Mumbai, Nov. 1: Wipro Ltd is demerging its non-IT business into a separate unlisted company —Wipro Enterprises Ltd — to focus exclusively on information technology.
Accordingly, the consumer care & lighting, infrastructure engineering and medical diagnostic business will be spun off into Wipro Enterprises.
The Rs 33,000-crore, Bangalore-based company will, however, issue shares of the unlisted company to its minority shareholders.
Its resident Indian shareholders have been given multiple options. They can opt to receive one equity share of Wipro Enterprises for every five equity shares of Wipro Ltd they hold or receive one 7 per cent redeemable preference share in Wipro Enterprises for every five equity shares of Wipro that they hold. Each redeemable preference share shall have a maturity of 12 months and shall be redeemed at a value of Rs 235.20.
Moreover, the shareholders have also been given the facility of exchanging the equity shares of Wipro Enterprises and receive as consideration equity shares of Wipro Ltd held by the promoters. Here, the exchange ratio will be one equity share in Wipro Ltd for every 1.65 equity shares in Wipro Enterprises.
The demerger is expected to be completed by the next fiscal year.
The idea to issue shares of Wipro from the promoters’ kitty is interesting as the promoters currently hold 78.31 per cent in the company. The Securities and Exchange Board of India (Sebi) has mandated that promoters must bring down their holding to below 75 per cent by June next year.
Wipro’s move to demerge its non-IT business received a thumbs-up reaction from the stock exchanges.
On the BSE, the scrip rose 3 per cent, or Rs 10.60, to close at Rs 361.40.
During 2011-12, the IT business contributed to 86 per cent of the revenue and 94 per cent of the operating profit of Wipro.
The company pointed out the demerger would provide fresh impetus for both Wipro and Wipro Enterprises to pursue their individual growth strategies. The demerger is also expected to improve the competitiveness in their respective markets.
While the board of Wipro will remain unchanged, the demerger will have no impact on the management structure of the company. The Wipro brand will be jointly owned by both companies.
Azim Premji will remain executive chairman of Wipro and will assume the position of non-executive chairman of Wipro Enterprises.
“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, IT business, and executive director at Wipro.
The demerger comes at a time domestic IT service providers are facing a challenging environment in the West with many clients trimming technology spends.
During the first quarter of this fiscal, Wipro’s IT business posted a margin of around 21 per cent. The margins of the non-IT business stood at 11.8 per cent.
“We see the demerger as return on capital employed (ROCE) accretive for the IT business. However, we do not expect material upside because of the demerger,” said Shashi Bhusan and Pratik Shah, analysts at Prabhudas Lilladher, in a note.
Wipro chief financial officer Suresh Senapaty told reporters in Bangalore that the profit margins of the IT division would improve after the demerger. “It (demerger) will help in simplification, clarity in the minds of customers, target companies, investors and analysts. That is why we think the competitiveness of Wipro Ltd will improve,” he added.
Senapaty said there were no plans to list Wipro Enterprises.