GIANTS RANK 3: Wipro: Win Some, Lose Some

It’s an oft-told tale. Of how an oil and pulses trader in pre-independence
India with a little money and great ambition set up a vegetable oil company in
Mumbai called Western India Vegetable Products. Of how on his death, his son
Azim Premji–then in his final semester at Stanford University–abandoned
college to come home and run the family business. What is little known, however,
is that two years ago, Premji returned to Stanford, presented his dissertation
and after 35 years, finished his degree in general engineering.

And that really is the hallmark of the man and the group he runs–the
capacity to hang on. His critics call it his inability to let go. But look at it
whichever way you will, it is because of this kind of doggedness that after 57
years and despite being known primarily as an IT company, Wipro’s vegetable
oil business is still alive. As is almost every other business that Premji ever
started. It is also why Wipro is not so much a company as an agglomeration of
diverse and often non-synergistic businesses (see box). Though still run as
divisions of Wipro Ltd, the parent company, each of these is essentially a
different company–the only commonality among them being Premji himself, and
the other heads of support functions like human resources, information, branding
and finance.

SNAPSHOTS Wipro Infotech and Wipro Technologies (erstwhile Wipro Systems) were actually different companies. They were brought back into the Wipro fold in 1995. Wipro is an anagram for Western India Products. Earlier, the company, as floated by Azim Premji’s father, was called Western India Vegetable Products Azim Premji returned to Stanford two years back to complete his Degree in general engineering, 35 years after he abandoned it mid-way to return to India

This is true not only of Wipro’s non-IT businesses, but also of its two IT
divisions–Wipro Infotech (the hardware and services arm looking after the
domestic, Asia-Pacific and West Asian regions) headed by Wipro old-timer Suresh
Vaswani, and Wipro Technologies (the global software services division) headed
by Vivek Paul, who came from General Electric three years ago. Investment
bankers have been suggesting to Wipro for a while that the two divisions be
separated into different entities as they once were (see timeline) for multiple
reasons.

One, of course is, valuation, the second is market capitalization, and
finally, customer perception of how focussed the company actually is. This view,
in a sense, is born out of the consistently different performances by Wipro
Infotech and Wipro Technologies over the past few years most starkly epitomized
in fiscal 2001-02. Hidden within the rather sluggish group growth rate of
(8-8.5%) are widely varying divisional performances. While Wipro Technologies
continued to grow above the industry average of 28%, Wipro Infotech was
particularly hit by the slump in domestic hardware sales. With its APAC business
just finishing its first year of operations, Infotech’s revenues actually fell
last year by 23% against the industry average of a negative 3%. Even its primary
competitor, HCL Insys, did comparatively better with a 9% fall in revenues.

The peripherals business of Wipro Infotech was spun off into a separate
company for precisely these reasons in September 2000. At that time, the
thinking was that Wipro Infotech would be better off without a low margin
business that tended to drag down performance. Today, Wipro holds only 33.7%
equity in Wipro ePeripherals (WeP), with 59.8% held by Wipro and WeP employees,
and 5.5% by channel partners and business associates. The focussed approach
seems to have paid off, and under Wipro old-timer Ram Agarwal, WeP has done
exceedingly well in a bad year. Dealing at the moment mostly in printers, the
company grew by a very healthy 28%, against an industry average of 13% for the
printers segment.

Wipro, however, is a long-haul player. There may be advantages to spinning
the two companies off–but they are as yet debatable. As a closely-held
company, it really doesn’t have major market capitalization issues. Nor have
customer perceptions been affected as large prestigious orders continue to flow
in. For instance, the big news of the year was a whopping $70-million systems
integration order from the Lattice Group–the biggest-ever in the industry till
it was beaten a couple of months later by a $100-million deal that Tata
Consultancy Services signed with GE Medical Systems.

Wipro Infotech, on the other hand, did pretty well in the facilities
management business and tried to lift its sagging fortunes in the systems arena
with a strategic tieup with IBM, the fruits of which will be evident by the end
of the ongoing financial year.

In yet another reshuffle, the company extracted the healthcare vertical from
Wipro technologies and spun it off into a different division called Wipro
Healthcare and Life Sciences, under DA Prasanna. This division also includes
Wipro’s old non-IT division called Wipro Biomed, which is engaged in the
porting, sale and maintenance of medical and analytical equipment for labs.

And finally, Wipro Eperipoherals is getting ready to cut the umbilical cord.
Prior to its initial public offer sometime later this year, it will witness
further dilution of Wipro equity and will cease using the Wipro brandname.
Looking ahead, it is unlikely that Azim Premji will dilute his stake in the
company, which will remain closely held. However, Wipro is given to constant
reshuffling within the divisions. The last year saw a large chunk of Wipro
Technologies’ operations spread across verticals. And the future will see
Wipro Infotech driven by low hardware sales to build on its services and
solutions offerings in the domestic and Asia-Pacific markets even more.

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