- Infosys announced large deal with Daimler AG; Wipro signed large strategic deal with METRO AG
- Strong deal momentum for IT players; Deal sizes could become bigger for IT sector
- Cloud to emerge as a key growth driver; Cloud adoption & migration are single most relevant theme
Since July of 2020, IT sector has seen four large strategic deals being announced by Infosys, TCS and Wipro indicating strong deal momentum for the entire sector and accelerated adoption of digital transformation, cloud migration. Strong deal momentum for IT players indicates improved operating environment, Industry players and analysts expect double-digit growth for the IT sector realistic and achievable.
Large deals could be construed as further improvement in the deal environment. Morgan Stanley believes these deals with employee takeover should allow companies to scale up the industry as well as onshore/near-shore capabilities as the acquired employee base is repurposed overtime and mitigates any potential supply-side challenges.
Cloud adoption & migration is the single most relevant theme for service providers and expect cloud to emerge as a key growth driver for the sector, said analysts at Motilal Oswal.
Infosys last evening announced a large deal with Daimler AG. The deal is a strategic partnership for Daimler’s IT capabilities and it will enable Infosys’ to grow its automotive expertise. The deal involves migration to a smart hybrid cloud, using Infosys Cobalt and Daimler AG will transform its IT operating model and infra landscape. Infosys did not disclose deal value, but industry experts estimate it to be a significant large deal.
Daimler AG deal is the second biggest deal signed by Infosys after Vanguard deal which was worth $1.5 bn announced in July 2020. Vanguard deal was the biggest large deal by Infosys in its history. Credit Suisse and Goldman Sachs both have Infosys as one of their top picks as they expect Infosys to deliver industry-leading growth along with strong deal momentum. Macquarie maintains outperform rating on Infosys with a target price of Rs 1410 per share. IDBI Capital expects Infosys to announce large deal TCV of US$ 2bn+ in Q3 (October-December quarter).
Wipro last evening signed a strategic deal with METRO AG. It’s a five-year deal, extended for four more years. The estimated deal value for the duration of the first four years is ~$700 million with a
potential spend of up to $1 billion over 4 years. It’s a large strategic deal announced under the new CEO. Macquarie has an outperform rating on Wipro, Target price of Rs 416 per share and forecast USD revenue growth of 8.2-10.2% over FY22-23E.
TCS announced the acquisition of Postbank Systems AG (PBS) from Deutsche Bank in Nov2020. The deal would help TCS get scale in Germany and strengthen its growth outlook. Under the deal, 1500 employees of PBS would get transferred to TCS. In Nov 2020 itself, TCS deepened strategic partnership with Prudential Financial (PFI), under this TCS would acquire staff & select assets of Pramerica systems (PFI unit in Ireland).
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