Harsh Goenka, RPG Group chairman and a long-time friend of Premji’s, recalls getting a call from the Bengaluru-based tycoon several years ago. He wanted to discuss options in company cars as Wipro was considering providing cars to its executives. Premji wanted to know how the performance and mileage of the Ambassador compared with that of the Premier Padmini, which, incidentally, the RPG Group had once tried to acquire, unsuccessfully. Goenka also recalls how Premji (now 73) refused to own a mobile phone for a long time.
Goenka’s perspective on Premji’s famous frugality is that the second richest Indian, with a personal net worth of $16 billion, is extracting value out of every situation. “Whenever he travels, Premji insists on meeting some customers of Wipro. He is also a great learner. When he drops by at my office, I can see he is sucking out information from every conversation,” Goenka says.
This focus on maximising value from his own time means Premji is careful and methodical about spending it. Currently, three broad buckets are getting a third each of his professional time. One is the software services behemoth Wipro Ltd (market cap: Rs 1.7 lakh crore), another is a range of philanthropic activities to which he has pledged most ($12 billion) of his wealth.
The third slice goes into a relatively lesser known and much smaller company called Wipro Enterprises Pvt Ltd (WEPL). Entirely privately held, this unit is witnessing bold bets and hectic deal-making. It has posted strong growth and is poised to emerge as a powerhouse of brands and businesses spanning industries.
Demerged from Wipro Ltd in 2012-13, WEPL runs businesses under two broad groups — infrastructure and engineering, and consumer care and lighting. Some of its businesses are new, while some had been started by Premji even before he invested in software and IT. While much smaller than Wipro Ltd, WEPL promises high growth.
The unlisted WEPL (98.45% stake is with Premji) has in the last five years placed audacious bets that would have been impossible under the larger Wipro Software Services business. We are talking about diverse units selling industrial wastewater treatment services, aviation actuators (used in aircraft landing gears) and 3D-printed transmitters for space missions like the geosynchronous satellite launch vehicle (GSLV).
There’s also Halal toothpaste that WEPL makes and sells in Malaysia, a shampoo for women who wear the hijab, and equipment that use light waves (LiFi) for internet connectivity. WEPL has done a string of acquisitions across the world, from Brazil to China, to turbocharge these diversifications.
These moves would be hard to explain to shareholders of a software services company, forget about equity analysts in Mumbai or New York, where Wipro’s American Depository Receipts (ADRs) are listed.
Premji told ET Magazine that the reason for the demerger in 2012-13 was to “maximise opportunity for all businesses to grow”. These businesses are at the cusp of unleashing a great deal of value. It’s not as if the WEPL journey has been smooth.
The company failed in its first attempt to establish a business in China. But the important thing was that it didn’t back off.
WEPL took its mainstay hydraulics business, which accounts for 75% of its Rs 3,500 crore engineering revenues, into China a few years ago as a greenfield foray, but failed to sustain it. The timing of entry (2011-12) wasn’t correct, the business bled and then was shut down.
In 2016, WEPL acquired a Chinese FMCG company, Zongshan Ma Er (now Wipro Ma Er), operating out of Guangdong, China’s most populous and richest province with 10 crore people and a $1.3 trillion economy (in comparison, the size of the Indian economy is about $3 trillion). It brings WEPL $120 million of revenues, mostly from Guangdong. A Bain & Co survey in 2017 showed a marked shift by Chinese consumers towards domestic brands, and MNCs like Unilever or P&G losing market share. WEPL’s strategy of acquiring and using local brands like Pahlni in China has paid off, and has worked in other markets as well.
In Malaysia, it has Safi, a halal-toiletries brand. A halal brand excludes some ingredients and practices in manufacturing. Entire factories are halalcertified. Vineet Agarwal, the CEO of the consumer care and lighting business at WEPL, with a $1 billion in revenues in 2017-18, says it feels gratifying when he sees his strategy being copied by multinationals in various markets. For example, Colgate has now launched halal toothpaste in Malaysia following Safi’s success and Sunsilk has followed with a hijab-friendly shampoo. Malaysia brings in $145 million in revenues for WEPL.
