Accenture (ACN) reported Q3 revenue of USD18.7bn, up 6% YoY (3% in LC) and closer to the midpoint of its local currency (LC) guidance. Growth in Q3 was impacted by the Middle East conflict, resulting in a ~USD100mn revenue impact and ~USD400mn sales impact, driven by weaker discretionary spending and slower decision-making. It has lowered the midpoint of revenue growth guidance to 3.5% for FY26 (vs 4% earlier). AI is expected to be a key industry tailwind, driving enterprise reinvention and unlocking new growth and efficiency opportunities for clients. ACN plans to increase its FY26 M&A investment to ~USD9bn (vs the earlier USD5bn allocation and USD3bn deployed in 9MFY26) to expand into higher-growth, more non-FTE revenue areas such as AI, data, cybersecurity, data centers, and IP-led assets. Downward revision in the mid-point of FY26 growth guidance, factoring in the impact of ME conflicts, soft deal bookings, and right-shifting of a couple of large managed services deals into FY27, raises concern on near-term growth visibility and is expected to weigh on stock performance, despite undemanding valuations. The NIFTY IT Index has underperformed the broader markets by 5%/20% over 3M/6M, respectively, driven by concerns over slower growth, evolving AI narrative, questions around sustainability of the business model, partially offset by rupee depreciation. We prefer mid-caps given better growth visibility. Our pecking order is INFO, LTIM, TCS, HCLT, TECHM, and WPRO in large caps.
Q3 revenue came closer to the mid-point of the guidance
Revenue grew 6% to USD18.72bn in Q3 (3% in LC). Consulting revenue grew 4% YoY to USD9.33bn (1% in LC), while Managed Services revenue rose 8% to USD9.39bn (5% in LC). New bookings declined 2% YoY to USD19.3bn (down 3% in LC), including bookings in Consulting worth USD10.26bn (up 13% YoY; book-to-bill: 1.1x) and in Managed Services worth USD9.06bn (down 15% YoY; book-to-bill: 1.0x). Both GAAP and adjusted operating margin expanded 20bps YoY to 17% in Q3. Voluntary attrition (annualized) in Q3 was 14%, up 1% QoQ and down 2% YoY. Headcount increased by ~8k employees YoY, taking total headcount to 798.7k (1.6/1% QoQ/YoY).