Tata Consultancy Services (TCS) Diligenta’s Future Looking Up

With a recent acquisition and two new contracts signed and another two possibly in the works, TCS (NSE: TCS.NS) UK subsidiary, Diligenta, is expecting a positive run for the months ahead.

Indian company, Tata Consultancy Services, Ltd. (NSE: TCS.NS) recently acquired Unisys Insurance Services (UISL), from US-based worldwide IT company, Unisys Corporation (NYSE: UIS).  UISL served as the UK business process outsourcing services arm for the UK life and pensions industry.  The transaction was finalized on the 1st of September.

On the same day, Diligenta announced that it has won two major life and pension contracts; the first is with the Phoenix Group, which is an extension to an original agreement with the company, and will extend the contract until 2018.  The second is a new contract signed with Old Mutual International.  Both contracts are expected to generate 250 million pounds in revenue in the UK, bringing the number of policies Diligenta administers to 5 million from 3.6 million currently.

This is not bad considering that Diligenta was set up four years ago in 2006.  The contract wins boosts the company’s position, positioning it as one of the leading providers within the UK’s life and pensions BPO market, where TCS (NSE: TCS.NS) is the second largest insurance business process outsourcing provider in the UK, second to Capita.

Not only that, but on the 3rd of September, news broke out that at least two more prospective clients have approached the company for potential outsourcing contracts both of which are estimated to be worth more than 100 million pounds each.

“The cycle time for deals to materialize in case of Diligenta is six months to a year, especially for similar deals. So, in the next 12-18 months, we will have something to share. But winning these deals validates our strategy,” said Phiroz Vandrevala, Diligenta chairman and TCS (NSE: TCS.NS) executive director.

With the current contract wins, Diligenta now has three clients since its acquisition: Phoenix Group, Old Mutual International, and the controversial NEST-PADA deal.  The latter is a contract won by TCS (NSE: TCS.NS) on the 2nd of March this year for 600 million pounds.

Based on the recent developments, TCS (NSE: TCS.NS) officials are now forecasting that Diligenta will be able to break even for FY2011.  Diligenta will also be looking to get more deals from the UK government related to pensions and insurance.

According to Mr. Vandrevala, “the U.K. government very clearly understands and realizes that for the economy to grow; inward investment is a question of their survival.  I do not believe they will do anything to upset their applecart in any form or manner.” The statement is referring to the previous fuss that the UK government had generated following the UK elections which had placed the NEST-PADA deal in jeopardy.

Ultimately, it seems that 2010 may be the year TCS (NSE: TCS.NS) can do no wrong.

Author: Audrey B.