Wipro Ltd, with interests in software, consumer products and energy, said it would buy Singapore consumer goods company Unza Holdings Ltd for Rs1,010 crore in its biggest acquisition ever.
The all-cash buyout gives Wipro market access in Vietnam, Hong Kong, China, Indonesia and Malaysia, where Unza has its own operations, and factories and manufacturing bases to source soaps and toiletries at a lower cost for the Indian market. The acquisition is expected to be completed by end-July. Wipro had plans for a Southeast Asian foray and the acquisition of Unza, a market leader in the region, has added two “bonus markets” in China and Hong Kong, a senior executive at the Bangalore-headed acquirer said.
The factories of Unza, two in Malaysia and one each in China, Vietnam and Indonesia, are located in zones with lower tax rates, giving Wipro an “advantage” to aggressively “cross-sell” the multiple company brands, said Vineet Agrawal, Wipro’s president for consumer care and lighting.
Friday’s acquisition of Unza, which had operating margins of 12% on revenue of Rs680 crore for the year to 30 April, will nearly double Wipro’s revenue from consumer products and lighting to more than Rs1,600 crore. The acquisition will not have any impact on the margins of the company, which closed 2006-07 with more than Rs15,000 crore revenues. Wipro is scheduled to announce its results for the April-June quarter on 19 July.
Wipro, also India’s third-largest software services vendor, bought 58% of Unza from Standard Chartered Plc. and private equity investor Actis Capital LLC and the remainder from the target’s staff. About half of Unza’s revenues across 48 brands, including products Eversoft and Enchanteur, come from Malaysia.
Analysts said the challenge for Wipro was to increase the net margins of Unza, currently less than 5%, to the higher margins of 10-14% enjoyed by Indian personal care and fast moving consumer goods companies such as Dabur India Ltd. But this would involve enhanced spending. “Wipro has to increase the advertisement spend to push sales of Unza brands. It naturally would help it into the high profitability zone,” said Sumeet Budhiraja, senior vice-president of research at First Global Equities, a Mumbai analyst firm. The acquisition, funded internally from Wipro’s reserves, lifted the company’s shares over 3% to Rs519.45 in a firm Mumbai market.
Wipro plans to bring some of Unza’s products to India and sell them under its Santoor brand, Agrawal said. It is also studying the tax structures for possibly manufacturing the Santoor brand of products in Southeast Asia and selling them in India.
“There is a strong possibility of manufacturing our brands there” and selling them in India, said Agrawal. First Global’s Budhiraja said Wipro would be able to derive a 10% cost advantage of manufacturing goods in these countries.
Wipro has eight factories, two each in Karnataka, Himachal Pradesh and Maharashtra, apart from one each in Faridabad and Chennai. It also sources its range of products from third party contractors in other locations. The company’s consumer and lighting business has acquired local brands such as Chandrika soaps, glucose brand Glucovita, and Northwest Switches.
Since December 2005, Wipro’s tech business (Wipro Technologies) has spent over $200 million (Rs810 crore) buying out seven companies in the US and Europe, including consulting firm Nervewire, infrastructure management company cMango and Austrian design services firm Newlogic. In October last year, the company’s Wipro Infotech unit said it was acquiring 3D Networks Pte and Planet PSG, part of Malaysia-based Planet One.
Sumeet Chatterjee of Reuters and Chitra Somayaji and Jay Shankar of Bloomberg contributed to this story.