Why Premji isn't sticking to just IT
Here’s the real reason why Premji stays invested in consumer business.
By Mitu Jayashankar, TNN |
Yet long before the Unza acquisition, most analysts wondered why chairman Azim H Premji continued to stay invested in a business that contributes only 5% to Wipro’s $3.5 billion turnover and just 3% to its bottomline. Could it be because Premji is emotionally attached to the business? After all, it was started by his father and has funded most of Wipro’s diversification. Or is it that baby soaps, shampoos and toilet soaps lend a softer image to Wipro, which enabled it to connect emotionally with consumers, a difficult task for IT companies?
The real truth, say senior Wipro managers, is that Premji functions like a venture capitalist. He believes in a diversified portfolio and as long as the businesses are profitable, he continues to invest in it. All the various business units of Wipro contribute the cash generated to a central treasury. The business units then borrow funds from the treasury at an internal rate of interest and promise a certain return on that investment. Every quarter, Premji spends one day with each business in a day-long strategic review.
“The business may be small, but if it generates cash, does not interfere with his time, grows well, then why should he not stay in it?” asks Agrawal. Last year, despite investments, Wipro Consumer Care earned a 48% return on capital employed, as opposed to 63% in global IT business. Against an average growth of 10-12% in the consumer care industry, Wipro Consumer Care grew by over 36%. Last year, it generated a net profit of Rs 100 crore (12% margin). That’s not a bad deal for an owner, especially if it only demands four days of Premji’s time in a year.
(With inputs from Ravi Ananthanarayanan)
The real truth, say senior Wipro managers, is that Premji functions like a venture capitalist. He believes in a diversified portfolio and as long as the businesses are profitable, he continues to invest in it. All the various business units of Wipro contribute the cash generated to a central treasury. The business units then borrow funds from the treasury at an internal rate of interest and promise a certain return on that investment. Every quarter, Premji spends one day with each business in a day-long strategic review.
“The business may be small, but if it generates cash, does not interfere with his time, grows well, then why should he not stay in it?” asks Agrawal. Last year, despite investments, Wipro Consumer Care earned a 48% return on capital employed, as opposed to 63% in global IT business. Against an average growth of 10-12% in the consumer care industry, Wipro Consumer Care grew by over 36%. Last year, it generated a net profit of Rs 100 crore (12% margin). That’s not a bad deal for an owner, especially if it only demands four days of Premji’s time in a year.
(With inputs from Ravi Ananthanarayanan)
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