The Indian information technology (IT) industry could see a renewal of contracts between $10-12 billion (Rs 4,500 crore-Rs 5,400 crore) this calendar year as a number of long-term contracts (signed around 10 years ago) is expected to expire, says equity research firm TPI. Industry insiders say these contracts are largely with international players like Capgemini, EDS (now HP-EDS), IBM etc. These companies would now face stiff competition from Indian IT vendors like Tata Consultancy Services, Infosys Technologies, Wipro Technologies and HCL. However, clients are expected to lean towards splitting the original contracts.
Suresh Senapaty, CFO, Wipro Technologies, said: ?A number of deals across sectors are expected to expire, so we foresee a huge opportunity as players like us couldn?t bid for such contracts then. However, these are expected to be split amongst 3-4 players for a shorter duration.? Senapaty added the trend was also expected to drive off shoring, as a major part of these deals was earlier serviced onsite. ?As India?s offshore capabilities have grown, compared to ten years back, we expect most of the work in these deals to be delivered offshore. We expect pricing in accordance to that,? he adds.
Mark Mayo, partner and president, TPI global operations, pointed out in a presentation that in 90% of the cases, incumbents retain expiring contracts. However, during the Q1FY10, top Indian IT players did manage to bag big contracts. Infosys Technologies, that signed two deals in the range of $150 million during the quarter, expects the trend to continue. V Balakrishnan, CFO at Infosys Technologies in a recent interaction said: ?We are witnessing an increase in contracts with $ 150-200 million in range and we expect the flow to continue during the year.?
TPI Index says restructuring of total contract value (TCV) deals in the first quarter of the calendar accounted for 42% of the market compared with 21% last calendar. The TCV renegotiated in the Q1FY10 was $19.5 billion, up 25% from $15.6 billion in the same quarter last year. These deals are expected be large, transformational deals involving Application development and management, business process outsourcing, infrastructure management services and other services. The contracts are expected to be driven from verticals like financial services, manufacturing, travel; transportation and hospitality. During the quarter, IT players are reported to have signed three or more contracts of more than $25 million.