“Seeing our strategies being copied by MNCs gave the organisation the confidence to take on MNCs,” Agarwal tells ET Magazine. He is now focused on taking the consumer business to the $2 billion revenues mark. The best story for WEPL is, however, soap brand Santoor, now the second most selling soap in India after Unilever’s Lifebuoy. It is WEPL’s largest brand at $300 million in revenues. It beat Unilever’s Lux to become number two in the highly competitive segment in 2018. Agarwal then used the channels that helped it win with Santoor to disrupt another product category — domestic lighting. Over the last year, WEPL has pushed LED bulbs into kirana stores.
The company is focused on emerging markets for its FMCG play. The only exception is Yardley. It acquired the rights in the UK, the brand’s home market. Agarwal operates from the sprawling Sarjapur campus of Wipro in Bengaluru, alongside the Wipro Ltd offices.
WEPL’s Infrastructure & engineering division works out of the much smaller building on MG Road. CEO Pratik Kumar explains that in this segment, WEPL is present across the globe in both developed and emerging markets.
It has used a two-pronged strategy. It went greenfield in the USA and acquired companies in Brazil, Europe and in Israel to either break into a new geography or get a toe-hold in a high-precision market.
The acquisition of Givon in Israel, which makes metallic parts and assemblies for the aerospace industry, allowed the company to get into the high-precision aeronautics play.
WEPL’s actuators are an extension of its hydraulics business but the ties between Givon and leading aircraft manufacturers like Boeing and UTC helped.
“As WEPL, we have greater ability to do acquisitions. We have placed many new bets in a short period. It would have been difficult to go back to shareholders and explain so many different acquisitions,” Kumar says. At WEPL, Kumar needs to report to just one shareholder — Azim Premji. The WEPL board has Kumar and Agarwal on it, apart from Premji, his two sons Rishad and Tariq, and Suresh Senapaty, the former CFO of Wipro Ltd. Usually, Kumar, Agarwal, and WEPL CFO Raghavendran Swaminathan meet the board every quarter for a review. Quick decisions, especially related to possible acquisitions, are handled through a one-on-one meeting with Premji.
Being unlisted, however, does not allow any concessions to WEPL management. The first assignment for Swaminathan immediately after the demerger was to replicate the strong processes of Wipro at the company. WEPL also emulated Wipro in trying to create an employee rewards programme that was linked to the company’s performance. Pratik Kumar recalls that at the time of demerger, leaving the ESOP programme of Wipro was one of the things that weighed on his mind.
The WEPL programme links rewards to multiples of WEPL’s net worth. This is how it works: a bonus or reward of, say, $1,000 granted today is made payable at a future date. If by that date the net worth of WEPL has grown to 1.3 times, the reward also is multiplied by 1.3, and the employee gets $1,300. The reward programme is linked to growth. And there’s Premji himself who is pushing WEPL to grow, inorganically, where needed. The businesses have seen eight acquisitions between 2011-12 and now (another seven were done prior to the demerger). “We are not done yet. There is a strong pipeline of acquisitions,” Swaminathan says. As a result of the acquisitions, WEPL now sees more than 50% of its revenues coming from outside India.
Former Tata Sons director and vice-chairman of Hindustan Unilever, R Gopalakrishnan, says the strategy of acquiring companies across the world and using local brands to sell in these countries is like running a federation of states, something Unilever did very well in the past, and Godrej Consumer continues to do. This is in contrast with the strategy of consumer major P&G, which goes into every market with its own brands. “The strategy of running a federation can work very well, the danger being that specifically in the FMCG space, the multiplicity of brands means more spends on branding and margin pressure” he says. “Profitable growth remains the singleminded objective,” Swaminathan says, and adds often Premji challenges the team on goals and pushes for faster growth through acquisitions.
What is the experience of working closely with Premji? Swaminathan says: “Easily Premji reads more than any of us, and comes very prepared to meetings.” He also has a sharp eye for inconsistencies between what is said and what is delivered, Swaminathan adds. Premji tells ET Magazine there are no immediate plans to list these businesses. No dividend is being paid out either. But what could be the value of these businesses today?
The company had started off with a valuation of Rs 11,000 crore in 2012-13, and was valued at Rs 18,000 crore in 2014-15, when it did a capital reduction programme. No valuation exercise has been done since. But with FMCG valuations skyrocketing (6 times the turnover for the likes of Horlicks), the value of the FMCG business of WEPL alone could be pegged between Rs 21,000 crore and Rs 40,000 cr. Abneesh Roy, analyst and senior VP at Edelweiss, says it would be prudent to value WEPL’s foreign FMCG play at 2.5 times revenue and the Indian part at 3.5 times.
