BENGALURU: Top Indian information-technology (IT) services companies are betting on large and mega deals, which enable them to sharpen their focus on clients, leading to higher revenue, faster growth, and more cost savings in the long term.
Typically, IT companies consider deals at or above $100 million as large ones while those at or above $500 million are categorised as mega deals.
Wipro Chief Executive Officer (CEO) Thierry Delaporte said during the recent earnings meet the company was getting out of deals with smaller, unprofitable clients and focusing on winning more large contracts.
Wipro ended the second quarter with 22 accounts of above $100 million, almost double what they were in FY21. Its total contract value (TCV) of large deals stood at $1.3 billion, the highest in the last nine quarters.
“We have increased not only the number of deals but also the size. We won two half-a-billion-dollar deals this quarter … In terms of what is driving these deals, a year ago we would see a lot of large cloud-transformation programmes. Today the deals are more cost-driven,” Delaporte told Business Standard.
Infosys’ TCV of large deals in the second quarter (Q2) was the highest ever at $7.7 billion, 48 per cent of which was net new. Consequently, the TCV of large deals for the first half (H1) of FY24 stood at $10 billion, which exceeded the contracts for large deals in FY23.
“Our Q2 large deals include four mega ones. It does not include the MoU we signed and announced for $1.5 billion. We see that with our large deal wins in the past two quarters, we are winning market share in the area of cost, efficiency, automation, and artificial intelligence,” said Salil Parekh, CEO and managing director (MD), in a post-earnings analyst call.
Infosys Chief Financial Officer Nilanjan Roy said: “Delays in decision-making continue. Our strong large-deal signings and pipeline will help support growth in the medium term.”
Analysts say a few large and mega deals offer IT companies more benefits than a number of smaller deals.
“IT vendors pursue mega deals with clients because they offer substantial revenue, long-term commitment, and the opportunity to showcase their expertise. Furthermore, mega deals can also lead to cost efficiencies and foster strategic partnerships, and innovation, which can enhance the vendor’s reputation as well as its competitive edge among its peers,” said Biswajit Maity, senior principal analyst, Gartner.
“As mega deals accelerate growth more effectively than a collection of smaller deals, they are laser-focused on mega deals. There is negativity, which may not be realistic and based on speculations,” added Maity.
HCLTech signed 16 large deals worth a TCV of $3.9 billion during Q2. In August, it won a six-year deal with Verizon Business for an estimated TCV of $2.1 billion. This was the largest ever deal for the company after the $1.3 billion Xerox renewal deal in 2019.
Tata Consultancy Services (TCS), India’s largest IT services company, reported an order book TCV of $11.2 billion, the second-highest in a quarter. This includes two large deals of $1 billion each from Bharat Sanchar Nigam Ltd and JLR.
“Strong deal momentum delivered us a very large order book in Q2 — our second-highest TCV ever in a quarter, and good pipeline. The resilience of demand for our services, our clients’ willingness to commit to long-tenure programmes, and their continued appetite for experimentation with Gen AI and other new technologies give us confidence in our longer-term growth prospects,” said K Krithivasan, CEO and MD, during the Q2 earnings meet.
Although the revenue growth guidance has been muted for most IT companies, their large-deal pipeline has been strong, indicating that clients continue to spend on essential technology projects.
Maity said: “Despite all geopolitical and macroeconomic uncertainties, organisations recognise strategic IT investment is critical in remaining competitive. Organisations often differentiate between investments that are essential to their competitiveness and those that can be delayed. As of now, there seems to be a good pipeline for the providers but the providers feel discretionary spending covers a good part of their revenue and profitability. Providers are pessimistic about the forecast but optimistic about the opportunity, which indicates a mixed feeling in the market we see.”
Source: Business Standard