Wipro Consumer Care will get a boost after demerger

New entity to be positioned as diversified business conglomerate of Wipro Group

The demerger of Wipro's consumer arm from the core information technology (IT) business will mean that the operation will effectively stand on its own feet, accountable for its own profits. Persons in the know say that the decision to demerge was partly fuelled by the desire to bring in greater focus into the consumer business, which so far would get lost as part of the larger IT enterprise.

That will be a thing of the past now as Wipro moves ahead with the proposed demerger. Wipro executives say that the demerger will help the company look at its current operations and diversify into newer areas "based on merit". The Wipro Group also plans to position the unlisted entity, Wipro Enterprises Limited, as a diversified business conglomerate. "While earlier, Wipro Limited was known as a diversified company, in the new structure, Wipro Enterprise Limited will be known as a diversified business conglomerate,” says Suresh Senapaty, CFO and executive director of Wipro.

The consumer arm - Wipro Consumer Care & Lighting (WCCL) - will be the prime driver of  Wipro Enterprises Ltd. WCCL currently accounts for about nine% of Wipro Ltd's topline and six% of its operating income at Rs 3,340 crore and Rs 395.6 crore respectively. "I think we are growing well. It will help us grow faster," WCCL's president Vineet Agrawal said.

"To my mind, this will also improve the valuation of the consumer business now that it stands apart from the IT business,” said Shirish Pardeshi, executive director and co-head research at Mumbai-based brokerage Anand Rathi Securities.

On an average, the consumer business has grown at over 25% per annum driven by three segments - FMCG, lighting and furniture. WCCL has used both a mix of organic and inorganic to grow in these areas. On the inorganic side, for instance, it did a string of acquisitions including that of energy drink Glucovita in 2003, followed by Chandrika soap in 2004 and North-West Switches (from Delhi-based North-West Switchgear Ltd) in 2006. Its Unza buyout in Indonesia happened in 2007, while the Yardley buyout was wrapped up in 2009.

WCCL's core brand, however, remains Santoor, which has a turnover of Rs 800-1,000 crore. In the pecking order of soap brands in India, Santoor comes third after Lifebuoy and Lux from Hindustan Unilever (HUL) with a share of about 8.5%. Lifebuoy has a share of 14%, and Lux, 13%, respectively.

Overall in the Rs 10,000-crore soaps market, WCCL as a company stands third after HUL and Godrej Consumer Products Ltd (GCPL) with a share between 8 and 9%. HUL has a 45% share, while GCPL has a share between 10 and 11%.