guarantees have increased to as much as a fifth of the deal value, the aggressive pricing strategies being adopted by the IT companies in the locale and their promise of value-added offerings to win contracts have made customers cautious and they want to see results before paying up.”

“In the last year and half, we have seen customers holding back the risk-on-fees which we normally get upon completion of certain milestones,” said a bid manager working with a large IT company based out of Bengaluru. The bid manager went on to add, “Across industries, we have seen customers holding back this money which they normally give more in a staggered manner than at the time when payments are due.”

Naved Ahmed, director, MN Associates said, “Indian firms play the pricing card often these days as they battle with global majors like IBM and Accenture to win bread-and-butter outsourcing deals.” He said that in earlier years, the top Indian IT services firms in Koramangala generally avoided heated price competition with their professional brethrens both in domestic market and in global merchandise. “However, the IT services industry has definitely become more competitive, and today, we as an industry observer, see certain IT firms actively pursuing price-to-win strategies,” said Ahmed.

Giving credit to the sizeable improvement in the operating margins of the local IT outsourcing companies Sushanth K Nair, proprietor, Innova Team Software, a Koramangala-based IT company which has base in New York as well said, “Operating margins of the home grown IT outsourcers have significantly improved over the past two years. One of the biggest cost components for IT companies, is manpower, and technologies like artificial intelligence and automation for completing repetitive low-end work have helped them cut down on this cost.”

Giving caution upon the upfront payment for wining a big ticket contract, Nair said, “Delayed payment by customers and upfront spending could prove to be an issue in the event of turbulence in the markets these companies operate in, or if the customers face financial troubles. Promising tough-to-achieve milestones is another problem that could affect expected cash flow.”

“A pricing trend I’ve seen is Indian firms taking on more risk by tying more fees to contractual milestones – milestones that in a number of cases are tough to predict and achieve, especially as work assignments get more complex,” he added and continued, “This trend tends to occur on deals in which the client is large and experienced with outsourcing contracts and on deals in which an outsourcing adviser is helping the client with vendor selection and pricing.”

However, a large number of IT professionals in the locale who avoided being named confirmed the trend and said that it was more a function of maturity of the deal and depends on how effectively a customer was able to negotiate with an IT vendor. “Agreed! More customers nowadays are holding back fees in some industries but then this is more a function of what kind of contract it is. As more customers mature in their use of outsourcing and are able to manage their IT vendors, they will explore different models,” the professionals said.


Accenture Is A Leading IT Services Provider

October 3rd, 2014

In this article, let’s take a look at Accenture plc (ANC), a $52.36 billion market cap company, which is a global management consulting, technology services and outsourcing company.Outsourcing36

A well-positioned company

Ireland-based Accenture has 275,000 employees, with operations in more than 120 countries and a deep specialization in approximately 40 vertical industries.

It focuses on three key growth areas: management consulting; technology and business process outsourcing. This way it collaborates with its clients in order to improve their value added in terms of efficiency and growth prospects.

The industry is characterized for being highly competitive, but we believe the firm can outperform its peers in the long run, differentiating by offering solutions with real business benefits. Further, the switching costs allow the company to gain valuable insight into emerging trends and technology.

Growth drivers

Accenture plans to continue developing mobile, social, cloud and analytics, as key growth drivers for the upcoming future.

We believe another long-term growth strategies should be acquisitions, because they could constitute another key aspect for the firm.

In the last three years, it has spent about $1.3 billion in order to improve its service offerings and become more relevant in faster growing markets.

Attractive dividend policy

The firm has an attractive dividend policy showing its commitment to return cash to investors in the form of dividends as it generates healthy cash flow on a regular basis. The current dividend yield is 2.3%, which is quite good to protect the purchasing power, especially considering the consistency of track-record dividends payments. Dividends have been paid since 2005.

Estimated one-year price

According to Yahoo! Finance, the estimated one-year target share price is $ 87.09, so if you buy shares at current market price ($79.72), your return from price appreciation would be 9.2%. In addition, you have to consider any cash flow received by the asset. So for holding the stock one year, you’ll be paid a dividend of $4.08 at the end of the year. If we divide this number by current price per share, we obtain the dividend yield, which is the other component of the return on an investment for a stock, and in this case is 2.3%. So the total expected return for investing in Accenture is 11.5%, which we believe is an attractive stock return.

Revenues, margins and profitability

Looking at profitability, revenues increased by 9.86% and led earnings per share increased in the most recent quarter compared to the same quarter a year ago ($1.08 vs $1.01). During the past fiscal year, the company reported lower earnings of $4.52 versus $4.93 in the prior year. This year, Wall Street expects an improvement in earnings ($4.85 versus $4.52).

Finally, let´s compare the best measure of performance for a firm’s management: the return on equity. The ROE is useful for comparing the profitability of a company to that of other firms in the same industry.

