3M India: On a roll

3M India has reported 230 % growth in its operating profit

3M India has reported sharply improved results for the December 2005 quarter, with operating profit growing 230 per cent y-o-y to Rs 15.45 crore.

This growth in last quarter was owing to better performance of its automotive and speciality materials markets business, coupled with that of its traffic and safety markets business.

Also, operating profit margins expanded 729 basis points y-o-y to 13.96 per cent in the quarter.

However, in CY05, operating profit margin fell 20 basis points y-o-y to 16.92 per cent, largely owing to its consumption of materials jumping 108.4 per cent to Rs 84.27 crore.

Higher raw materials costs are owing to a rise in several polymer-based inputs, say analysts.

Segment profit of the automotive and speciality business grew 503 per cent to Rs 3.6 crore in the December quarter, on improved demand of graphics and engineered products for the auto industry.

In addition, 3M also saw improved demand for speciality chemicals for leather industry and corrosive materials for the oil and gas sector.

The segment profit of the traffic and safety markets grew 772 per cent to Rs 4.28 crore in the quarter as demand for reflective materials for traffic and personal safety, graphic films, and inks and toners for large format identity, improved.

As a result, the company was able to offset the 220.9 per cent rise in consumption of materials to Rs 33.48 crore in the December quarter.

The improved last quarter performance has not gone unnoticed, with the stock gaining about 42 per cent over three months compared with an 18.3 per cent gain in the Sensex.

The stock has historically traded at high valuations, and it is no surprise that even after such an impressive performance, its trailing P/E is rich at 32.

Wipro: Goes cMango shopping

Wipro had indicated that it will pursue acquisitions as a part of its growth strategy. After two quick acquisitions in December 2005, Wipro has now acquired cMango, a US-based technology infrastructure consulting firm.

Wipro has acquired three companies in about two months at reasonable valuations. In December 2005, it had acquired NewLogic, a chip design firm providing solutions to telecom, for $56 million.

In the same month, it acquired mPower, USA, a niche player in payments market, for $28 million. In the case of NewLogic, Wipro paid 3.35 times revenues, mainly for NewLogic's client roster and patent filings.

In case of mPower, it paid 1.56 times revenues for domain knowledge. At cMango, it paid 1.54 times revenues plus target-based earn-outs over two years.

cMango focuses on business service management solutions, and has an annualised turnover of around $13 million. cMango's services comprise business transformation, IT Infrastructure Library consulting, service management solution architecture, implementation, training and support services.

This acquisition fits in with Wipro's strategy to invest in specialised areas with domain knowledge. cMango has expertise in providing business service management solutions on BMC Software's products, which Wipro can leverage across its clients.

cMango will be integrated with Wipro's Technology Infrastructure Services business, which posted 16 per cent q-o-q growth in Q3 FY06. The Wipro stock closed 0.2 per cent higher at Rs 512.80.