Can Accenture grow

Accenture is considered a power house by many investors. I was reading a magzine last year and one of the most influential mutual fund manager described Accenture as consulting and outsourcing power house who thought that accenture's share at $41 was a bargain. Now after an year, its share are struggling at $34. Last year was difficult and most of the companies saw correction. But what about the future. Can accenture grow and deliver superior result to boost its share price?

I really doubt it. Accenture has grown really rapidly in India. I myself saw that growth. In Dec 2002, I went to Accenture India office for an interview for the position of software engineer. The office was still under construction in Bangalore and only staff they had was HR. I was among the first 30 people who joined Accenture Bangalore in Jan 2003. By the end of Feb 2003 Accenture had more than 3,000 employees and by the end of 2003 the number was probably more than 10,000. In Jan, 2003 there was no project and we spent most of our time playing games in office or in cafeteria. By March 2003, Accenture was competing with established Indian companies like Infy and TCS. It now has 5 offices in Banglaore, 1 in Mumbai and probably few in Chennai.

So you see, it has already grown in India and growing beyond this point is difficult. In recent years, most of the growth came from India. So it probably can not sustain current growth rate in future, unless it grows in some other area in some other country like China or Philippines. Though Accenture is really good at spotting opportunities and grabbing them. I really doubt that in near future it can grow as
fast as it has grown in past.

I got some more information from Accenture form 10K item 7 Management Discussion and Analysis:

Revenues before reimbursements for fiscal 2007 were $19.70 billion, compared with $16.65 billion for fiscal 2006, an increase of 18% in U.S. dollars and 13% in local currency. Revenues before reimbursements for the fourth quarter of fiscal 2007 were $5.11 billion, compared with $3.97 billion for the fourth quarter of fiscal 2006, an increase of 29% in U.S. dollars and 23% in local currency. Consulting revenues before reimbursements for fiscal 2007 were $11.86 billion, compared with $9.89 billion for fiscal 2006, an increase of 20% in U.S. dollars and 15% in local currency. For the fourth quarter of fiscal 2007, consulting revenues before reimbursements were $3.04 billion, compared with $2.19 billion for the fourth quarter of fiscal 2006, an increase of 38% in U.S. dollars and 32% in local currency. Outsourcing revenues before reimbursements for fiscal 2007 were $7.84 billion, compared with $6.75 billion for fiscal 2006, an increase of 16% in U.S. dollars and 12% in local currency. Outsourcing revenues before reimbursements for the fourth quarter of fiscal 2007 were $2.07 billion, compared with $1.77 billion for the fourth quarter of fiscal 2006, an increase of 17% in U.S. dollars and 12% in local currency.


Outsourcing contracts typically have longer terms than consulting contracts and generally have lower gross margins than consulting contracts, particularly in the first year. Long-term relationships with many of our clients continue to contribute to our success in growing our outsourcing business. Consistent with broader market trends, our recently signed outsourcing contracts are of shorter duration and therefore of smaller initial total contract value than they have been in the past. Despite this, our average annualized revenue per contract is steady. Long-term, complex outsourcing contracts, including their consulting components, require ongoing review of their terms and scope of work, in light of our clients’ evolving business needs and our performance expectations. Should the size or number of modifications to these arrangements increase, as our business continues to grow and these contracts evolve, we may experience increased variability in expected cash flows, revenues and profitability. As we are a global company, our revenues are denominated in multiple currencies and may be significantly affected by currency exchange-rate fluctuations. During the majority of fiscal 2006, the weakening of various currencies versus the U.S. dollar resulted in an unfavorable currency translation and decreased our reported revenues, operating expenses and operating income. During the majority of fiscal 2007, the U.S. dollar weakened against many currencies, resulting in favorable currency translation and greater reported U.S. dollar revenues, operating expenses and operating income compared to the same period in the prior year. If this trend continues in fiscal 2008, our U.S. dollar revenue growth will be higher than our growth in local currency. In the future, if the U.S. dollar strengthens against other currencies, our U.S. dollar revenue growth may be lower than our growth in local currency.