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“Our focus in acquisition would be to get access to a brand sales engine.” - Views on News from Equitymaster
 
 
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  • Jan 31, 2001

    “Our focus in acquisition would be to get access to a brand sales engine.”

    Mr. Suresh C. Senapaty is the Corporate Executive Vice President Finance at Wipro. He heads the treasury, legal, accounting, business planning and audit functions at Wipro. A Chartered Accountant by training, he has over 20 years of experience in the company. Mr. Senapaty is also a director on the board of Wipro GE (a joint venture between Wipro and General Electric Corporation).

    In an interview with Equitymaster.com Mr. Senapaty spoke of Wipro’s new initiatives and the management’s vision for the company.

    EQM: What is going to be the impact of the eminent US economic slowdown for Wipro especially in the hardware segment? What are likely movements that you see in the onsite offshore ratios and billing rates?

    Mr. Senapaty: The views on the impact of US economic slow down is not unanimous. While some surveys indicate that there will be slow down in IT budgets of corporate entities in US, other surveys indicate that the amount of outsourcing from India will increase substantially.

    Wipro’s revenue contribution from Global IT services consists of 50% from R&D services and 50% from enterprise solutions. The budget for R&D services in companies in the telecom, datacom, consumer electronics and automobiles sectors is influenced by the competitive intensity between the players, and is not influenced by the revenue growth of these companies in the short term. Hence Wipro is better placed in the event of economic slow down, even if IT outsourcing budgets are curtailed. The logical corollary is that the rate of growth in offshore billing should be less affected than onsite billing rates. Indian companies realise a fraction of the rates charged by US peers. Hence, Indian companies can continue to expect decent growth.

    EQM: What would be your ideal wish list from the finance minister this fiscal and what are the realistic expectations from the budget?

    Mr. Senapaty: In the last budget certain changes were made in the provisions of section 10 i.e. section under which profit from software units are exempt from tax. These were pertaining to (1) status on exemption consequent to acquisition and merger and (2) determination of profits from software business where the entity carried on more than one line of business, or both domestic and export business. We would like these issues to be clarified. Also, we expect the Government to come up with a significant plan allocation for education infrastructure along with a cut in the Government expenditure, and a firm divestment plan.

    EQM: For the next three years what is going to be your likely business mix?

    Mr. Senapaty: Currently the global IT business is growing well, followed by Indian IT and consumer care & lighting business. We expect this trend to continue. Global IT Services contributed to over 80% of the operating profit for the nine months period ended December 2000. Also, during the same period, 90% of our business in Global IT services came from existing customers.

    EQM: Wipro’s topline growth from 3QFY01 was quite low (QoQ 4%) compared to performance in the past. What were the reasons for slow growth?

    Mr. Senapaty: Wipro’s top line growth should be seen at segmental level rather than at a total company level. In the Global IT services we have grown in Q3 over Q2 of current year by 15% and year on year by over 80%. The growth in the IT services has been lower as this is a seasonal business with the revenue being highest in second and fourth quarter, being driven by Government spending and depreciation benefit.

    EQM: What are the tax implications in the coming years keeping in mind the effective tax rate has jumped from 3.5 % in FY99 to 14 % in FY00?

    Mr. Senapaty: Effective higher tax rate on Wipro is the result of the composition of profits from domestic business, which is subject to tax. Its exports business is tax exempt in India, and suffers tax for onsite operation in the country in which the operations are undertaken. The increase in tax rates are the results of (1) expiry of some tax concessions for domestic activities, and (2) growth in profitability of the domestic business.

    EQM: Kindly explain in brief about the company’s venture into mobile commerce. Please state what exactly the company is doing in Bluetooth, WAP, embedded software system and who are the existing clients.

    Mr. Senapaty: We have set up a center of excellence for mobile commerce to build our competency in this area. During Q3, for a leading European telecom company, we built an application that enables mobile users to pay for goods and services using their mobile devices over the wireless Internet. The payment framework is essentially targeted at mobile service providers by wireless ISPs. The framework has various mobile applications. Some of these applications include Mobile trading, mobile ticketing, mobile shopping, Mobile Gaming and Gambling.

    As regards Bluetooth and WAP, Wipro has built IPs on open architecture to demonstrate the capability of Wipro in these areas. We have during the nine months period licensed our Bluetooth / WAP protocols to our customers. Due to customer confidentiality, we cannot mention specific customer names. However, these clients are leaders in their respective fields.

    EQM: What is the percentage contribution of these new initiatives to total sales?

    Mr. Senapaty: During the past three years, we have introduced new services in the global IT services market. Of these are: (1) Global support, consisting of system administration and network administration which constitutes 5% of our revenue; and (2) Telecom and Internet service providers business which accounted for 3% of our revenue.

    EQM: Wipro has targeted to become US$ 4 bn company by FY04. To achieve the target, it has to grow at a CAGR of 48%. In the past five years, the company’s revenues witnessed a CAGR of 20%. In view of this how do you plan to achieve this target and what challenges the company will face to achieve its vision?

    Mr. Senapaty: We had initiated the visioning exercise in the company primarily to promote lateral thinking and build stretch in the organization. These are not concrete plans or targets based on which we would communicate to the external world. The US$ 4bn vision was set for Global IT services business and not for the company. We are in the process of converting the vision into actionable plans.

    EQM: Could you kindly throw some light on possible acquisitions by Wipro with reference to what kind of technology or customer base the company wishes to add to its portfolio.

    Mr. Senapaty: Our objective of looking at acquisition is not as a substitute to organic growth, but as a supplement to organic growth. Our focus in acquisition would be to get access to a brand sales engine with a view to go up the price chain at an accelerated pace than our historical achievement.

    EQM: Who are the three persons you admire the most?

    Mr. Senapaty: Mahatma Gandhi, Jack Welch and Warren Buffet have influenced me the most.

    EQM: Which books you like to read the most?

    Mr. Senapaty: My favourite book is Stephen Covey’s “Seven Habits of Highly Effective People.”

     

     

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