Tuesday, August 7, 2007

Deconstructing Wipro

We've heard it before- complaints about Indian companies not making big ticket US acquisitions, excelling in infrastructure services but not going the whole hog by providing hosting, being too risk averse and India-centric, not being global enough to establish high end services locally in the US, Europe and Japan.

One wonders what to make of Wipro. Wipro's acquisition of Infocrossing for $600 million out of cash reserves of $750 million changes the paradigm. With the acquisition Wipro gets complementary services (hosting) through 5 US datacenters, 900 US employees and reasonably well known senior management from the US (who are also not originally Indian). Will this pay off? I hope so. This was after all Vivek Paul's dream for Wipro- to make it a $ 4 billion company by 2002- half of it coming in through acquisitions.

This is another positive fall-out of the rising Rupee. Time to buy. When and if the Rupee falls again it will pay off much more. Wipro is also not interested in restructuring its acquisitions. Which is why its talks with other big US companies to acquire them have not taken off. The 900 Infocrossing employees will remain on board. The 12 percent net margin is much smaller compared to Wipro's (mid 20s), but Wipro is planning to move a lot of existing work into the datacenters which are now run mid-capacity, a move which should improve their net margins substantially. All in all a satisfying acquisition. I hope Wipro and Infocrossing have the apetites to digest it.

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