TCS, Infosys see slowdown in large accounts

Mint

5 hours ago

Tata Consultancy Services Ltd and Infosys Ltd clocked less business from a few of their marquee clients last year as global uncertainties rose, potentially slowing growth at two of India's largest IT services companies.
TCS got less business from Citigroup Inc. and Postbank, a subsidiary of Deutsche Bank AG, last year as compared with FY24. Both Citibank and Deutsche Bank are among the 30 largest clients of the Mumbai-based IT outsourcer, according to an executive privy to the matter. Second-largest IT services firm Infosys got less business from German automotive company, Daimler AG.
The trend of large accounts giving less business, which shows up in annual filings and analysts' findings, mirrors the scene at smaller IT firms.
Hexaware Technologies Ltd is expected to get less business from Fannie Mae, one of its three largest accounts, this year, Mint reported on 9 June. Mphasis Ltd lost a chunk of its business with FedEx to Accenture Plc, while Microsoft reduced the business it gave to LTIMindtree Ltd and Sonata Software Ltd.
Emails sent to TCS and Infosys went unanswered.
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Less revenue from Citibank, which is among its top five accounts, might have caused TCS's E-Serve subsidiary to report a revenue decline in FY25. The subsidiary was formed when TCS acquired Citi's India-based back-end centre in FY09. Its revenue in FY25 declined 31% year-on-year to $155 million. To be sure, revenue from this subsidiary has been falling for two consecutive years.
'While the absolute revenue of the subsidiary is not significant in the context of overall TCS revenue, it is worth noting that the revenue decline (of the subsidiary) stems from a single client. The entire year-on-year revenue decline is driven by the top account revenue shrinking to $27 million from $96 million in the prior year," said Kotak Institutional Equities analysts Kawaljeet Saluja, Sathishkumar S., and Vamshi Krishna, in a note dated 2 June.
Mint could not independently ascertain the reasons behind the lower business from Citibank.
A similar decline was reported in TCS's German subsidiary, TCS Tech Solutions GmBH, which was acquired by TCS on 1 January 2021 from Deutsche Bank. The subsidiary's revenue declined 33% on a yearly basis to 126 million euros (approximately $136 million). The subsidiary's revenue has been declining for two consecutive years.
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'The decline was due to lower revenue from the Deutsche Bank account due to the ramp-down of the Postbank engagement," said the Kotak analysts. Deutsche Bank had acquired Postbank in 2008.
Deutsche Bank announced in November 2023 that it would shut almost half of the 550 branches of Postbank over the next two years as its customers preferred online banking. TCS bought Postbank Systems AG, the IT firm of Postbank, in November 2020, in order to increase its business with its German client.
Postbank Systems rebranded as TCS Technology Solutions AG in January 2021 and about 80% of the subsidiary's revenue came from Postbank.
Mint had reported in November 2023 that revenue from Postbank would decline to $130 million by 2025. For now, revenue from banks and financial institutions makes up almost a third of the company's overall revenue.
TCS revenue in FY25 grew 3.78% annually to $30.18 billion, its slowest revenue growth in four years.
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However, TCS was not the only company getting a smaller bite of the pie. Bengaluru-based Infosys missed out too.
Revenue of Infosys Automotive and Mobility GmbH, which is its subsidiary for the Daimler project, declined for the first time. The company got $418 million from the subsidiary, down 8.5% on a yearly basis. Notably, the revenue decline from the subsidiary comes after two consecutive years of growth exceeding 40%.
'If there is a revenue decline in the subsidiary, it clearly means that revenue from the Daimler account has reached its peak and matured," said JM Financial analysts, Abhishek Kumar and Nandan Arekal, in a note dated 16 June.
Notably, the subsidiary has not been all that profitable for Infosys, as it has been incurring losses for four consecutive years.
Infosys inked an eight-year contract with Daimler in December 2020 that would bring it more than $3 billion in business. This was one of chief executive Salil Parekh's largest deals since he took over as chief executive officer in January 2018.
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Infosys reported $19.28 billion in revenue, up 3.85% on a yearly basis.
Infosys is eyeing an early extension of the eight-year contract with the German automobile company, which includes an AI component, a person aware of the matter said.
The decline in revenue from marquee clients for TCS and Infosys also comes at a time when both companies are struggling to bag mega deals, or those valued at over $1 billion in contract value.