Renewed large deals auger well for IT cos

Bengaluru: Large deal flow continues unabated with IT majors like Tata Consultancy Services (TCS) and Infosys bagging multi-year outsourcing contracts in recent weeks. Earlier this week, TCS announced that Aviva, the UK’s leading insurance, wealth and retirement provider, has expanded its partnership with the IT services major in a 15-year agreement to transform the company’s UK Life business and improve customer experience.

Though TCS didn’t disclose the deal size, this contract is a mega deal bagged by the company. A deal more than $500 million is usually considered to be a mega deal.

Subsequently, Infosys announced bagging of a seven-year contract from Musgrave Group Ltd. The contract involves automating the Irish food wholesaler’s IT operations across Ireland and Europe.

Infosys will utilize its proprietary Topaz and Cobalt platform to transform Musgrave’s IT operations and improve the sales experience for customers and retailers, the company said in an exchange filing.

Though the financial details of the deal are not disclosed, people in the know said this contract is a large one. The deal comes after the country’s largest IT services firm had a seasonally weak quarter where no large deals were reported.

In the third quarter, though large deals pipeline was healthy, still there is a sequential fall in total contract value. For instance, Infosys’ large deal wins in the third quarter stood at $3.2 billion as compared to $7.7 billion in the second quarter. Similarly, TCS’ order book remained strong at $8.1 billion in the third quarter as compared to an order book of $11.2 billion bagged in the second quarter.

“Large deal pipelines are full, however, predicting the timing of their closing is becoming increasingly difficult. That said it seems likely that we will continue to see a steady flow of large deals for the next 2-3 quarters, with the impact on revenues delayed as they take time to scale,” Peter Bendor Samuel, CEO of global consultancy firm, Everest Group, told Bizz Buzz.

According to experts, after a blip in the seasonally weak third quarter, large deal flow is likely to revive from this quarter onwards.

However, ramping up of such deals remains uncertain. Despite winning several large deals and healthy total contract value, revenue accretion from such deals was low. Clients were holding back spend on the projects as they were uncertain about the macro environment.

“Things are not going to change drastically as far as conversion of large deals is concerned. It will take at least another two quarters,” said a source.

Optimism Revival

n Revenue conversion to remain low for next few qtrs

n Infy, TCS bagged large outsourcing contracts in Jan

n In Q4, large deal bookings may exceed Q3 numbers

Large deal pipelines are full, however, predicting the timing of their closing is becoming increasingly difficult. That said it seems likely that we will continue to see a steady flow of large deals for the next 2-3 quarters, with the impact on revenues delayed as they take time to scale

- Peter Bendor Samuel, CEO, Everest Group, tells Bizz Buzz