'Massive promoter stake is a plus for Wipro'

Q&A/ Suresh Senapati

Last week, Wipro Ltd made the largest overseas acquisition in the IT space by an Indian company "" of US-based Infocrossing for $600 million. This naturally put the focus on the man who manages the till, Suresh Senapati, the chief financial officer who has been one of the longest serving stalwarts in the company which he joined in 1980. Excerpts from his conversation with Subir Roy:

You have been spending a lot on acquisitions and have almost run out of your cash reserves. What is the future?

As of April 1, we had about a billion dollars of cash. For the Unza announcement we have already paid about 90 per cent. After we pay for Infocrossing we will still have about $200-300 million in hand. Plus, we are generating about half a billion dollars of cash every year. We had been operating on a leveraged model till 2000 when we became debt-free. Thereafter the cash flows were much higher than spend-outs. Hence we have been increasing our dividend payout ratios and our acquisitions. All our businesses have done acquisitions involving more than a billion dollars in the last 24 months which has been a good use of money "" they have contributed much more than what treasury income would have. We will have more internal generation going forward and we have the options of accessing the capital market and the debt market too.

What are these options?

It is possible for us to access the capital market to get more dollars into the company overseas, in India or a combination of both. Raising fresh capital is an option. Getting debt is an option as still we are debt-free. Getting into a debt of 20-25 per cent on the balance sheet is not something to be shy of because we have an annuity business, a running business which is very stable. We will continue to look for opportunities and build on inorganic growth and continue to get value out of the acquisitions done so far.

Can the promoters' stake (now nearly 80 per cent) go down as fresh capital comes in?

I think that is the best advantage we have in terms of the massive promoters' stake. That's a plus for us and in no way a hindrance and that remains very much an option.

Wipro's acquisitions are getting bigger and bigger. What is the updated acquisition strategy?

There is no change in strategy. As part of our strategy-planning exercise, we identify our gaps in geography, practice, verticals and then see how much of that gap can be filled by organic and inorganic investment. The size of the deal has never been a criterion for us. Once we have a strategy we look at the cultural fit as this is a people business; the intellectual property or asset is in people.

The most recent acquisition will add 900 people, the highest for you ever. With globalisation becoming imperative, can we say that having global delivery centres is an end in itself?

Yes. Three years back most of our centres were in India. Now we are delivering multiple services with multiple legs to MNC customers with centres across the globe. They want execution capabilities all across. So we now have centres in China, Japan, Romania, and the acquisitions have given us centres in France, Germany, Austria and multiple centres in the US. We are also looking at other centres in the US which are low-cost, like proximity to universities from where you can deliver on an offsite basis.

So you are addressing the preference of clients for global delivery capability.

Absolutely. The client's comfort goes up when you take end-to-end assignments, particularly for complex projects where they do not want to deal with multiple vendors and not be able to pin down who is responsible for a particular problem. In an end-to-end assignment they can depend on us better and reward us better. They like it when we have control over a data centre or points of presence similar to the client's "" same time zone, location and some of it on the same premises. So while we will continue to have a large component of people executing from India at least for the next three to five years, eventually we will also have centres in multiple places in Europe, Asia, Latin America, Canada. Our latest acquisition is in that direction which gives us access to multiple places in the US, many of them low-cost. Many of their service offerings are independent of where they are located. Plus they also have a lot of mainframe skills, which has been in scarce supply for us.

The takeover of offsite infrastructure to deliver services remotely is happening, but you are not ruling out the takeover of onsite infrastructure.

Not excluding it but the approach would be to not necessarily take over the assets but see if it is possible to have a partnership arrangement with bankers where they can carry the risk on the assets and we can carry the risk on the service. This allows deal sizes to be smaller, you can choose the best of the breed and gain more offshoring benefits. The earlier model was of ten-year contracts and all kinds of assets were transferred to the vendor. So all these flexibilities were not there. We are managing the assets on the customer premises but not necessarily on our balance sheet.

These acquisitions give you a global work force, but what is the scenario on having a global higher management team?

With our presence going up in multiple places, and the domain specialisations we are looking for, we will have more and more locals of multiple countries joining. Today we have employees from 25 to 30 countries and nationalities and it will only keep going up.

At a time when the rupee is appreciating, how are you going up the value chain and how is the nature of the business changing?

To be able to go up the value chain we have created practices like e-enabling, security and the implementation of more and more sophisticated packages.

What are the newer areas you will address in order to go up the value chain?

One is the consulting practice. We have done a few acquisitions and are very well established if you look at some of the projects we win which are transformational in nature. There consulting will play a major role initially in working with the client in terms of the revised organisational structure and evolving new matrices. So we are looking at consulting, infrastructure service and business process outsourcing and the normal ADM (application, development and maintenance) and package implementation combination, and getting more and more into deals where all those five pieces are present for a single client.

What is the progress on less of time and material pricing, more of transaction or outcome-based pricing, more of fixed-price deals?

Certainly a large portion of our revenue is in time and material. We think we can go up to 30-35 per cent for fixed price projects from the present 23-24 per cent in the next two years. In some verticals like manufacturing, energy utility and retail, we have already gone up to 50 per cent. Even in banking and insurance we are making good progress.

What is your action plan on margins which have recently been under pressure?

In the last quarter we got hit by foreign exchange by about 3.4 per cent but the margin drop was only about 2 per cent.