Thread: TCS bags $848 m UK deal

Biggest outsourcing contract will see largest manpower transfer by any Indian BPO

MUMBAI, DELHI, OCT 18: India’s largest software exporter Tata Consultancy Services Ltd (TCS) on Tuesday bagged the country’s biggest ever outsourcing deal with the $848 million (£486 million), 12-year contract from UK’s insurance and pensions major Pearl Group Limited to provide non-voice processing of life insurance and pension policies

This deal overtakes the $260 million TCS-ABN Amro deal signed just last month. It indicates Indian companies are getting closer to bagging $1 billion plus global outsourcing deals which will put them in direct competition with IT outsourcing majors like IBM, EDS, and HP.
Until August this year, the biggest IT contract any Indian company had ever bagged was the $100 million TCS-GE Medical deal. The contract, which can be renewed beyond 12 years, was awarded on the basis of tenders submitted by 12 companies. It was evaluated over 12 months. TCS has cumulatively bagged $1.5 billion worth deals till date this year.

TCS will also emerge as UK’s second largest BPO in the life and pensions services space after the deal. Revenues from the contract will get reflected in TCS’ consolidated balance sheet from the fourth quarter of the current financial year. About 60% of the revenues will accrue in the first six years of the deal, according to TCS chief financial officer S Mahalingam. This should mean a flow of over $ 60 million a year. To put this in perspective, the largest deals in the BPO industry are close to $20 million to $30 million per year.

The contract involves the entire policy administration and will include evolving and implementing a new systems strategy. Pearl currently has 4 million policies under administration, which will come down to 1.8-2 million at the end of 12 years.

This is also the largest manpower transfer deal done by any Indian BPO company. TCS will form a subsidiary in UK that will take over Pearl’s existing business processes based in Peterborough (129 km north of London), and 950 of its 1,100 employees.

Peterborough is a 1,700 seat centre.

HCL had earlier acquired the Apollo call centre from British Telecom in which less than half this number of people were acquired.

No offshore component has been envisaged as of now and all the work will be done out of Peterborough, TCS said. Pearl Group and TCS will hold 20:80 of the new subsidiary’s equity. Pearl will be represented on the board by its managing director Edward Churchill. The subsidiary will be free to take on non-Pearl insurance business as well.

Non-voice market is estimated to be about a quarter of the $4 billion India BPO industry and is expected to grow to about half in three to four years. “Non-voice back office work helps you maintain stable margins and keep attrition under control. BPOs are now focusing on this part of the market,” says EXL vice-chairman, Vikram Talwar. With Indian majors just short of breaking into the big league of $1 billion plus deals, a lot of industry projections are now going haywire.

By 2007, Indian insurance outsourcing market was projected to grow to $790 million. But this deal changes those calculations completely. Also, according to a recent Gartner report, only six BPO players — Accenture, Fiserv, TAG, CSC, EDS and IBM — had attained the maturity to handle large deals in life insurance. No Indian company figured in the list. But this deal may force a relook at such projections.