Tata Consultancy Services (TCS) has successfully secured a contract renewal with British insurance giant Aviva, extending their partnership until 2039. In the dynamic landscape of technology services, this substantial win solidifies TCS’s position as a key player in the industry, reflecting their strategic growth and long-term vision.
Tata Consultancy Services (TCS) Launches $2.5 Billion Outsourcing Deal
Tata Consultancy Services Ltd (TCS) unveiled a 15-year outsourcing deal on Tuesday, valued at a minimum of $2.5 billion, according to an executive familiar with the contract. If confirmed, this deal could potentially rank as TCS’s largest outsourcing deal to date. Previously, the company’s most significant deal was a $2.25 billion contract with Nielsen in December 2017.
Renewal of Contract with Aviva
The Mumbai-based firm declared a contract renewal with British insurance group Aviva that extends until 2039. This agreement renews TCS’s existing engagement, originally awarded by Friends Life with a $2.2 billion, 15-year contract in 2012. Following Aviva’s acquisition of Friends Life in 2014, this partnership has been ongoing since March 1, 2012, with TCS managing the administration of 3.2 million policies offered by Aviva until 2027, guaranteeing revenue of $146 million annually.
Expansion of Partnership
The new deal expands the scope of TCS’s responsibilities to include the oversight of 5.5 million life and pension policies offered by Aviva. With a $2.5 billion deal spanning 15 years, TCS stands to earn at least $165 million in revenue each year.
Impact of Mega Deals on TCS
The renewal of this deal marks the third mega deal (IT contracts valued at over $1 billion) secured by TCS under the leadership of CEO K. Krithivasan. In June, the company secured a 10-year, $1.1 billion contract from the National Employment Savings Trust, and in September, it was awarded a $1 billion project over five years from Jaguar Land Rover, a subsidiary of Tata Motors.
Mega deals are playing an increasingly pivotal role for major technology services companies like TCS, especially as it reported $27.9 billion in revenue for the fiscal year ending in March 2023. Notably, TCS could potentially anticipate double-digit growth in the current fiscal year, particularly if new clients bring in over $150 million in incremental business.
Analyst Insights
Analysts from Kotak Institutional Equities, in a note dated 16th October last year, suggested that mega deals could potentially contribute 2-3% to the revenues of large IT firms, including TCS, Infosys Ltd, and HCL Technologies Ltd in the next fiscal year. They emphasized that the inclusion of mega-deal-driven revenues might lead to heightened growth during quarters with a strong ramp-up in mega-deal activity.
Ultimately, this latest $2.5 billion outsourcing deal solidifies TCS’s position as a major player in the competitive landscape of technology services, signaling potential opportunities for robust growth and expansion in the coming years.
TCS Growth Outlook for 2024
TCS’s Potential Revenue and Growth Strategy
Tata Consultancy Services (TCS), India’s largest IT services company, which does not provide quarterly or yearly guidance, is poised to reach $29.25 billion by the fiscal year ending March 2024, if it sustains its current 4.7% dollar revenue growth, a rate it has maintained in the first nine months of the ongoing fiscal year.
At its current scale, TCS needs to generate an additional $146 million in revenue to surpass its FY23 growth by 50 basis points. A basis point is equal to one hundredth of a percentage point.
Challenges and Mitigation
TCS’s growth is aided by mega deals, including renewals, while also facing the potential loss of $450 million annual revenue from 2025 due to reduced business from a Deutsche Bank subsidiary, Nielsen, and the termination of business with Transamerica Life Insurance Co. following the end of a $2 billion, 10-year partnership with the American arm of Dutch insurer Aegon NV in June last year.
Company Stance and Market Perspective
Despite these challenges, TCS asserts that it is securing more business and disputes the “leaking bucket theory,” which suggests a company loses more business than it wins.
S. Krithivasan, a TCS representative, emphasized in an interview, “[A]re we losing more business now than we are winning? The answer to that is no. Our business is growing because we’ve signed some big contracts, which gives us hope for the future in FY25.”
Official Statements and Future Prospects
When approached for comment, a TCS spokesperson redirected to a press release shared with the exchanges.
Regarding its partnership with Aviva, R. Vivekanand, president of BFSI products and platforms, highlighted the enduring 20-year relationship with Aviva as evidence of the ongoing efforts to consistently transform customer experience. Meanwhile, Doug Brown, CEO of insurance, wealth, and retirement at Aviva, expressed optimism about the extended partnership and its potential to enhance customer service and support growth ambitions.
Conclusion
TCS’s resilience in securing new business and maintaining strategic partnerships reflects the company’s efforts to navigate potential revenue challenges and continue its growth trajectory in the upcoming fiscal years.
