The Hindu Business Line : A big deal for Wipro

Business Daily from THE HINDU group of publications Thursday, Jul 19, 2007 ePaper

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A big deal for Wipro

With Unza in its fold, Wipro Consumer Care has found a place in the big league of FMCG companies.

Vineet Agrawal, President, Wipro Consumer, with Unza products

Vinay Kamath

Call it a dark horse if you will, but when media reports were tossing around big names of the Indian FMCG industry such as Dabur and Godrej, and later Emami, it was software major Wipro’s Consumer Care & Lighting division which came in from the cold and clinched a Rs 1,010-crore deal to acquire Unza Holdings, a Singapore-based personal care products maker.

Vineet Agrawal, Wipro Consumer Care & Lighting’s President, wasn’t even sure till a few days before he actually signed the deal with Unza that the deal was in the bag. “Six or seven companies, both Indian and MNCs, were bidding for it. The whole essence was speed; we moved faster than what anybody else expected. The price we paid is equal to or at worst three per cent higher than what others bid,” a triumphant Agrawal told BrandLine a few days after the deal.

It could well be a leap of faith for Wipro’s consumer care division, perhaps often put in the shade by the company’s software prowess (its contribution is just over 5 per cent of Wipro’s turnover), as with that one bi g deal it has catapulted itself into the big league of FMCG players in the region. Unza’s April 2007 revenues of Rs 683 crore along with Wipro’s consumer care business’ revenues of Rs 818 crore will make it a Rs 1,500-crore company with healthy operating margins of 12 per cent. Dabur India’s turnover, for instance, with the merger of Dabur Foods, will be over Rs 2,200 crore.

Till late last year, a foreign acquisition was not even top-of-mind for Wipro. As Agrawal explains, when the top brass sat down for the yearly strategy meeting last November they debated this issue. Wipro was growing well in India, at almost 30 per cent, albeit on a smaller base. “What we did look at is how else could we grow, can we do still better or look beyond India?” was the question the company posed itself, says Agrawal.

Growth through acquisitions in India was not on — valuations were high, and no deals were on the block. “We wanted to be in the Asian region, as the economies are growing and are similar to India; some of these countries are ahead of India, there’s learning value coming to us as their modern format is more developed.” In Vietnam, for instance, modern formats account for 22-25 per cent of overall sales, while in Malaysia, it’s about 60 per cent. In India, organised retail would be just four per cent of a company’s sales, though growing rapidly.

Once Wipro had made up its mind, it threw its hat in the ring for Unza, which has a wide range of cosmetics, toiletries and detergents in some segments, is a market leader in Malaysia, and fairly strong in Indonesia and China as well. How strong in Malaysia, Agrawal learnt, he recalls, is when he just had to tell the cab driver to take them to the Unza headquarters in Kuala Lumpur!

Commenting on the deal, an FMCG analyst says that overseas acquisitions by Indian FMCG companies have been driven mainly by the fact that consumer brands abroad have been available at cheaper valuations. “An overseas presence also helps the Indian player sidestep the intensifying competition in its category in the domestic market. Wipro’s acquisition of Unza would help it scale up its consumer business to a fairly large size of over Rs 1,500 crore, with the potential to grow faster than a purely India-focussed business,” she explains.

Till now Wipro’s recent acquisitions have all been small ticket size — brands such as Chandrika, Glucovita and last year, Northwest switches for Rs 102.2 crore. Wipro heard of the likely sale of Unza in July last year. “In December last we started looking around; we pondered over the best footprint and products,” recalls Agrawal. Once it decided Wipro moved fast. It did the due diligence itself, sans merchant bankers, which helped it understand the company better. Unza itself in the recent past had mulled an IPO or a sale, so the company’s financials were pretty much laid bare. Ultimately, Wipro bought out the private equity partner, Actis, and Stanchart’s 58 per cent stake, the management’s 35 per cent and minority stakeholders who held the rest.

So, one poses the question to Agrawal: how did Wipro get the gumption to do a deal size much larger than the division’s sales, and ten times as large as its last acquisition? Says Agrawal, “Once you do the acquisition well and you grow over 30 per cent your confidence in larger deals also increases. The way it works in Wipro is we find the deals, need to justify it to see whether it makes strategic sense and if we can manage it well. We hadn’t presented a case so strongly earlier,” he explains. Now, he avows, Wipro aims to be the fastest growing FMCG company in the region. “Sizewise we are small but in terms of growth we will be the fastest. Fortunately Unza also grew 14 per cent last year.”

The marketing head of a rival FMCG company is circumspect — Wipro so far has been perceived to be a one-product company — Santoor soaps — even though it has a disparate product portfolio including baby products, honey, low-cal sweeteners and bulbs and compact fluorescent lamps. Its distribution reach too, he points out, is regional, predominantly in the South. Companies like his, he says, will watch with interest to see how Wipro uses Unza.

That is the difficult part, says Agrawal, managing the aftermath of the deal once the exultations are over. For the moment, “you’re not going to see foreign salesmen hawking Unza products on the streets here,” he says . Instead, there will be a period of intense consumer research to see which of Unza’s at least 50 brands find acceptability here. There’s more work to be done at the back end than at the front. As Agrawal points out, Unza has products such as anti-wrinkle creams, day and night moisturisers, eye lifting creams et al, considered fairly niche here but more mass market in South-East Asia. In terms of packaging and distribution, the brands are more advanced. “What we found positive is that this brand and company is very strong. In Malaysia, it’s one of the top three companies, and gets 50 per cent of its sales from there. It is an organisation which has worked very well in entering new markets; whenever they looked at a new country they looked at acquisitions as it gave them base distribution strength. If I take my product abroad, I have to build the brand, tweak the formulation for that market, understand it. However, if I make an acquisition I jumpstart and save three to five years,” he elaborates. The immediate takeaways for Wipro would be crunching time in trials of new product formulations. Wipro, Agrawal says, could look at using some of Unza’s formulations to launch products under the Santoor brand. Unza has five manufacturing plants across Malaysia, Indonesia and China which will be a sourcing base for Wipro. Learnings are to be had too from Unza’s packaging.

The road map ahead for Unza is for it to be run exactly the same way. The management will be the same. “There will be issues in finance areas, in case they are cash-strapped or looking for investments they will have access to fin ance,” adds Agrawal. The other issue is people: Unza’s takeover adds 4,500 people to Wipro’s existing team of around 2,000. The former has a large team of sales promoters on its rolls. Unza in Chinese means “our home” and the people working there have taken it to heart as, Agrawal says, attrition at the management level is barely two per cent.

In the home markets, Wipro has entered new categories such as honey and low-cal sweeteners. FMCGs contribute 60 per cent of the division’s turnover while lighting equipment and furniture make up the rest. But, it is Santoor that has been powering the company ahead. While it is pretty much a regional brand, it is surprisingly strong in Andhra Pradesh, with a market share of 25.6 per cent, far ahead of HUL brands such as Lifebuoy and Lux. It has also got fair shares in Karnataka and Maharashtra. But, the Rs 6,000-crore toilet soaps market, highly penetrated at over 90 per cent, has been growing at five per cent. The challenge, Kumar Chander, Vice-President - Marketing, says is to increase the usage and get more, especially in the rural areas, to bathe more often with soap. For now, the challenge is not just Santoor, but also the integration of Unza with Wipro.

(Next week: The strength of Santoor)

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A big deal for Wipro