Indian IT’s captive redux: Bigger deals, tougher margin questions | India Business News

The strategy is driven partly by the need to grow contract values as organic revenue expansion slows for Indian IT companies and artificial intelligence reshapes traditional technology spending

Bengaluru: It is, in many ways, a captive centre redux. Buy the captive, win the bigger deal. That is increasingly becoming a playbook for Indian IT companies, which are acquiring client technology units and specialised businesses to anchor much larger, long-term partnerships.But the trend has also revived an old debate: are these deals about acquiring capabilities or simply adding capacity?The strategy is driven partly by the need to grow contract values as organic revenue expansion slows for Indian IT companies and artificial intelligence reshapes traditional technology spending. Acquisitions that bring next-generation capabilities in areas such as cloud, data, and AI can command valuations of three to four times revenue, while captive carve-outs are often valued at less than half those multiples.TCS, for instance, is acquiring Porsche’s technology subsidiary MHP for $373 million as part of a five-year strategic partnership worth $1.4 billion. MHP had revenue of about $865 million in 2025. Earlier this year, Wipro agreed to buy Singapore-based Olam Group’s digital arm for $375 million alongside a deal with a total contract value expected to exceed $1 billion, including $800 million in committed spending. HCLTech recently agreed to pay $225 million for HPE’s Communications Technology Group, gaining IP, engineering talent, and customer relationships that strengthen its telecom business. Infosys acquired Danske Bank’s 1,400-person IT centre in India while securing a $454-million contract.Ramkumar Ramamoorthy, partner at tech growth advisory firm Catalincs, said, “The recent acquisitions of the in-house technology arms of Porsche, Guardian Life, Olam, and Telstra are a precursor to what will happen to GCCs that are considered a non-core asset by the parent. This is a redux of what happened many years back when similar captive arms of leading global companies such as Citigroup, Mitsubishi, UBS, Unilever, BASF, Deutsche Telekom and American Express were acquired by IT services and BPM companies.”The strategy is not entirely new. In 2008, TCS bought Citigroup’s stake in Citigroup Global Services, its India-based business process outsourcing captive, for $505 million. In 2009, Cognizant acquired UBS India Service Centre, the Hyderabad-based captive service provider to UBS.Ramamoorthy said that during the earlier wave, given that the industry itself was evolving, the captive arms were acquired largely to fill gaps in technology and domain capabilities, or for geographic expansion. “However, given the industry’s maturity today, the moot question is whether these entities are acquired for capability or capacity, With several years of sluggish organic growth, acquisitions involving mature capabilities, slowing revenue and lower margins could suggest a need to bulk up revenue rather than acquire frontier technologies,”” he added.Peter Bendor-Samuel, founder and chairman of the Everest Group, said, “Porsche is facing brutal competition from China and increased tariffs in the US; hence it is restructuring, and this is part of that process. It is unclear how much TCS will benefit from this partnership outside of Porsche. There is certainly the potential for attractive gains, and TCS’s lower cost structure may allow it to expand faster than MHP. However, this is far from certain. We expect that the deal will be able to stand on its own and be accretive to TCS without significant additional market advantages that the deal may or may not deliver.”Phil Fersht, CEO of HFS Research, said the attraction of the Porsche transaction for TCS was clear: MHP brings about $865 million in annual revenue, roughly 4,500 employees, deep automotive expertise and an anchor relationship with Porsche at a low revenue multiple.“The concern is that MHP’s German consulting-heavy cost base will almost certainly be margin dilutive compared with TCS’s operating model,” Fersht said.The success of such deals, he said, will depend on whether IT companies can fundamentally change the economics of the businesses they acquire. “Captives have historically struggled when providers simply inherit expensive people, processes and delivery structures and then try to squeeze incremental efficiencies from them. TCS needs to use AI, automation, global delivery and engineering leverage to turn MHP into a much more productive business,” he added.