Global technology services and ER&D (engineering, research & development) companies are gearing up for deal renewals worth over $20 billion lined up for the financial year 2025, though renewal timelines will take longer than usual due to overall slowdown, regional and SMB banking challenges, and inflationary pressures.
Of this, nearly 51-53 percent will be driven by the top five Indian IT firms — Tata Consultancy Services (TCS), Infosys, HCLTech, Wipro, and Tech Mahindra, according to data from market intelligence firm UnearthInsight, exclusively accessed by Moneycontrol.
This is coming at a time when Accenture’s recent tepid performance has left analysts worried about the fate of Indian IT companies in FY25.
Indian technology services companies seem to have an edge over global peers in retaining 90 percent of these renewal deals, according to the data. This will be mainly driven by Indian tier-I and tier-II companies winning 60-70 percent of the vendor consolidation deals. Indian companies are also the preferred choice of customers for cost optimisation, enhanced capability deals for embedding technologies like AI, generative AI, cloud modernisation, infra, and maintenance.
Cost optimisation here refers to customers looking to control costs of running a business by deploying technology.
In terms of sectors, unlike new deals, renewals would be broad based and spread across customers from telecom, government departments, public sector, energy, hi-tech, and aerospace, among others.
Meanwhile, globally, around 55-65 percent of new deals are currently coming largely from four key segments, including BFSI, hi-tech, the public sector, and energy, oil & gas.
Changing terms of deal negotiations
Amid the productivity gain expectations from generative AI, customers tightening tech budgets, continued macroeconomic uncertainties, and technology companies looking to streamline operations with layoffs, the terms of renewed deals too might differ, experts said.
According to Peter Bendor-Samuel, Founder of management consulting firm Everest Group, there is a fair amount of hesitation in the market, with all deals continuing to slip. “We anticipate that this is likely to continue for several more months,” he told Moneycontrol.
Gaurav Vasu, Founder and CEO of UnearthInsight, highlighted that deal renewal negotiations, which usually take around six to eight weeks to close, are being pushed by about four weeks.
“While that may not sound very big, a month’s delay pushes the entire revenue cycle by a quarter, and impacts your planning of backfills and managing net new revenue. There are several aspects to it,” he said.
Vasu added that negotiations will be tougher, with a demand for better discounting. “Focus will be on consolidation of vendors, even consolidation from large to mid- and small-size companies that are able to offer better discounts. While there will be price increases on renewal, customers will be asking for more discounts to continue,” he said.
Bendor-Samuel concurred, saying there is intense pricing pressure which could well lead to even vendor switching. Adding to this pressure is an expectation mismatch.
“The enterprises believe that Gen AI should deliver upwards of 40 percent productivity gains, while vendors / service providers are currently offering 8-12 percent based on what they can deliver. This gap in expectations could lead to vendor switching,” he said.
IT companies are currently at various stages of proofs-of-concept (PoCs) of generative AI with customers. While customers are curious to integrate the technology quickly into their businesses, many are yet to figure out impactful use cases.
As of now the share of business coming from generative AI, especially for some of India’s largest software service providers, is still very low compared to global peers like Accenture.
In February, Moneycontrol had reported that the top 10 Indian IT service companies together have around 450 Gen AI projects and PoCs in the pipeline, which would amount to an estimated deal pipeline of $150-250 million. Whereas global rival Accenture alone, as of its first quarter (it follows a September-August financial year), has a pipeline worth $450 million and an estimated 450 projects and PoCs.
As of the December-February quarter, Accenture added another $600 million in generative AI deals.
FY25 themes to watch out for
Indian IT companies are set to report their fourth quarter earnings for the fiscal year 2024 from next week, which means investors would be plugged in to get an outlook on the demand and challenges expected in the upcoming fiscal year.
For technology services and ER&D companies, net deal wins include 55-65 percent of new deals, and 35-45 percent in renewed deals. UnearthInsight expects tier II and boutique firms to continue to outgrow tier-I peers, especially when it comes to net new deals in FY25.
According to the data, in FY25, some of the big themes to watch out for include significant cost pressures, customers demanding productivity improvements from generative AI investments, and how Global Captive Centres, or GCCs, compete with Indian and global tech firms.
“Clients from BFSI and hi-tech (FAANG) sectors are pushing vendors for significant cost optimisation and adopting agile talent strategies (GCC + headquarter partnership, location, talent pyramid, upskilled talent, etc.) to pass on the benefits to clients,” Vasu said.
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