Wipro’s 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 firm’s 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 company’s 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 Thursday’s move to hive off its non-IT business is probably Wipro’s 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 Wipro’s share prices, as industry watchers have typically looked at its IT business alone.