The company has a current ROE of 55.71% which is higher than the industry median and the ones exhibit by CGI (GIB), Amdocs (DOX), Teradata (TDC) and Infosys (INFY). In general, analysts consider ROE ratios in the 15-20% range as representing attractive levels for investment. So for investors looking those levels or more, Gartner (IT) could be the option. It is very important to understand this metric before investing and it is important to look at the trend in ROE over time.

Relative Valuation

In terms of valuation, the stock sells at a trailing P/E of 18.1x, trading at a discount compared to an average of 47.2x for the industry. To use another metric, its price-to-book ratio of 9.4x indicates a premium versus the industry average of 2.84x while the price-to-sales ratio of 1.8x is above the industry average of 2.33x.

As we can see in the next chart, the stock price has an upward trend in the five-year period. If you had invested $10,000 five years ago, today you could have $25,011, which represents a 20.2% compound annual growth rate (CAGR).

Final comment

The company makes business with the largest multinational corporations, helping it to keep a market-leading position. Further, as we have seen, it generates free cash flow that will shareholder´s value. Finally, we think that cloud, mobility, and analytics are going to be the key growth drivers in the short to mid-term; with the development of intellectual property and specialized teams.

Moreover, the PE relative valuation and the return on capital that significantly exceeds the industry average and make me feel bullish on this stock.

Hedge fund gurus like John Rogers (Trades, Portfolio), Francisco Garcia Parames (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Tom Gayner (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio) added this stock to their portfolios in the second quarter of 2014, as well as First Pacific Advisors (Trades, Portfolio) and Manning & Napier Advisors, Inc.


Accenture results: Takeaways for Indian IT

September 29th, 2014

Accenture Plc reported decent results for the year ended August, although its outlook for the next year is a tad disappointing. The company said it expects revenue to grow between 4% and 7% in constant currency, despite the fact that revenue grew 8% and 7%, respectively, in the preceding two quarters. Outsourcing31

Also, according to consensus estimates, the firm is expected to grow 6% in dollar terms in the year till August 2015; adjusted for a forex headwind of 2%, dollar revenue growth is expected to be between 2% and 5%, according to Accenture. US-based analysts at Citigroup Research said in a note to clients, “The Q1-FY15 revenue guide of $7.55-7.80 billion (consensus $7.8 billion) implies a possibly slower start to the year in spite of acquisition impact.” Not surprisingly, the Accenture stock dropped a bit after the results were announced; the shares have declined 3.4% year-to-date.

Indian IT stocks shrugged off this news, and the National Stock Exchange’s CNX IT index rose marginally. The index continues to be perched close to its all-time highs. For some time, Indian IT stocks have charted their own course, on the back of market share gains by companies such as Tata Consultancy Services Ltd.

In mid-July, International Business Machines Corp. (IBM) reported weaker-than-expected results for its services business. Later, Citi’s India-based analysts wrote in a note to clients that most factors that affected IBM’s services business were not applicable to Indian IT firms. “Pricing pressure from competitors—offshore competition and commoditization of lower end services may be putting some pressure (on IBM)—an industrywide phenomenon. For Indian players, pricing is flattish as commoditization at the lower end is largely offset by increase in higher priced service lines such as digital (services).” Another factor that has helped sustain investor sentiment for Indian IT is that the rupee has depreciated by more than 5% in the past four months against the dollar.

It must also be noted that not all aspects of Accenture’s results were disappointing. In the quarter ended August, the company did better than expected, with reported revenue being higher than consensus estimates. Much of the upside came from the outsourcing business, while the amount of new business bookings was lower than estimates, at $8.3 billion.

The company said in a call with analysts that consulting bookings last quarter reflected good demand for systems integration and management consulting.

But as Citi’s India analysts point out, the key takeaway from Accenture’s results for Indian IT is the company’s use of cash. Last year, it gave back 93% of its cash flow from operations to shareholders through dividend and share buybacks. This has helped the company sustain valuation multiples. Indian companies could take a leaf or two out of Accenture’s books. Many of them are holding large amounts of cash, resulting in mediocre return for shareholders. Returning cash or making prudent acquisitions is the need of the hour as growth continues to slow off a high base.


IT stocks gain on Accenture results

September 26th, 2014

Following Accenture reporting better-than-expected numbers for the quarter ended August and saying it expected better profitability going ahead, information technology-stocks gained on the BSE. For the quarter ended August, net revenue stood at $7.8 billion, anOutsourcing30 increase of 10 per cent, the first double-digit revenue growth in about two years. While new bookings stood at $8.3 billion, consulting revenues were $4 billion, up six per cent compared to the year-ago period. Outsourcing revenue stood at $3.8 billion, up 15 per cent.

Till the previous quarter, the consulting segment had been a drag on the company.

The rise in outsourcing revenue presents a positive picture for other IT companies, too; the growth in consulting revenue means discretionary spends are back, a big positive for Infosys.

The Accenture management said the company would continue to see similar momentum in growth. “On revenue growth, by type of work, outsourcing…in our guidance, we’re thinking in the high single-digit to low double-digit range. For consulting, probably relatively consistent with this year, it could be a click lower or a click higher…in that kind of a general range,” said Chief Financial Officer David Rowland.


