Will Wipro's Demerger Benefit Investors?

Bangalore:  Recently Wipro has made a clear decision to separate its IT and non-IT businesses. This demerger definitely will give a strong boost to the non-IT sectors. It would under the name Wipro Enterprises, a new unlisted firm. The demerger was announced on November 1, 2012 and this move was meant to provide a strong focus on all the sectors, as the non-IT business has become large enough to demand a separate focus.

In fact the non-IT sector had also reached a point of total mass and it would have been very hard to segregate the businesses. This demerger definitely will give a strong boost to the non-IT sectors. It would under the name Wipro Enterprises, a new unlisted firm.

The non-It business units are Wipro Consumer Care & Lighting, Wipro Infrastructure Engineering and Wipro GE Healthcare and the interesting fact is that the non-IT sector was formed by Premji way before the company had started concentrating more on IT. The non-IT business is still close to Premji's heart, even though Wipro is much known for the IT businesses.

From the demerger move by the Chairman, it is clearly significant that Azim Premji wants to expand his business even more. And when it comes to acquisitions, IT companies are comparatively very cheap, with respect to the price. IT companies are valued at usually 1.5 times the yearly turnover, whereas non-IT can vary between 3-5 times the turnovers.

Wipro shareholders, because they come with an IT mindset, are unlikely to take kindly to such high valuations. "Evaluation criteria are quite different. Now, we don't have to be captured by that," says Agarwal, Director at Wipro.