Nielsen renews $2.25 billion TCS contract

A private security guard stands at the exit gate of the headquarters of Tata Consultancy Services (TCS) in Mumbai | Photo: Reuters

Tata Consultancy Services (TCS) has bagged a $2.25-billion deal from television ratings company Nielsen — the largest ever outsourcing deals for the Indian IT sector.

The deal marks the renewal of TCS’ engagement with Nielsen, which was first awarded $1.2 billion, a 10-year contract to the Mumbai-based company in 2008. In 2013, the deal size was expanded to $2.5 billion.

Under the new deal, the terms of the agreement have been extended for an additional five years so as to expire on December 31, 2025, with three one-year renewal options granted to Nielsen, the TV rating company said in a regulatory filing to the US Securities and Exchange Commission.

According to the filing, Nielsen will purchase services from TCS in the amount of $2.25 billion, including a commitment to purchase at least $320 million in services per year, starting 2017 till 2020. Further, $186 million in services will be purchased per year between 2021 and 2024, and $139.5 million in services in 2025.

“It is a renewal of an existing contract. Incrementally, this contract is just adding a few hundred millions to the existing deal,” said Ravi Menon, analyst at Elara Capital.

As part of the contract, TCS will globally provide Nielsen with professional services relating to IT, including application development, maintenance, business process outsourcing, financial planning and analytics, among others.

This is the largest deal win for TCS since Rajesh Gopinathan took the company reigns in February this year.

“What we are seeing is that some deals are starting to come which are of significant size and some of them are coming in unexpected areas as well... In more traditional ones like cloud and other areas, deal sizes are significantly increasing,” Gopinathan had said during the last quarterly investor call.

The deal comes at a time the IT sector is rapidly switching to digital services where deal sizes are much smaller. 

Indian IT players comprised 67 per cent of the global IT market in 2016 (60 per cent in 2012). However, incremental gains are expected to be at a slower pace.

Back in 2015, TCS had announced that Nielsen had selected TCS’ software as a service platform Ignio to cater to their operational and IT management services.

Bloomberg’s outlook for the sector in 2018 noted that consulting-focused companies with large next-generation practices such as Accenture and Cognizant are likely to grow faster than the industry. Offshore vendors will gain market share comparatively at a slower pace due to pricing pressure on legacy IT work and greater immigration-related scrutiny, the report stated.

Analysts, however, noted that while the overall deal size is large, the existing contract and length of partnership does not make it a very significant deal in the long run.

Earlier this month, credit rating firm ICRA had noted that Indian IT services firms will see reduced margins in the next two years as they face the challenge of increased competition for deals, growing automation and the limited number of newer opportunities.

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