Wipro Limited hives off non-IT business

Move expected to shore up operating margins, draw more investment into tech business

Soaps-to-tech services conglomerate Wipro Limited has demerged its non-IT businesses, primarily with a view to improving operating margins of its flagship IT business. The demerger is effective from April 1 this year.

The diversified Bangalore-based group said that its board of directors, at a meeting held on Thursday, has approved the demerger of the Wipro Consumer Care & Lighting (including the furniture business), Wipro Infrastructure Engineering (Hydraulics & Water businesses), and Medical Diagnostic Product & Services business (through a strategic joint venture), into a separate company to be called Wipro Enterprises Limited.

Wipro Limited Chairman Azim Premji will remain Executive Chairman of the Board of Wipro Limited and assume the position of Non-Executive Chairman of Wipro Enterprises Limited. “I am confident that the demerger will enhance value for our shareholders, and provide fresh momentum for growth. Each of our distinct businesses is best of breed in its respective industry, and we are committed to both the businesses,” Premji said.

Wipro Limited will remain a publicly listed company that will focus exclusively on information technology. While, Wipro Enterprises Limited will be an unlisted company, according to a statement.

“Creating a technology-focused company will allow us to better serve the needs of our customers, and accelerate investments necessary to capitalise on market growth opportunities” said T K Kurien, CEO of the IT Business and Executive Director, Wipro Limited.

Under the restructuring scheme, shareholders of Wipro Limited will receive one equity share with face value of Rs 10 in Wipro Enterprises Limited for every five equity shares with face value of Rs 2 each in Wipro Limited.

In 2011-12, the IT business contributed 86 per cent of revenue and 94 per cent of operating profit of Wipro Limited. The demerger is anticipated to provide fresh impetus for both Wipro Limited and Wipro Enterprises Limited to pursue their individual growth strategies. The demerger is also expected to improve the competitiveness in their respective markets.

The board of Wipro Limited will remain unchanged, and the demerger will have no impact on the management structure of Wipro Limited, Premji said. There will be no change in the leadership of any of Wipro Enterprises Limited’s constituent businesses with the Wipro brand being jointly owned by both companies.

According to Suresh Senapaty, CFO and Executive Director, Wipro Limited, “The businesses of Wipro Enterprises Limited are diverse, and this demerger gives them an opportunity to pursue their independent growth plans.”

Wipro has constituted a special committee of its board of directors to oversee the planning and execution of the demerger plan. The special committee comprises independent directors N Vaghul, Bill Owens and M K Sharma.

The demerger is anticipated to also assist Wipro Limited in increasing public float for the purpose of meeting the minimum public shareholding requirement under clause 40A of its listing agreement subject to Sebi approval.