This is the time for financial results in India. We had TCS share its Q4-FY23 results the day before yesterday. They sounded pretty decent to me in the first instance when I heard them, but then the market was quite brutal in declaring them disappointing. Infy came up with their own results yesterday, and although the results weren't that different in trends than TCS, the management sounded more nervous in communicating them and the market was more disappointed as expected.
However, one statistic that stood out for me was large deal closures. TCS had an all-time high volume of large deals signed, totaling to about $10 Bn in Q4 and $34.1 Bn in FY23. This baffles me coz if the market has that kind of momentum, why is the immediate sentiment so nervous? Infy on the other hand signed $2.1 Bn in Q4 and $9.8 Bn in FY23. I don't know whether that's good or bad in terms of performance, but what is interesting when you compare the two companies' large deal conversions is that TCS - which is 1.5 times Infy in its revenue - cracked 4.7 times TCV in large deals in Q4 and 3.5 times in FY23, when compared with Infy. How do you explain that?
Another statistic is Large Deal TCV as a multiple of total annual revenue. For TCS it is 1.17 while for Infy it is 0.52. Clearly there is something underlying that's not the same for the two companies.
I can think of two factors:
- Definition of "Large Deal": I checked a few places, including annual reports of both companies, but did not find anything mentioned on how the two companies define large deals. It would be great if companies clearly provide a definition, otherwise the large deal wins figure can be easily manipulated while reporting. One conventional way, among many others, to define a large deal is in terms of size - if the deal TCV is at least 10X the average TCV across all deals made by the company, then it could be called a large deal for that company. Given the size, scale and scope for TCS and Infy, I find it hard to believe that average deal size for TCS would be a couple of times higher than that of Infy. Another possibility is that TCS is winning many many more deals, albeit of similar large size.
A friend pointed out - and I think very correctly - that some companies count large contract renewals also as large deals closures. Is that the case with TCS? It seems so, coz otherwise these large deals will shoot the company's revenue next year when their year-1 value is earned. What about Infy? Neither of the two companies provide numbers of these large deals, which would have helped us understand these better. It must be intentional. I am keen to find out more on this.
- Advantage from size / scale or efficiency or offerings: If TCS is indeed able to crack bigger deals on an average, and also a huge number of larger than large deals than Infy - provided they both define large deals following the same underlying principles and benchmarks - then we can only try to explain why TCS is able to attract more and larger large deals. Size and scale of the company do increase its appetite for bigger deals, but the ability to deliver those depends on capabilities to deliver as committed, bring in efficiencies and offer value adds - which again the company can invest into and build better when at a certain scale - although that is not necessarily a given. Larger companies could be larger mess as well, but then they won't be large for long.
I checked the annual report of Accenture - a bigger rival to TCS - but it does not talk about large deals. Nor does Cap Gemini or Cognizant. Nor do some of the smaller Indian rivals I checked.
I can see why Large Deals matter in reflecting the health of client industries and the company itself. But if investors were to draw any useful comparison based on large deal conversion, they should be able to view them on the same scale. Otherwise there's room for manipulation and over-reporting just to manage optics. Similar used to be the case with reporting digital revenue, which was more distinguishing a decade back when digital was the buzzword.
So, what really are these Large Deals getting reported?
