Bengaluru: Tata Consultancy Services Ltd (TCS) has won its largest IT outsourcing deal with an over $2 billion, 10-year contract from a unit of Dutch insurer Aegon NV, assuring India’s largest information technology company the fastest revenue growth in three years in 2018-19.
The contract from Transamerica Life Insurance Co. is the second large outsourcing deal won by TCS in the past one month, and bigger than the $2.25 billion deal announced when it renewed a partnership with television ratings measurement company Nielsen Holdings Plc in December. TCS did not specify the exact value of the contract, but it said it was worth more than the Nielsen deal.
TCS’s ability to win such multibillion-dollar deals should help put an end to its protracted underperformance. TCS reported a 1.3% sequential increase in revenue in constant currency terms, which eliminate the effects of exchange rate fluctuations, during the October-December period, marking the 13th straight quarter that TCS either underperformed or at best managed to match analysts’ estimates.
Significantly, these large deal wins will assuage any investor concerns over TCS’s decision to elevate chief financial officer Rajesh Gopinathan to the chief executive officer’s mantle in Feburary 2017, replacing N. Chandrasekaran, who was appointed chairman of Tata Sons Ltd, the group holding company.
Mumbai-based TCS won the Transamerica contract in competition with at least three other global outsourcing companies, including Cognizant Technology Solutions Corp., according to a TCS executive who spoke on condition of anonymity.
Under the Transamerica-TCS contract, the deal value will be unevenly spread over the decade-long contract period.
This means that TCS, which is expected to end this fiscal year with over $19 billion in revenue, should improve its annual growth rate by at least 1 percentage point in the next fiscal year. This is because TCS stands to make over $200 million in business in the first year from this partnership. TCS needs to add $1.9 billion in new business to clock 10% revenue growth.
“TCS will simplify the service of more than 10 million policies into a single integrated modern platform, and drive greater sustainable growth opportunities through superior customer experiences," said a statement from Transamerica.
As part of this deal, 2,200 employees of Tansamerica will join TCS.
“The Transamerica deal is TCS’s biggest deal till date, bigger than the Nielsen deal. Remember, deals like this do not only happen because we have a platform," TCS chief operating officer N. Ganapathy Subramaniam told Mint on Friday. “The combined expertise of TCS, of almost every capability of the organization, has come together to help us. And we are extremely proud of what we have achieved."
“We have invested heavily in our insurance digital platform, TCS BaNCS, and our extensive US capabilities, and are proud to partner with Transamerica in its ongoing transformation and welcome the transitioning employees to promising new careers at TCS," said CEO Gopinathan.
TCS will use BaNCS to complete many of the back-end processes of insurance claims.
“I’m very excited to embark on this partnership with TCS, whose transformation and technology innovation capabilities will supplement our focus on improving our customers’ experience in a digitally enabled way," said Mark Mullin, Transamerica’s president and chief executive officer. “TCS was carefully selected because of their significant ongoing investments in technology and their expertise in the insurance and annuity industry."
Subramaniam also clarified that the deal is not margin-dilutive. “It will not be a margin-draining deal over the life of the contract," he said.