TCS, Infosys may vie with global majors for $1.7-billion contracts

Falling rupee and keenness of big IT firms to grab a pie of large contracts likely to lead to an intense price war

Indian IT services biggies — Tata Consultancy Services (TCS) and Infosys — are likely to face an intense competition from global players when around $1.7 billion worth of contracts in the United Kingdom presently executed by these firms come for renewal over the next two years.

Analysts are of the opinion that though the incumbent players always have an edge over the competitors in retaining the contract, they are likely to face aggressive bidding this time around as new players are expected to go all out to clinch such large contracts. Besides, most of these players are likely to pass on some of the benefits of depreciating rupee, leading to an intense pricing war.

According to London-based research firm Ovum's IT Services Contracts Analytics Database, there are about $17 billion worth contracts that will come up for renewal in the UK over the next two years. 

Among major Indian players, TCS has more than $1 billion of contracts coming up for renewal, while it stands at around $700 million for Infosys.

TCS’ current contract worth $970 million with National Employment Savings Trust of the UK will get renewed on June 2020. It has also deals worth more than $53 million from clients spreading across banking, retail, energy & utilities which are coming up for renewal beginning as early as January, 2019.  

Similarly, Infosys’ contract worth $500 million with oil and gas major BP is likely to be renewed in August 2019. The Bengaluru-headquartered IT firm’s contract worth $100 million with banking major ABN AMRO will come for rollover in February 2020.

“Most of the time the incumbents will be able to retain them because of the knowledge of running the project. But, the challenge will come in the pricing. Pricing will be a lot more competitive because all the big players are trying to participate in the large projects,” said V Balakrishnan, chairman of Exfinity Ventures, who is also a former board member and chief financial officer at Infosys.

Among global firms, Accenture’s existing contract worth $770 million with Department of Work and Pensions will go for renewal next month. Hewlett-Packard’s (HP) engagement worth around $1.5 billion with the Ministry of Defence, UK is due for re-bidding in August next year.

“Because of rupee depreciation, most of the competition will get aggressive on the pricing. We have 10-15 per cent rupee depreciation (this year). So, if it remains in the current zone, competitors have 15 per cent manoeuvring capability on pricing front, which will translate into downward pricing pressure in dollar terms,” said Siddharth Pai, an outsourcing advisor, and founder of Siana Capital, a venture fund management company.

Apart from these factors, hard landing of Brexit could also put pressure on the IT services players globally as it may lead to deferment of renewals. Currently, trade negotiations are going on between the UK and the European Union (EU), and some fear that the former might fail to clinch a Free Trade Agreement (FTA) with the EU.

“If that (hard landing of Brexit) happens, global players will have an upper hand over Indian ones due to their large presence across the European region,” said Balakrishnan.

Brexit is also expected to create some new opportunities for IT services players as most enterprises will have to recalibrate their system to comply with the new dynamics. “So, there is a lot of potential for Indian vendors to pick up new contracts,” said Hansa Iyengar, senior analyst at Ovum Research.