Free net cash in WEPL is at Rs 3,500 crore, and it has a 49% stake in its biggest joint venture, Wipro-GE, which turns in revenues of $700 million. Adding the infrastructure & engineering business, the free cash and joint ventures could take the WEPL valuation to anywhere between Rs 35,000 crore and Rs 40,000 crore. At demerger, the WEPL businesses were valued at around 10% of Wipro Ltd. Today, that ratio could be 20%-30%.
Premji was in Mumbai last week to receive an award. Goenka, who was with him during the evening, says that at one point, Premji expressed his biggest regret – that he had to pay the price of fame and is not able to freely walk around the streets any more. In fact, till the late nineties, Premji would himself visit markets and speak with retailers and customers of Wipro’s consumer products, confirms Agarwal, who has been with Premji during market visits. While he may not be doing it any more, WEPL¡¦s growth shows Premji still has his ears firmly to the ground.
These businesses have the ability to be part of the India growth story: Azim H Premji
Last week Wipro Ltd Chairman Azim H Premji was in Mumbai to receive the EY Lifetime Achievement Award. Wipro is a diversified group, although the software services business has overshadowed others for long. And over the last few years, Premji seems to have placed stronger bets on these other businesses, finding new areas of growth, with new products and geographies. He spoke to ET on the sidelines of the award ceremony and answered questions via email on Wipro Enterprises that owns the engineering and FMCG businesses. Edited excerpts:
Wipro Enterprises has shown a strong revenue growth since 2012-13, when the non-IT businesses were demerged from Wipro Ltd to create the new entity. How do you see these businesses today?
Our business has shown a strong revenue growth over the past several years and the same is more visible since the demerger. We have maintained industry-leading growth. These businesses are now more free to evaluate opportunities with a longer horizon than be conscious of quarterly performance pressures of a listed entity. We are confident of growth in all our businesses in Wipro Enterprises. We have strong and effective leadership, good top management talent and innovative mindset. We have made investments strategically in new geographies and lines of business. We have a presence in almost every continent. These businesses have the ability to be part of the India growth story, a resurgence in global growth.
Some of these businesses were started by Wipro back in the period starting 1966. If the company had not invested in IT in the 1970s, these may have been bigger today. Do you see consumer goods, infrastructure or aeronautics-related verticals as the new value areas?
Our investment in IT back in the ’70s has paid off very well for us and there is no use in speculating on ‘what ifs’. Our consumer and infrastructure businesses continued to invest even when it was a combined organisation, which is why we have been able to build brands like Santoor, Chandrika and Yardley and acquire large business like Unza in Southeast Asia in the consumer business and Hydrauto in Northern Europe and Givon in Israel in infrastructure engineering business. I see significant value in both infrastructure engineering and consumer businesses. Every business is cyclical and sees seasonality in the rate of growth. However, a well-run business continues to deliver industry-leading growth and I believe there is a new wave of growth across both businesses.
Will Wipro Enterprises be listed again? Should one assume that the reason for taking this part of Wipro private in 2012-13 would be to invest and grow the businesses and then bring them back as larger entities?
The reason for taking the business private was to ensure we maximise the opportunities for all the businesses to grow. The aim has always been to keep in mind the best interest of all stakeholders in these companies. We do not have any plan to list the businesses.
We have seen interesting investments like a stake in Happily Unmarried. Is there a strategy of growing through acquisitions?
We see acquisitions as an important lever in our growth strategy. We identify high-value assets which match our overall strategy. Our investment in Happily Unmarried gives our consumer business an opportunity to understand the ecommerce business and learn from it. Ma Er has given us a strong position in the large home care market in South China. In infrastructure engineering, our acquisition of Givon, Israel, has enhanced our presence in aerospace substantially.
Will there be more joint ventures (for technology, knowhow, etc) as there are fairly established and strong players in the areas where Wipro Enterprises is playing now?
We consider the entire ecosystem as part of our strategy and will continue to participate with other players in spaces we operate in. The important thing is to engage with players who have a similar mindset and culture as ours so that the partnership is deep-rooted like our Wipro GE Medical Systems and Wipro Kawasaki Precision Machinery Joint Ventures.
Do you see Wipro Enterprises also creating billionaires through ESOPs /shadow equity, like Wipro did?
Our employees and business partners are extended the best opportunity to have a balanced growth across learnings, experiences, impact on society and wealth generation. We have a programme where key employees are rewarded as the net worth of the company grows.