Wipro Wins USD 200 Million Deal, Acquires Company For USD 144 Million

The sentiment around Wipro had deteriorated as it turned into an industry laggard, with its growth not matching that of its competitors. Moreover, it was highly criticised for its disastrous co-CEO model which was in place since 2008 (and has now been discontinued). But recent decisions and alliances have managed to bring in an air of optimism around the outlook for this company, despite the fact that the IT sector is presently operating in a highly uncertain and gloomy environment.

Wipro recently won a USD 200 million deal in the telecom space which would be spread over 5 years. How much does this mean for its IT business?

Wipro’s revenue mix across its verticals is spread in a manner that doesn’t lay heavy dependency on the growth of a particular industry. The telecom vertical of Wipro accounted for as much as 14.4% of its revenues in Q2FY13. This vertical has been witnessing some pressure due to lower spending by telecom service providers and equipment-makers. There has been clear decline in revenue contributed by this vertical, which stood at 15.7% of the total in FY12.

The present deal struck by the company is sizeably big and would contribute to approximately USD 40-50 million per annum further strengthening its presence in the telecom vertical. On a quarterly basis, this deal is expected to boost revenues from the telecom vertical by roughly 5%, providing some support to the overall growth of the company.

In another development, Wipro announced the acquisition of the Singapore-based LD Waxsons Group, which sells consumer care products in Asian countries, for a sum of USD 144 million. How much impact would this make to shareholders considering the fact that Wipro recently announced the demerger of its other businesses from its IT operations?

The consumer care lighting (CCL) business contributed to 12% of Wipro’s revenues and 6% of its operating profit in FY12 growing by 23% to Rs 3340.1 crore. CCL has 3 main business segments:

• Indian household business (including personal care and domestic lighting)
• Unza (the international personal care business)
• The Indian office solutions business

Unza focuses on the personal wash, toiletries, fragrances, deodorants, skincare and haircare categories. It was acquired by Wipro in 2007 and has a presence in China, Malaysia, Middle East and Vietnam. The company has become a market leader in Malaysia and has consistently focused on improving distribution and media spends in South East Asia to grow at a faster pace.

LD Waxsons is a Singapore-based personal care products company that has operations spread across Singapore, Malaysia, Thailand, Hong Kong and China. Its market reach extends further to more than 15 countries across the globe. It has a stronghold in Singapore with over 800 retail outlets. The acquisition happened at a cost of 2.1 times its revenues which come to around USD 68 million.

Financially, this acquisition would form approximately 11-12% of Wipro’s CCL business. But its benefits would extend to geographical presence, dominance in Singapore, an extensive product portfolio and a more robust distribution channel thus proving to be advantageous to a larger extent.

However, due to the announcement of Wipro’s demerger of non-IT businesses, investors would not be able to benefit from the long-term benefits that this acquisition would provide as a result of the new entity (Wipro Enterprise Limited) being unlisted, unless, of course Wipro decides to list separately on that front.