Project ramp-downs hit top line of IT cos
Despite big ticket deals, slowdown in decision-making keeping large contracts in the pipeline longer
- Since last Sept, global IT services market witnessing multiple large deals
- Large deals, above $500 mn, are usually multi-year in nature
- Majority of large deals are cost takeout in nature
- Digital deals are falling due to discretionary nature
- Cost takeout contracts emerged as mainstay of revenue addition
- Deepening slowdown forcing enterprises to hold back new work
In case of large deals, clients are also deferring decisions to go ahead with new work. That is the reason that both TCS and Infosys showed tepid revenue growth in Q4 despite large numbers of large deals, said an industry source
Bengaluru: Large deals may be the mainstay for revenue acceleration, but delay in project ramp-ups in these contracts are adding to the woes of tier-1 IT firms during the fourth quarter and beyond. Sources in the know said despite healthy deal pipeline, companies like TCS, Infosys, HCL Tech and Wipro are going to witness subdued revenue growth as these pipelines are not translating into revenues.
“Across key sectors, there is a significant ramp downs in projects. In case of large deals, clients are also deferring decisions to go ahead with new work. That is the reason that both TCS and Infosys showed tepid revenue growth in Q4 despite large numbers of large deals,” said an industry source who wished not to be quoted.
During the fourth quarter, TCS reported strong deal pipeline with fourth quarter TCV (totalcontract value) coming at $10 billion, which included one mega deal worth around $750 million with UK-based insurer Phoenix Group. For FY23, the company reported a TCV of $34.1 billion.
Infosys bagged large deals worth $2.1 billion in Q4 while for FY23, the total deal wins were at $9.8 billion.
“One of the things we have seen in the pipeline is a slowing decision-making. So, large deals are staying in the pipeline longer. Having said that, in the net new or even the quantum of large deals, as we’ve discussed in the past, there is always volatility,” Salil Parekh, CEO of Infosys told analysts during conference call.
Since September last year, global IT services market is witnessing multiple large deals coming to the market. Large deals are those deals which have a worth of $500 million or more and are usually multi-year in nature.
Most of the large deals coming to the market are cost takeout in nature, which means organisations are trying to save cost by outsourcing their IT work to third party vendors like Indian IT firms.
At a time, when digital deals are falling in numbers due to its discretionary nature, cost takeout contracts have emerged as the mainstay of revenue addition. However, deepening slowdown is forcing enterprises to hold back new work under these cost takeout large contracts.
“We expect to see a further but modest deterioration in demand, larger transaction sizes as the market moves to more focus on cost savings with vendor consolidation in key accounts creating more losers than winners. We also expect to see a rise in large or mega deals as the market tries to couple future cost savings and business value with the need to further modernise,” Peter Bendor- Samuel,CEO of global consultancy firm, Everest Group has said Bizz Buzz.