WIPRO : A Time to Grow

Sees highest growth ever in billed man months and lowest growth ever in gross profits. Wipro Technologies is finally forced into the volumes business that it has so far avoided. Vivek Paul warns of the perils of becoming a “software factory” Tentatively enters the ITeS-BPO business with a 25% stake in Raman Roy’s Spectramind. Quickly decides the model works and changes that to a complete takeover, and Wipro Spectramind is born. Doubles staff strength at Spectramind withinthe year, more than triples topline Group company Wipro ePeripherals breaks umbilical cord–gets rid of Wipro name altogether to become WeP, though Wipro continues to hold a 38.1% stake and has two members on WeP’s board of directors

Group Revenues The Wipro Group The Money Came From
Azim Premji Chairman, Wipro Ltd Vivek Paul Vice-chairman Wipro, and CEO, Wipro Technologies Suresh Vaswani President, Wipro Infotech Raman Roy Chairman, Wipro Spectramind Pratik Kumar Corporate V-P, Human Resources Ranjan Acharya Corporate V-P (HRD) Anurag Bihar Corporate executive V-P (mission quality, brand and innovation) Suresh Senapathy Corporate executive V-P (finance) Tamal Das Gupta CIO WeP Peripherals Arun K Thiagarajan Chairman Ram N Aggarwal MD & CEO
1945	MH Premji sets up oil company, Western India Vegetable Products, Bombay. Son Azim takes over after father’s death in 1966
1980	Wipro enters IT with India’s first minis. HW company laun-ched in 1981, SW company in 1984
1994	Both companies absorbed back into Wipro fold and headed by Ashok Soota until 1999
1998	Big brand makeover, with sunflower logo and ‘Applying Thought’ as the tagline
1999	Paul brought in from GE to head Wipro Tech. Wipro briefly overtakes HLL in market cap; Premji becomes world’s richest Indian
2002	Bags $70-mn SI order. Largest ever till overtaken by TCS
2003	Goes on acquisition binge–Spectramind, R&D unit of Ericsson and AMS’ utilities business. Apart from Spectramind, all buyouts involve top consultants or R&D people in specific verticals

Wipro chairman Azim Premji called this the year when customers wanted to have their cake and eat it too... a year in which most business lines at the group grew–but at a cost. Margins were squeezed further–beyond levels the company had imagined. Sales and marketing expenses went up drastically. And larger deals went out of style...

Briefly, things seemed to be looking up around the end of the second quarter across all segments, but then they collapsed again. Vice-chairman and Wipro Technologies CEO Vivek Paul said with chagrin at the end of the year: “We did think things were looking up–but were caught by surprise two quarters in a row. I’m not making any more positive statements even if I have a caveat hanging at the end of it.”

There was reason for his chagrin. Services exports topline growth remained mostly stable, but the bottomline dipped drastically. In fact, a year ago, most analysts were asking Wipro if it was sacrificing volume growth for margins. This time, at the fiscal year-end analysts’ conference, the needle had turned 180 degrees. The question being asked was–had the company sacrificed too much for volume growth?

In the domestic market, hardware sales grew after a really bad fiscal 2002 but had still not reached the levels of fiscal 2001. In some key product lines, unit growth in sales was accompanied by a value decline, indicating that the margin squeeze had just got worse.

The only bright spot was the contact center/BPO business at Wipro Spectramind. Wipro acquired a 25% stake in Raman Roy’s Spectramind in the first quarter and quickly ramped that up to 100%. Revenues tripled by year-end and despite initial cynicism, there appeared to be true synergies appearing between Spectramind and Wipro Technologies–the group’s services export division.

Across all these three divisions that form part of Wipro Ltd, IT-related revenues grew at a healthy 27%, compared to a mere 8% the year before. That was the great news. The not-so-great news was that gross profits grew only 7%, compared to 12% last year.

Meanwhile, Wipro continues to hold a 38.1% stake in WeP Ltd (its breakaway peripherals company earlier known as Wipro e-Peripherals) and has two people on its board, but no management control. In fact, WeP broke the umbilical chord in the final act of renaming itself in 2002, shedding the Wipro name altogether. Here’s what the different elements of the group looked like…

Wipro Technologies

For this hugely profitable division, 2002-03 was the first year in which revenue and profits diverged widely.

Profit growth was the slowest ever even as the growth in billed man months was the highest ever. The numbers show it–employee headcount grew 40%; revenues grew 25%; and gross profits grew by a mere 4%.

The usual reaction in such a situation is to hunker down. Wipro Technologies instead decided to go an acquisition spree. At one end, it acquired a contact center business (Spectramind) for about $100 million. At the other, it bought out high-powered consultants with the acquisition of the global energy practice of US-based AMS Inc and an R&D lab from Ericsson.

Paul believes there are only two ways to go from here on–the volume-led Indian factory way, or the consultant-led way of a “truly global” company. The company says it is open to similarly focussed acquisitions in the near and medium future.

Wipro Infotech

At least it got Suresh Vaswani smiling again. Wipro Infotech’s president in charge of the company’s domestic, West Asia and Asia-Pacific business had hated fiscal 2002 when domestic revenues fell 23%, compared to a 30% growth the year before.

Every single segment under him had fallen through the floor.

In 2002-03, the domestic business grew 16%, while the company made inroads into West Asia and APAC, with software and solutions exports worth Rs 22 crore. Systems revenues grew over 10%, led by heavy server growth in both the traditional Sun business and traction in its new IBM servers line. In fact, that server growth covered up for problems in the PC business, which fell by 4%–much of that because the company could make no leeway in the retail/home segments and abondoned its entire Wipro Voyager PC line.

But here’s the catch–despite the growth, systems and networking revenues are still not back to fiscal 2001 levels. The hangover of fiscal 2002 persists...

Wipro Spectramind

The big story at Spectramind was one of unadulterated growth. It more than doubled headcount from 2,170 to 5,106 people and almost tripled revenues from Rs 52.3 crore in 2001-02 to Rs 197.5 in 2002-03. Though it positions itself as a BPO pure-play, it currently gets more than 80% of its revenues from contact center services–about 90% voice-based. Spectramind is clear that future focus lies on growth through acquisition.

WeP

The year saw WeP drop the HP line of business altogether, change its name and make an acquisition of its own. It bought over Select Technologies’ networking and security solutions in November and now holds a 93.99% stake in the company–with full management control. The rest of the equity is held by Select employees. Overall, WeP growth remained flat, though if the HP business is discounted from the previous year, the growth is more like 11%.

TEAM DQ