Bangalore: Wipro Ltd’s acquisition of some businesses of Yardley is the fifth in the consumer products and lighting space by the company in the past five years, a period that seen the revenue of the company’s consumer division grow fourfold to Rs2,997.5 crore (excluding the Yardley acquisition).
Six years ago, Wipro’s consumer care and lighting arm was mulling ways of getting into the glucose drinks segment.
Instead of starting from scratch and going through the process of introducing a new product in the market and building the brand over years, the firm took a short cut. It acquired Glucovita, a glucose powder brand, from Hindustan Unilever Ltd.
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Eight months later, the firm acquired Chandrika ayurvedic soaps to add handmade soap bars to its portfolio of personal care products. And in 2007, it bought Unza Holdings Ltd, a Singapore-based consumer goods company for $246 million (around Rs1,159 crore today), to enter the South-East Asian markets. In between, in 2006, it also acquired North-West Switches business from India-based North-West Switchgear Ltd for $22 million.
On Thursday, continuing with its strategy of jump-starting into new markets and categories via acquisitions, the firm said it had agreed to buy some businesses of Yardley, a 240-year-old British premium personal care brand, from the UK’s Lornamead Group for $45.5 million.
Lornamead will retain the Yardley business, which includes soaps, body sprays and talcum powders, in Europe and the US, and Wipro will have the rights to sell the brand in Asia, Australia and Africa, giving it a foothold in the premium personal care segment in these markets.
Graphics: Sandeep Bhatnagar / Mint
The Yardley business that Wipro has acquired has a revenue of $24 million.
“In luxury products, margins are an average of 50% of the profit after tax value. It means more money for the company,” said Ashish Dhir, associate vice-president, Technopak Advisors Pvt. Ltd, a retail advisory.
Wipro’s stock closed nearly flat on Thursday, rising Rs2.50, or 0.42%, to Rs598.30 at the end of trade on the Bombay Stock Exchange, on a day the Sensex gained 151.77 points, or 0.95%, to end at 16,063.90.
Interestingly, Wipro has made 11 acquisitions in the information technology (IT) area since 2003.
Wipro’s IT service business still contributes to 72% of its overall revenue and 91% of its pretax profit.
But its non-IT revenue, including consumer care and a small contribution from its infrastructure engineering arm, has grown over the past five years.
In that period, Wipro’s overall and IT business revenues, at Rs25,544.2 crore and Rs22,621.3 crore, respectively, have increased threefold. As a percentage of total revenue, though, the company’s non-IT revenue dropped to 8.52% in fiscal 2009 from 11.7% in fiscal 2005.
The Yardley acquisition marks Wipro’s entry into the premium segment. The firm has a presence in the mid-market segment with brands such as Santoor soap, and Unza’s products. Consumer goods companies prefer high-end brands because of the high profit margins they offer.
“The transaction adds a very strong brand to our portfolio of personal care products. It fits into our strategy of increasing sales and brand presence in the Middle East,” said Vineet Agrawal, president, Wipro Consumer Care and Lighting.
The deal, to be completed by December, will be funded through internal accruals and add to the firm’s revenue from the March quarter, he added.
The Yardley buy will boost profit margins at Wipro’s consumer care business to 13% from 12% now, said Agrawal. “We expect our Middle East turnover to double to nearly $30 million through this acquisition. Overall, we hope to see an increase of 50 basis points in our revenues.” One basis point is one-hundredth of a percentage point.
Another analyst said the acquisition is a good fit for Wipro as it is looking for growth not just in India but also in emerging nations. “West Asia is a high-growth region owing to its high income levels. Also, a price of $45.5 million for a $24 million revenue business..., it is not a large deal,” said Abneesh Roy, senior analyst, FMCG (fast moving consumer goods), Edelweiss Capital Ltd.
Technopak’s Dhir said India may see more such acquisitions of overseas brands by local firms with companies in developed markets still reeling under a liquidity crunch. “It’s a liquidation issue. There will be a lot of M&As (mergers and acquisitions).”
Agrawal said Wipro may next look at adding products such as body washes and roll-ons to plug the gap in its personal care portfolio, which includes perfumes, deodorants and fairness creams.
It also sells lights, switches and modular furniture for offices.
Wipro may also look at shifting production of Yardley soap to Wipro’s manufacturing units in India. The company has four manufacturing facilities currently, said Dipak Kumar Bohra, general manager, finance, Wipro Consumer Care and Lighting.