Bangalore: India’s third largest technology services firm Wipro Ltd said on Wednesday it has agreed to acquire a majority stake in Brazil-based hydraulic cylinder maker RKM Equipamentos Hidraulicos Ltd. RKM will be a part of Wipro’s infrastructure and engineering division, the company said without giving the financial details of the deal.
The story of how Wipro has morphed from a vegetable oil company into a soaps-to-software conglomerate is well chronicled. A little-known fact is that Wipro’s first diversification away from vegetable oils was not into software services but into engineering and designing pneumatic cylinders.
This unit, originally called Wintrol, has after many iterations transformed into Wipro Infrastructure and Engineering (WIE), which makes hydraulic cylinders and components.
Right target: Kumar says WIE had been scanning the marketplace for an acquisition for some time.
Wipro has stopped providing WIE’s revenues separately, but Pratik Kumar, the division’s president and executive vice-president of human resources at Wipro, said its contribution was “a little less than 10% of the overall revenues”.
Wipro’s overall revenue in the 2011 financial year was $6.9 billion (Rs 31,099 crore).
In a phone interview from Brazil, Kumar outlined the rationale for Wipro’s latest acquisition and WIE’s growth plans. Edited excerpts:
WIE’s revenue nosedived to $150 million in fiscal 2010 from $300 million two years earlier. What went wrong?
Yes, things did go wrong because of the global recession. But I am happy that revenues have again reached and may even surpass what we had done at the peak. Lot of our OEM (original equipment manufacturer) customers underwent some tough times but growth is now back. Europe, from where we continue to get about 40% of our revenues, is still either static or growing at a slow pace. But markets like India, China and other emerging countries have more than helped offset the slow growth in Europe.
Is that the reason for the RKM acquisition?
Brazil, and Latin America in general, is one of the fastest growing markets for the segment in which WIE operates. We had been scanning the marketplace (for an acquisition) for some time. Like always, it was either a buy or build choice.
We are very happy to get RKM as it is not just a strategic and technological but a cultural fit. Initially, we have purchased 80% of the company for a sum which we have not disclosed. We will purchase the other 20% at the end of three years.
RKM has around 200 employees. The current management will continue to help grow the company in this market. We are very excited to be here.
WIE in 2006 similarly acquired Hydrauto in Sweden for $31 million to grow in the European market. But in China you decided to go on your own and set up a manufacturing facility.
China is a different market. And also, we have to come across the right target at the right price. So, it is horses for courses. I think in Brazil, by acquiring RKM we have cut our go-to market by at least 18-24 months, which is a very substantial period. Today, India, from where WIE gets nearly half of its revenues, plus the growth in China and now Latin America, will help us propel into becoming a global leader.
While you have three manufacturing locations in India, four in Europe, and one each in China and now Brazil, you still don’t have a footprint in the crucial North American or the African markets. What are your plans for these regions?
Yes... We could have better presence in North America or Africa. In North America, a lot of our OEM customers have their own captives (in-house units). Africa still mostly imports its requirements and our OEM customers don’t have much of local manufacturing, but we continue to evaluate all markets to maximize our growth.
What is the road map for WIE?
Today, we have a global market share of around 5% in hydraulics. We intend to take this to 15% in the next four years. Our intention is to grow this to a $1 billion business by 2015.
We are already the top independent hydraulic cylinder manufacturer in the world, but we want to grow market share.