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.

TEAM DQ