TCS bags fresh $2.25 billion outsourcing contract from Nielsen in biggest ever deal

 Tata Consultancy Services,India's largest IT services exporter, has bagged a $2.25 billion outsourcing contract from television ratings company Nielsen. The deal, largest ever secured by an Indian IT firm, will top up the existing contract until 2025.

US-based consumer research firm had first awarded a $1.2 billion contract to the Mumbai-based company in 2007 for 10-year period. In 2013, Nielsen extended its ongoing contract with TCS by three years until 2020 and more than doubled the value to $2.5 billion.

The deal comes as a big boost for CEO and MD Rajesh Gopinathan, who replaced N Chandrasekaran as the CEO of TCS when Chandrasekaran moved out to join Tata Sons as Chairman in February. As per 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 media research company said in a regulatory filing to the US SEC.

"Nielsen has committed to purchase services from TCS from the Effective Date through the remaining term of the Agreement (the 'Minimum Commitment') in the amount of $2.25 billion, including a commitment to purchase at least $320 million in services per year from 2017 through 2020, $186 million in services per year from 2021 through 2024, and $139.5 million in services in 2025," it added.

The filing stated that the Mumbai-based firm will globally provide Nielsen with professional services relating to IT - including application development and maintenance - BPO, client service knowledge process outsourcing, management sciences, analytics, and financial planning.

"At present, digital accounts for 20 per cent of our revenue, and that is primarily where our growth agenda is. Over time, it will become 80 per cent," the 46-year-old CEO had told Business Today's Nevin John.

"Technology has become central to the products and is normally 60 per cent of costs. With the disruptions, we have got a play in both, which comes to 75 per cent of the overall expenditure of the companies," Gopinathan had said.

In the second quarter, TCS generated 51.9 per cent business from North America, followed by Europe and Asia-Pacific. India accounted for 6.3 per cent. Banking, financial services and insurance (BFSI) was the largest vertical with 33 per cent business, followed by retail and consumer packaged goods (11.9 per cent). TCS has 37 large clients (over $100 million revenue).

TCS posted 9.35 per cent growth in consolidated income at Rs 122,187 crore in 2016/17. The profit rose 8.3 per cent to Rs 26,357 crore. But in the first six months of this financial year, the income rose just over 2 per cent to Rs 61,903 crore, while profit fell 4 per cent to Rs 12,410 crore, mainly due to rupee appreciation and higher wages. The average market value of the company was Rs 4.67 lakh crore in the October 2016-September 2017 period.

When Chandrasekaran took over as the CEO in October 2009, TCS' consolidated revenue was Rs 30,000 crore. It is now over Rs 1 lakh crore. Profits rose from Rs 7,000 crore to Rs 24,000 crore during his tenure. The five digital forces - mobility, big data, social media, cloud computing and robotics - changed the way TCS operated as Chandrasekaran and his team showed agility to adapt.

TCS first went past Reliance Industries in valuation in May 2012. For the next seven-eight months, both were neck and neck, but TCS took off from there and continued widening the gap till 2015. Since then, the gap has reduced. RIL overtook TCS in 2017/18 after consolidating the customer base of its telecom business, Reliance Jio.