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Wipro: Majoring in Acquisitions

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DQI Bureau
New Update

The route of acquisitions has been a key strategy of Indian

software majors to rapidly develop marketing presence and domain knowledge in

key geographies and underserved verticals. What began tentatively around the

year 2000 has now become a regular feature for these companies. Majority of

these acquisitions have been focused on developing the front ending and

consulting capabilities of Indian companies. Part of this strategy is also to

get the back-end of the target companies to relocate to India so as to reduce

costs.

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In the longer term, these acquisitions would further globalize

the operations of the companies and help them truly become local companies in

their geographies where they operate. Investors also welcome such acquisitions

as they make productive use of the large idle cash reserves that most of the

companies carry in their books. As the IT services sector mature, investors

would also look deeper into the transactions to see how the synergies operate,

and also see whether the company is able to integrate not only the legal

entities, but also the people and processes behind them.





















FACT

SHEET

Website:www.wipro.com



Doddakannelli, Sarjapur Road, Bangalore 560035


Tel: +91-80-2844-0011


Fax: +91-80-2844-0256

Area

of Specialization:


Software services, product sales and

implementation, BPO consumer care, and lighting
Consolidated

Revenues


(March 2007): Rs 15,000 crore
Offices:

India,

US, Canada, UK, France, Sweden, Germany, Finland, Italy, and Japan
Listing

(Stock Exchanges):
NSE,

BSE, and NYSE
Face

Value:


Rs

2 per share
52-Week

High/Low:
Rs
681.25/389.5
BSE

Code:
507685
NSE

Code:
WIPRO

Bangalore-based Wipro has been among the most aggressive

acquirers from India in the recent past, and the last few months have seen a

flurry of activities in this area. We believe that in the medium term, the

organic growth strategy would also help Wipro to develop into a more nimble

organization, and become more competitive in the marketing areas, which was,

sometimes back, considered a weakness for the company.

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Wipro Tech is an information technology service company

established in India in 1980. It is the global IT services arm of Wipro. It is

headquartered in Bangalore and its employee strength was more than 70,000 till

September 2007.

Wipro Technologies has over 300 customers across the US, Europe,

and Japan including fifty of the Fortune 500 companies. Some of its customers

are Boeing, BP, Cisco, Ericsson, IBM, Microsoft, Prudential, Seagate, Sony,

Windriver, and Toshiba. It has dedicated development centers and offices across

India, Europe, North America, Latin America, and Asia Pacific.

The current chairman, managing director, and majority stake

owner is Azim Premji, who has headed the software and hardware divisions since

Wipros inception. Premji completed bachelors degree in electrical

engineering. The Indian Institute of Technology, Roorkee, and the Manipal

Academy of Higher Education have both conferred honorary doctorates on him,

while XLRI, Jamshedpur has conferred the Sir Jehangir Ghandy Medal for

Industrial and Social Peace. Premji is also a non-executive director on the

board of RBI. The equity of the company currently stands at Rs 291.8 crore,

wherein promoters hold 81.44%, institutional investors hold 6.23%, Indian public

holds 7.93%, and private corporate bodies and others hold the balance 4.4%.

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For the financial year ended March 2007, Wipro reported an

impressive revenue growth of 41% with revenues touching Rs 15,000 crore as

compared to Rs 10,626 crore in the previous financial year. Each of the companys

business segments reported strong growth with the Indian and the Asia Pacific IT

services and products segment registering a 46% growth amounting to Rs 2,483

crore as compared to Rs 1,704 crore in the last year. Revenues from the global

IT services and products segment amounted to Rs 11,094 crore as against Rs 8,066

crore, up 38%, whereas revenues from the consumer care and lighting segment

registered a 36% growth, amounting to Rs 818 crore against Rs 600 crore.

Revenues form its US offices amounted to Rs 7,270 crore, up 37% as compared to

Rs 5,308 crore, whereas revenues for the same period from India witnessed a 40%

annual growth amounting to Rs 3,137 crore as against Rs 2,243 crore. Rest of the

world registered a 40% growth in the revenues to Rs 896 crore as compared to Rs

642 crore. The net profit for the same period stood at Rs 2,942 crore as

compared to Rs 2,067 crore, up 42% on annual basis.

During the year, Wipro announced it has signed an agreement to

acquire India, Middle East, and SAARC operations of 3D Networks and Planet PSG

in all cash deal. Wipro entered into a partnership with Apriso to provide

manufacturing enterprises multi-site implementations. Wipro has formed alliances

with supply chain solutions provider Manhattan Associates, Mark Logic, and a

joint venture with Motorola (named WMNetServ), which will deliver outsourced

telecom services to help focus on their core business. Also, Wipro acquired

Europe-based retail solutions provider, Enabler, in an all cash deal. It also

acquired US-based Quantech Global Services, a mechanical design services firm.

Consolidated

Year ended 31st March

2006

2007*

2008*

Sales

10,603

14,998

18,769

Other Income

154

296

427

Operating Profit

2,381

3,311

3,814

Operating Profit (%)

23

22

20

Net Profit

2,068

2942

3,307

Share Capital

286

292

292

EPS (Rs)

15

20

23

* Projected



Note: All figures in Rs crore unless indicated otherwise. All figures are
rounded-off

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For the quarter ending June 30, 2007, revenue increased to Rs

4,203 crore compared to 3,143 crore last year, an increase of 34% y-o-y. Profit

after tax stood at Rs 726 crore compared to Rs 620 crore, an increase of 17%

y-o-y. During the quarter, Wipro added thirty-nine new clients in the global IT

services and products. The company bagged $130 mn multi-year total outsourcing

engagement from a utility company in Europe. Similarly, Wipro and Cairn India

partnership won the FAO Research Award of Distinction in the finance and

accounting space. The company also bagged SAPs Pinnacle Award for Software

Solution Leadership and Forrester rated Wipro as Leader in global IT

outsourcing. Also, the company has decided to merge some of the subsidiary

companies with the company, through two schemes of amalgamations.

For the quarter ending September 30, 2007, the company has

projected revenues from Global IT services business to be around $777 mn. Given

the continued growth in the last few quarters as well as the new acquisitions,

we believe Wipro will maintain its revenue growth in the medium term, though

margins may get impacted in the medium term.

The shares of Wipro trade at Rs 476, discounting its FY 08

earning by twenty-one times. Given its moderate growth of earnings and

increasing pressure on margins going forward, we believe that the stock is fully

priced. Market Performer.

Sushanto Mitra



The author is director, Techcap India



sushanto@techcapIndia.com



The views reflected here are of the author and not of this publication.



No liability is accepted for losses based on the information presented here

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