The other Wipro4 min read . Updated: 05 Nov 2012, 01:44 AM IST
Wipro Consumer’s Agarwal speaks about the firm’s plans after demerger
Bangalore: Wipro Ltd announced a long-awaited separation of its consumer unit from the information technology (IT) business on Thursday. Wipro Consumer Care and Lighting, which is largely ignored by investors and analysts, contributes about 10% of Wipro’s business and is expected to report over ₹ 4,000 crore in sales this fiscal year. In an interview, Wipro Consumer chief executive Vineet Agrawal said the consumer business’s ability and flexibility to grow may have been hampered had it remained under Wipro longer. He spoke about the firm’s plans after the demerger, its acquisition strategy and its second-quarter performance. Edited excerpts:
How will the planned demerger change your business?
We should get more focus. We will have a new board of directors. We were just 10% of Wipro Ltd and here we will have a much larger share. We should get a larger flexibility from the point of view that earlier one had to look at acquisitions and growth plans through the lens of the overall Wipro Ltd and how investors would react. It’s not that it had hampered Wipro Consumer, but it could’ve potentially hampered us. Ten years ago we were a ₹ 300 crore firm; last year we did ₹ 3,300 crore in sales. So (our size) could’ve potentially created a flexibility issue.
How will the demerger change things?
It’ll be business as usual. Our acquisitions will be going through the same lenses—whether it makes sense to acquire, whether it pays back for you. But our flexibility to do deals won’t be hampered due to the demerger.
Will you look at larger deals?
We’ve done large acquisitions. When we started talking to Unza, they were bigger than us. That was a $300 million acquisition in 2007. Our ambition has not been controlled, but it could’ve been an issue if we were part of Wipro Ltd. So the demerger has come at the right time.
Are you looking at acquisitions?
We’re always looking at deals. If you look at IT, there are a lot more deals that happen. In FMCG (fast-moving consumer goods), the number of deals are very limited. So it’s not like at one point of time I’m looking at 10 deals, but there is something ongoing over time. The target firm may still be deciding on what they want to do. So it takes its time.
How are valuations like currently?
In India, valuations are very heated. We will never acquire for the sake of acquiring. We look at the pay-back period. We won’t acquire purely because something makes strategic sense.
Have the heated valuations put you off any deals?
It is difficult to say whether it has happened this fiscal, but it has happened over time, that we looked at something but the valuation was too high.
How will you look at funding post the demerger?
There will be cash that will move into our company after the demerger, based on our valuation. Last year, our PBIT (profit before interest and taxes) was ₹ 395 crore and the cash flow was higher. So the perception that we were sucking in cash from other businesses is not correct. If we require cash, we can always go to the capital markets. We are a healthy and large company and we can stand on our own feet. So the demerger should work well. If you send a two-year-old to a hostel, he’ll probably say “my parents don’t love me". But if you send an 18-year-old, he has the world to explore. That’s what we are.
Long-term growth goals for Wipro Consumer post the demerger?
There won’t be a significant change because of the demerger. We like to grow faster than the industry and we’ve been doing that. Historically, we grow 25% on an organic basis and hopefully we can retain that.
What drove revenue growth in the current quarter?
We crossed ₹ 1,000 crore (in quarterly sales for the first time, growing (at) 26%. In the (Unza business), Malaysia and Singapore were clearly stressed; we grew 55% in Indonesia; we grew 30% in Vietnam; we grew 36% in China, and 27% in the Middle East. So, overall, in constant currency terms, the Unza business grew 17%. Our institution business is under stress. Expansion plans have been limited. New offices are not getting built. But furniture grew 15% largely because we were able to gain market share. Our institutional lighting business was largely flat but our LED segment is growing well. Santoor continues to do well. We are No.1 in south and west of India. Yardley India grew 53%.
In the past quarter, was Santoor soap No.3 or No.4 in the whole of India?
It was No.4. We had an 8.3% market share (6.6% in urban areas and 10.9% in rural areas). No.3 (Dettol) had a 8.8% share.
How were the input costs like this quarter?
Let’s look at palm oil, which is a big ingredient for soaps. From July to September, the prices were going down steadily. But from mid-September, they fell sharply. The other commodity costs are slowly coming down, whether it is copper or aluminium; but not significantly. It has helped us increase our brand investments. Our marketing spend in India has grown by 15%.