Accenture, Capgemini, Entercoms and Havi Global Solutions rated top SCM outsourcing providers

September 23rd, 2014

Accenture, Capgemini, Entercoms and Havi Global Solutions have been named the top four service providers for supply chain management (SCM) business process outsourcing (BPO).Outsourcing14

The HfS Blueprint Report said the SCM BPO market is a new area with “huge untapped potential”. The current market is around $1.5 billion (£918 million), according to the report, however the research firm predicted it could be as large as $300 billion (£183.7 billion).

The report rates service providers using input from a broad range of stakeholders including 1,355 responses from buyers, service providers, and HfS analysts. The company’s definition includes seven different service offerings: order management, inventory management, manufacturing management, transport management, after market services, master data management, and sustainability services.

HfS described the market as “heterogeneous” because the 13 service providers it evaluated approached the industry in “very different ways”. “Sometimes that approach was dictated by the requirements of the original anchor clients and in other cases it was a function of consulting or technology skills in supply chain,” HfS said.

As well as the four top companies, HfS also analysed Celestica, WNS, OnProcess Technology, Infosys, Genpact, Tech Mahindra, WIPRO, EXL, and Tata Consultancy Services.

The survey added: “Some of the companies who are admired for their competitive and excellent supply chains are the early adopters of SCM BPO along with some of the companies facing tough external environment and are using SCM BPO as a transformation lever. It is the huge middle segment which has not embraced SCM BPO yet which is both challenge and opportunity.”

HfS said there are four common characteristics among the top four companies – “strong consulting and analytics capabilities, presence of visibility or control tower platforms, great account management as validated by customers and strong customer references or customer champions who have shared their inspiring and transformational journey along with the contribution of the service providers”.


IBM wins six-year outsourcing contract from Janalakshmi

July 15th, 2014

International Business Machines Corp.’s (IBM) India business has signed a $100-million outsourcing contract with microfinance company Janalakshmi Financial Services Pvt. Ltd, which is promoted by social entrepreneur Ramesh Ramanathan, to manage back-office projects. This deal comes months after Bharti Airtel Ltd renewed its landmark outsourcing contract with IBM.Outsourcing22

Financial details of the contract were not disclosed. However, two people familiar with the developments, who requested anonymity, pegged the deal value at about $100 million.

As part of the six-year deal, IBM will manage back-office operations such as application development and maintenance and infrastructure management services. It will build a technology platform for Janalakshmi and provide mobile, cloud computing and analytics services as well. IBM will also be responsible for digitizing and automating operations and processes at Janalakshmi.

Janalakshmi has previously also handed out contracts to IBM rival Accenture Plc. Last year, it gave a five-year contract to Accenture as part of a cost-cutting drive amid expanding operations.

In 2013, Janalakshmi had applied for a banking licence. The Reserve Bank of India eventually handed out licences to IDFC Ltd and microfinance institution Bandhan Financial Services Pvt. Ltd.

Earlier this year, Bharti Airtel Ltd renewed its outsourcing contract with New York-based IBM. The renewed five-year deal is pegged at around $750-800 million.


Accenture Positioned as a Leader in Serving Energy Companies for the Second Consecutive Time, According to IDC MarketScape Report

July 9th, 2014

Accenture  has been positioned as a leader in the recently published IDC MarketScape: Worldwide Oil and Gas Professional Services 2014 Vendor Assessment1 by IDC Energy Insights. The only company to receive this distinction for two consecutive reports, Accenture was recognized for providing services including business and IT consulting, systems integration, IT outsourcing, buOutsourcing11siness process outsourcing, and application development and management, as well as solutions unique to energy firms.

The report assessed many leading professional service firms’ strategies and capabilities in meeting specific needs of the oil and gas industry with offerings in industry segments, such as upstream, midstream, downstream and retail.

“The new IDC MarketScape report reflects our longstanding role as a trusted leader in helping oil and gas companies achieve their goals for safer, more productive and cost-effective operations,” said Andrew Smart, global managing director, Accenture Energy industry group. “Our offerings are based on a rigorous analysis of current and future oil and gas needs across all segments of the industry and are vital to our clients’ ability to drive better business outcomes.”

The latest IDC MarketScape report analyzes the offerings and capabilities of 12 oil and gas services providers, focusing on how they help clients improve performance, achieve IT-enabled business benefits and reduce costs. Accenture was cited as a leader in the report for its unique ability to bring together strategy, digital, IT and business process outsourcing, as well as its ability to develop innovative services and solutions for future growth, all on a global scale.

“Leading oil and gas companies will be looking to their service providers to help them innovate and improve their performance in the coming years,” said Jill Feblowitz, vice president, IDC Energy Insights, Oil and Gas. “The good news is that professional services firms have made great strides in building their oil and gas-specific capabilities the past two years.”


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