IT firms see rise in deal conversion rate
Cloud, application modernisation, & AI contracts top the list; It’s raising hopes of better revenue translation from large deals in coming quarters
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Bengaluru: Deal conversion rate for the Indian IT firms is slowly improving, raising hopes of better revenue translation from large deals in the coming quarters. According to the management of several domestic IT companies, clients are taking swift decisions in terms of project execution after several quarters of slow progress now. This has become a prevalent phenomenon during the December quarter.
“There is a deal cycle reduction, which shows that the decision-making is improving largely. Compared to the previous quarter, there has been an improvement in deal cycle this quarter,” K Krithivasan, CEO of TCS, said during the Q3FY25 analyst call.
“There is a confidence that the revenue realization could improve compared to the past. And I would say, realization will improve, more because of the certainty as customers are embarking on more discretionary work. That gives us more confidence on the faster revenue realization than necessarily on the deal tenure itself,” he added.
TCS has shown sound improvement in its large deal wins during the third quarter. The Tata Group company’s order book stood at $10.2 billioncompared with $8.6 billion in the previous quarter and $8.1 billion in the year-ago period. This is despite the absence of any mega deal during the third quarter.
Not only TCS, its peer Wipro also said that deal cycle is improving as more clients take faster decision with respect to their technology spending.
“The large deal pipeline continues to remain robust. So, if I look at the pipeline, it seems to be very similar to what it has been in the last few quarters. Butdefinitively the deal tenure has come down,” Aparna Iyer, Chief Financial Officer of Wipro, said during analyst call.
The Bengaluru-headquartered company clinched 17 large deals worth around $1billion in December quarter, while its total deal bookings stood at $3.5 billion.
Interestingly, uptick in the digitisation deals is also one of the driving factors for improvement in the deal conversation rate.
During the December quarter, apart from regular optimisation deals, which have been mainstay of Indian IT industry during the last one and half years, digital deals have picked up in the space of application modernization and cloud. Uptick in the AI (artificial intelligence) and generative AI deals is also signs of higher discretionary spend in the coming quarters.
Against this backdrop, most analysts expect revenue growth rate of Indian IT industry to pick up during the next financial year.
