Wipro buys SAIC unit

India’s third largest exporter of software services had been lagging behind in growth in the last couple of quarters, having misread the recovery in the US and Europe, compared with peers such as Tata Consultancy Services Ltd and Infosys Technologies Ltd, with Cognizant Technology Solutions Corp. threatening to overtake it.

Strong signal: Wipro chairman Azim Premji. Hemant Mishra/Mint

Kurien has overhauled the senior management to cut down bureaucracy and empower business unit heads.

Wipro has been the most aggressive of all India-based IT companies in making acquisitions to jumpstart growth. Till date, it has made 28 acquisitions, including in its fast-moving consumer goods, lighting and furniture businesses.

In the IT business, Wipro has made acquisitions for scale, acquiring customers, entering a new geography, or obtaining domain expertise. While some of the acquisitions, such as SpectraMind and Infocrossing, have paid off, a few others, such as NewLogic and NerveWire, have failed.

The latest acquisition will be among the successful ones, said Anand Padmanabhan, senior vice-president of energy, natural resources and utilities (ENRU) business unit at Wipro Technologies. For SAIC, with operations in the US, the UK, France, India and West Asia, the vertical accounted for $188 million in annual revenue, based on current run-rate, he added.

SAIC’s oil and gas practice provides consulting, system integration and outsourcing services to global oil companies, with domain capabilities in the areas of digital oilfields, petro-technical data management and petroleum application services addressing the upstream segment.

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SAIC employs 43,000 people overall, serving mostly the US military and US government entities. It had an annual revenue of $11.1 billion for the fiscal year ended 31 January.

The upstream segment refers to exploration and production, where margins are higher, with the thrust being on innovation and value addition rather than a typical, cost-reduction play, Padmanabhan said. The downstream business is retail, supply-chain logistics, distribution and the like.

The acquisition will take the ENRU business to 11% of the total revenue from the IT business, he said. While the upstream segment has thus far comprised just 5% of revenue of the ENRU business, the acquisition will take it to 17.5%, Padmanabhan said.

“We will also be getting some marquee clients in this space," he said. “IT spend in the upstream segment overall is growing at 10% CAGR (compounded annual growth rate), and is expected to reach $19 billion by 2013."

As part of the acquisition, 1,450 employees, around 450 of them in India, will also transition to Wipro. This will include the leadership of the business, including Rex Ballard, senior vice-president and general manager of SAIC’s commercial business services unit.

While Wipro’s oil and gas practice has been fairly Europe-centric, the SAIC acquisition is US-centric.

This is an emerging segment for Indian IT companies, said Dipen Shah, senior vice-president at Kotak Securities Ltd.

“Earlier, oil and gas companies were not known to be big IT outsourcing spenders, though British Petroleum has been doing a little bit," he said. “But now they are opening up and Wipro is attacking the segment at the right time."

Wipro ended the day at Rs475.85, down 0.51% on the Bombay Stock Exchange. The benchmark Sensex fell 0.13% to 19,420.30 points. In early trading on the New York Stock Exchange, where its American depositary receipts are listed, Wipro was trading up 1.84% at 11.46am local time. Wipro’s announcement came after Indian market hours.

Graphic by Paras Jain/Mint

venkatesha.b@livemint.com

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