Wipro's Premji: The company is in good shape, but questions about that 81.44 per cent stake refuse to go away

This soaps-to-software conglomerate has made its largest shareholder, Chairman Azim H. Premji, the richest Indian. While Infosys and TCS can trace their origin to tech roots, Wipro proudly points out its top management's business orientation, crucial, the implication goes, in a market that places emphasis on business and not just technology solutions.

Actually, conglomerate might be a bit of a stretch for what is essentially India's third largest it company. Truth be told, while Wipro does manufacture and sells everything from soaps and bulbs, to furniture and powdered glucose, 92 per cent of its revenues and 95 per cent of its profits comes from the it business. And while CEOs and other members of the management may come and go, one steadfast hand has guided the Wipro ship through shoals and gales, that of Azim Premji. Infosys and TCS might resemble each other in some respects, but Wipro stands out for its unique revenue and market mix. While a vertical like bfsi (banking, financial services and insurance) brings the bulk of revenues for the other two-41 per cent for TCS and 36 per cent for Infosys-Wipro derives a mere fifth from this important segment. That's an important number to note because BFSI is the largest chunk of the market, accounting for nearly 60 per cent of all technology spending. The number reflects Wipro's late start in the segment; outsourced R&D, termed product-engineering services in industry jargon, accounts for 31 per cent of the company's revenues, energy and utilities, 10.9 per cent, and telecom, 5.7 per cent. These are its core areas, its strengths.

Another key differentiator is that Wipro has always focussed on the domestic market. It derives 21 per cent of its revenues from the Indian market. The corresponding number for Infosys is less than 2 per cent and TCS, a more respectable 12.5 per cent. And this, say execs at the company, isn't just about broad-basing revenues and reducing risk. Several service offerings such as infrastructure management services (IMS), testing and validation, and system integration actually grew out from the domestic market. As Sudip Nandy, Chief Strategy Officer of Wipro, points out, "If we can satisfy the Indian customer who demands the biggest bang for the buck and drives a hard bargain for value proposition, it is much easier to satisfy international clients." Some of these offerings have grown into significant differentiators. IMS, for one, is one area where Wipro has an edge over Infosys and TCS. "While a TCS or an Infosys has an edge when a TOS (total outsourcing solution contract) emphasises ADM (application development and maintenance), Wipro has an edge if it includes substantial portion of IMS," says one industry analyst.

Wipro's dependence on the US as a market is also the least among the Big Three, with that geography accounting for 50 per cent of its revenues as compared to 65 per cent for Infosys and 60 per cent for TCS. Thus, in case of any slowdown in the American markets, Wipro is likely to be impacted the least.

The issue of succession, however, continues to haunt Wipro. Premji owns an 81.44 per cent stake in Wipro and while he has repeatedly stressed that ownership and management are not really related, this is one question that refuses to go away.

However, what has really set Wipro apart from its peers is its aggressive acquisition strategy. Alok Shende, Head (ICT Practice), Frost & Sullivan, points out that Wipro has been the most visible in the M&A space, with decidedly mixed results. Though now dubbed as the "string of pearls" strategy (something that implies strategic fitment), Wipro started off on the M&A trail as a way to buy growth in 2002 when the market was slowing down. Since then, there has been a considerable change in the IT ecosystem itself. Wipro has made eight acquisitions in the last four years for a total value of $231 million (approximately Rs 1,000 crore).

Unlike Infosys, which has completed just one acquisition (Expert InfoSystems, Australia, for $23 million or Rs 108 crore then, in December 2003), or TCS, which has made a few, Wipro has been aggressively chasing M&A deals to grow its technology and industry capabilities. The company sees inorganic growth as a key to expanding its business and one day challenge global technology giants such as IBM and EDs on their own turf. "Acquisitions will be a cornerstone of our growth strategy and we will continue to look for viable opportunities both to enhance our technology skills and enter new markets," says Nandy who also heads the company's M&A initiatives. "Building scale is going to be a huge challenge in the services business and these deals are going to help us gain the required size."

The company has acquired everything from a plain vanilla BPO firm to high-end chip design hotshop. Its acquisition of third-party BPO vendor Spectramind e-Services (renamed Wipro BPO) in January 2003 gave it a huge boost in the then fledgling BPO market, since it inherited nearly 3,000 employees and seven customers. If this deal was at the low end of the market, then the $18.7 million (Rs 87.89 crore then) it spent on buying NerveWire (with billing rates nearing $200 an hour and net profit margins of 40 per cent) gave it a toehold in the high-end financial services consulting arena. While Wipro's M&A activity has spanned a wide gamut of areas, its deals have their share of critics. "The Spectramind acquisition was not done after complete business due diligence," alleges one analyst, implying that in its hurry to enter the space, Wipro overlooked several details. "Spectramind had several problems like a very high ratio of the low-margin voice business and high attrition rates." He adds that in the NerveWire instance, Wipro didn't really do a good job of integrating the boutique us-based consulting firm with itself, an Indian software services company, resulting in "several exits".

Despite such hiccups, Wipro's senior executives clearly see inorganic growth as a very important ingredient of their overall plan. "Our experience with acquisitions has been satisfactory and it has given us confidence to pursue this strategy more aggressively in the future," says K.R. Lakshminarayana, Corporate Treasurer, Wipro. "Inorganic initiatives can help accelerate our strategic and operational plans to supplement our organic growth rate." As this magazine goes to press, Wipro is on the prowl again, this time in Europe for a niche technology buy. Right now, Wipro's "string of pearls" for its chain is far from complete. And a substantial acquisition could catapult Wipro into the pole position in the race to $10 billion (Rs 45,000 crore).