Wipros reorganisation appears a long drawn process

Written by Darlington Jose Hector | Updated: Nov 5 2012, 08:20am hrs
Wipros decision to hive off its non-IT business into a separate unit has been in the works for some time. Investors have often wondered why the company did not carve out a separate unit for its consumer care, infrastructure engineering and medical equipment businesses, considering that shareholders often only looked at the numbers furnished by the firms flagship IT services wing.

Market analysts have given the move for the green signal, knowing that not only will it help the promoters bring down their shareholding in the company to the required levels (75%) but also aid minority shareholders. The demerger has the potential to finally cut the clutter from the whole soaps-to-software conglomerate definition and help investors look at the two diverse businesses separately.

TK Kurien, CEO of the companys IT business, has said creating an IT-focused firm will allow it to accelerate the investments necessary to capitalise on market opportunities for growth. Indian IT has entered a very competitive phase now, with plans not going accordingly for many of the vendors. In the case of Wipro, it has been on a continuous restructuring mode ever since Kurien took over as the CEO. The plan has been to cut out excess flab and become a lean and mean organisation. This is something that Kurien has taken great interest in.

But Thursdays move to hive off its non-IT business is probably Wipros biggest step in the last two years. The company has tried to create as less a noise about this as possible, at least from a structural view point, keeping the Board unchanged. The new entity called Wipro Enterprises will remain unlisted. It will be interesting to know the thoughts of consumer care chief Vineet Agrawal and infrastructure engineering head Prateek Kumar regarding this move, as all of a sudden they are not part of the listed entity. Wipro Enterprises has traditionally operated with lower profit margins. Last fiscal, it accounted for only 6% of the operating profit.

The demerger, however, is unlikely to make a big impact on Wipros share prices, as industry watchers have typically looked at its IT business alone. But what it has done is to avoid a situation where the promoter has to sell his shares to institutional investors, while trying to bring down his holding to 75% as required.

Post the demerger announcement, the focus has swung back on the companys IT performance. Wipro on Friday reported a better than expected net profit of R1,610 crore, up 24% year on year. Sequentially net profit was up 2%. The company guided for a dollar revenue between $1,560 million and $1,590 million. Wipros IT services revenue stood at R8,373 crore, compared to R8,314 crore in the previous quarter. The results met with some mild positive responses from analysts, while a few others were disappointed with the guidance. The positives included a surge in the number of high value clients and improved pricing.

On the downside, most analysts felt the topline was a disappointment. The 1.3% sequential growth in revenues, was lower than the 2.4% growth registered by Infosys. They also thought the company would guide for a 2-4% revenue growth, which came in only at 1-3%. The 0.2% growth in volumes was nothing to write home about.

Hence, one can say that the company continues to be a work in progress. The re-organisation is continuing unabated. TK Kurien is continuing to crack the whip, trying to get the company into the kind of shape that its chairman Azim Premji has in mind. There is no indication that we have seen the end of the changes.