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Wipro: It Isn’t Only About IT

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Vineet Agarwal, the president of Wipro Consumer Care and Lighting (WCCL), smiles wryly as he recalls the challenges following the acquisition of Unza, the Singapore-headquartered personal care and household products company that WCCL bought for $246 million (Rs 995 crore then) in 2007. Unza was as large as WCCL and a force to reckon with in South-east Asia, and integrating operations posed peculiar challenges.

For instance, while Wipro’s senior executives, including its billionaire chairman Azim H. Premji, took pride in being prudent and cost-conscious and were not averse to flying economy class, Unza’s senior executives were more used to business class travel. Also, Unza’s sales executives in its key market Malaysia were used to being ferried around in cars, whereas that was not necessarily the case with Wipro’s sales executives in India.

“While we wanted to integrate and cross-share best practices, we realised that it was sensible to leave some things as they were,” says Agarwal, a company veteran of 27 years. “We did, however, push them for higher growth rates, stepping up their financial, operational and compliance metrics to Wipro’s global standards,” he adds. Result: Unza, which was growing at 7-8 per cent before Wipro brought it, has grown at 11-12 per cent over the past five years.

So, last month, when Wipro acquired LD Waxson, another Singapore-headquartered skin and personal care products company for $144 million, there was no feeling of déjà vu for Agarwal as he already had a template on the dos and dont’s of integration.

In fact, a string of acquisitions at home and abroad over the past 10 years have helped grow WCCL’s revenues from Rs 304 crore in 2001-02 to Rs 3,340 crore in 2011-12. It looks set to end FY13 with revenues in excess of Rs 4,000 crore.
RARING TO GROW: WCCL president Vineet Agarwal feels autonomy is essential for growth of the consumer business (BW pics by Bivash Banerjee)

WCCL is part of Wipro Enterprises (WEL), the new name for Wipro’s non-IT business that was hived off in November 2012. WEL also includes Wipro Infrastructure Engineering (WIN) and Wipro GE Healthcare, a joint venture with General Electric. With WIN expected to close the fiscal with revenues of Rs 1,800 crore, WEL will have a combined revenue of a billion dollars and close to 10,000 employees. With sales in over 50 countries, WCCL and WIN get half their revenues from overseas operations. Can WEL take on global FMCG (fast moving consumer goods) majors in developing markets and beat them at their own game?

Boost From Demerger
The demerger is expected to give a boost to Wipro’s non-IT businesses, which have so far remained in the shadow of its more glamorous IT business, which accounted for 78 per cent of the company’s revenues and 92 per cent of its operating income, as of the last quarter.  According to Suresh Senapaty, the group CFO, the separation will help the IT business show higher margins, and also allow the non-IT businesses more room for growth and greater visibility. The IT business has been struggling to keep pace with its peers over the past few years.
Acquisitions made by Wipro Infrastructure Engineering
Sep 2006: Hydro Auto Group AB
$31 million
Dec 2007: Aquatech Industries: Key to scaling up the water treatment business
May 2011: RKM Equipamentos Hidraulicos: Has given WIN a footprint in Latin America
Jan 2013: Hervil Gro up: Brings the benefit of low labour costs
Source: BW Research
“There will be greater market focus on WEL’s strengths. For instance, Santoor is the market leader in soaps in south and western India and the third-largest soap brand in the country. But how many know that? Separation will help us to assert ourselves,” says Agarwal.

All the non-IT businesses generate enough cash on their balance sheets every year. As a result, once the demerger is complete, WEL will have Rs 1,492.2 crore in cash and cash equivalent, and a debt of a mere Rs 200 crore. The cash flows will allow the non-IT business to pursue growth through the inorganic route, which is what has helped it acquire scale and a global footprint over the past 10 years — through a dozen acquisitions.

Today, the non-IT businesses have become quite large, with each demanding a separate focus. And the demerger will allow them to have greater autonomy with their own set of directors on the board, and the ability to reinvest in the business for future growth.
Fluid Power
Wipro started life in 1945 as Western India VegetableProducts, producing vegetable oil in Maharashtra’s Jalgaon district. Its main area of business was production of Sunflower Vanaspati oil and, later, soaps and other consumer care products (a few months ago, Wipro sold its Sunflower Vanaspati to US-headquartered Cargill).

However, in 1976, the company diversified into fluid power, making hydraulic cylinders, pumps and valves for a wide range of applications across a cross-section of industries. It remained a profitable but small business until 2006, when the acquisition of Sweden-headquartered Hydro Auto Group for $31 million gave it a new growth impetus by broadening its addressable market and providing a manufacturing footprint overseas. It also rebranded itself as an infrastructure engineering business (WIN) to better project its abilities. In 2011, it forayed into the fast-growing Latin American market with the acquisition of RKM, a Brazil-based hydraulics firm.
BIG THRUST: WIN’s recently inaugurated automated piston plant at Hindupur

Today, WIN is the largest manufacturer of hydraulic cylinders in the world. It supplies hydraulic cylinders to global original equipment manufacturers such as Caterpillar, JCB, John Deere and Volvo.  In January, it acquired Romania-based Hervil Group for an undisclosed price. The deal will give WIN the advantage of lower labour costs in eastern Europe and a competitive advantage in western European as well as Russian markets.

In India, WIN has a marketshare in excess of 70 per cent and six manufacturing facilities. Pratik Kumar, president of WIN and executive vice-president for human resources at Wipro, says the goal is “to expand the market. At more than 70 per cent, we can take further share only so much higher. We would rather focus on getting into newer segments.” One such segment is the aerospace and defence market; the company has set up a new unit in Bangalore to manufacture actuators for European Aeronautic Defence and Space Company (EADS).

Recently, the company inaugurated a Rs 150-crore automated piston rod plant in Hindupur on the Karnataka–Andhra Pradesh border. “Our bespoke engineering skills and our precision manufacturing expertise will stand us in good stead in domestic and international markets. Just like the IT business, India has a natural advantage in customised engineering skills,” says Kumar.

WIN, which recently ventured into the US market, is looking to double its Rs 1,800-crore revenues in FY13 over the next three years. Of its 2,200 workforce, 40 per cent is stationed overseas.

Not all of WIN’s moves have paid off, however. It has not been able to scale up its waste water treatment business with the 2007 acquisition of Aquatech Industries, which continues to clock under Rs 100 crore in revenues. It has even been considered for sale. Kumar, while admitting that the company did examine divesting the business, says: “We had no intention of holding any fire sale. Our concern was scale. Since then, we have overhauled leadership in that unit, and it has started doing well.”

The FMCG Play
WCCL offers a mind-boggling range of products, from Glucovita, an energy drink, which it brought from Hindustan Lever in 2003, to honey spiked with lime juice for those looking to cut flab and sugar substitutes for the calorie-conscious, from personal and skin care products like soaps, shampoos and lotions to bulbs and tubes, and from modular furniture for offices to selling hydraulics, cylinders and actuators.

Its flagship consumer brand in India has been Santoor which, with a market share of nearly 9 per cent, is behind only Hindustan Unilever’s Lifebuoy and Lux. WCCL’s personal care products portfolio includes Chandrika, Aramusk and Moloy range of soaps, and shampoos, deodorants, face washes, lotions, baby soap and talcum power, as well as Yardley products in the premium range (acquired in 2009). It also sells artificial sweetener Sweet ’n’ Healthy.
Wipro’s journey: From vegetable oil to aerospace
1945: Western India Vegetable Products (Wipro) starts off as vegetable oil maker and later becomes a commodity trader
1966: First diversification through manufacturing toilet soaps; enters consumer care
1976: Sets up Wipro Fluid Power, which later came to be called Wipro Infrastructure Engineering; manufactures hydraulic cylinders
1982: Forays into IT business
1992: Enters lighting business
2004: Begins making modular furniture
2008: Gets into eco energy (clean tech, solar energy) and water treatment
2011: WIN, a division of Wipro Enterprise, enters aerospace and defence sectors
2012: Splits IT and non-IT businesses into separate companies called Wipro and Wipro Enterprise, under which comes consumer care, lighting, furniture, infrastructure, engineering and eco-energy businesses

Thanks to acquisitions, Wipro claims a dominant  26 per cent share of Malaysia’s FMCG market. In Indonesia, Vietnam, China, Singapore, Thailand and parts of the Middle East too, it has a substantial presence. Agarwal says that when Unza introduced a halal toothpaste in the Malaysian market, Colgate was forced to follow suit. It is not yet thinking of launching oral care products in India, a segment where it is not present. “We will not just bring brands from Unza or Waxson into India. We will see market opportunities and gaps that need to be filled,” says Agarwal.

WCCL is yet to make a big foray into the African market, where other Indian FMCG players like Godrej Consumer Products and Marico are already present. “Unlike some other players, we are cautious about expanding suddenly. Our focus is to strengthen our business where we already have a footprint,” says Agarwal.

WCCL sells lights, furniture and switches to the B2B market in India. Under its Smartlite brand, it retails CFL bulbs and tubes as well as lighting solutions. With the CFL category getting commoditised, it is now focusing on the high-margin LED business, where technology barriers are relatively high. “The acquisition of Clearray has helped us grow our LED business.” While the takeover of North-West Switch Gear gave Wipro a presence in electrical switches, the slowdown impacted its furniture business. Once investment in new office space picks up, Agarwal believes that the lights, furniture and switches business will also pick up.

“Look, it is all about value addition. Today, we have increased sales and revenue of Glucovita 10-fold in 10 years. Agreed it is a small brand and the instant energy category is also small, but it is a profitable business. Where we felt we could not add value, like in isabgol or vanaspati as they were commoditised markets, we have exited them,” says Agarwal.

Peers and branding experts, however, believe that WCCL still has some distance to go before it can pose a serious challenge to its FMCG peers at home and abroad. Says the national sales head of a leading player in consumer care, requesting anonymity: “Wipro’s presence in the personal care category is mainly in the volume segment. While Santoor is a powerful brand, it is a volume and not a value player. The company has got into higher margin brand extensions like face washes and lotions only recently.” Penetration of WCCL’s products, while strong in the south and west, remains very poor in the eastern and northern parts of India, he says.

He also feels that WCCL’s global acquisitions haven’t given it an edge in the Indian market. “They haven’t introduced any brands from their international acquisitions as most of them don’t have brand resonance in India. In fact, some of the personal care products are suited to the skin types of the South-east Asian population,” he says.

WCCL’s vast portfolio is also seen as unwieldy. “There is a danger of Brand Wipro being stretched too thin. The attitude seems to be to get into any business where they can make a buck. The danger is management bandwidth might get stretched,” says a branding consultant, not wishing to be named. A clear picture will start emerging only after Wipro’s demerger is complete. For now, it is just wait and watch. 

venkatesha(dot)babu(at)abp(dot)in; venkatesha(at)gmail(dot)com

(This story was published in BW | Businessworld Issue Dated 22-04-2013)