Financial Daily from THE HINDU group of publications
Thursday, May 30, 2002
$5-billion dream is realisable: Premji
CHENNAI, May 29
MR Azim Premji, Chairman, Wipro Ltd, may be one of the richest Indians. But, we discovered that he is still human. In a hurry to meet these writers on time at the lobby of the hotel, one of India's better-known figures in the software sector had left his key in his room and locked himself out!
But, that didn't seem to bother him at all. What did seem to disturb him was the suite he occupied. ``I normally don't stay in suites. When I am with my team, we get just rooms to ourselves. This time, I am alone and they slotted me here,'' he explained.
Once he had had the key combination changed and he had settled down in his suite, Mr Premji patiently answered queries on various issues. Interesting points that he dwelt on were Wipro's acquisition targets, the $5 billion vision for 2003, the performance of software verticals and the hardware industry. Excerpts:
When we met Mr Vivek Paul about nine months ago he said Wipro was open to acquisitions, but should ensure that the shareholders were confident about the environment before such a move. How near to that are you now?
We are working actively on it. We are not far, not near. Our acquisition strategy is primarily in the enterprise space. We are looking at a company with a strong business presence in IT consultancy, strong specialised knowledge in domains and good customers. Our focus is currently on American companies because the integration challenge would be less. They are more multi-cultural. We have identified a company in the US. But, we are not close to concluding the deal. The company would probably have sales in excess of $75 million.
Are you on track of the $5 billion target for 2003?
The $5 billion includes Wipro Infotech's contribution. You must appreciate that ours is a realisable dream, and I underline the word dream. We defined this vision in August 2000 for Wipro Technologies, and the market conditions were different then in terms of fundamentals. We had seen no need to take a restock of the vision. We will do that in January-February next year. The vision had the composition of organic growth and acquisitions. We will work continuously on the organic growth including geographical growth, and we will continue to work on acquisitions. But, the more fundamental point in that vision was to be among the top 10 service providers globally and to be the leading IT company in India. We are moving towards it because like we slowed down, the world too slowed down. Relatively, we are not worse off. But, in absolute terms, the vision has become much more difficult.
We gather that signs from prospects are getting positive, when it comes to customer confidence. Is there any particular area that is seeing traction? Enterprise portals development seems active?
I think, except for telecom switching design, most of our verticals are showing good improvement. Telecom, we are finding has steadied out. Downsizing seems to be over. We are finding it fairly uniform whether it is financial services, insurance or retails (such as BP), energy and manufacturing. I think that with jobs to be done, global companies are now clear what the revised budgets are.
At the last conference call, Mr Paul had indicated that orders in the pipeline keep shifting in and out. Does the flux continue?
I think it has been good in the last 6-8 weeks. I am not saying that the mood is bullish. But, after a year, with lot of battering in the market, it is a nice sign you are seeing and it is across the industry. The industry would be a net recruiter this year
Is this a sign of the industry's revival?
Economists abroad (in the US and Europe) are more optimistic than business leaders. Business leaders are quietly optimistic. They want to see the order to flow before they start jumping up and down. But a majority of people think the second half-year through (about October/December) should be much better. Reports of revival are trickling in from Japan. What we are seeing is a strong trend with India becoming more attractive because companies are looking at high quality, good delivery time and better cost. Particularly over the last three months these interactions are showing positive signs. The mood is far more cheerful today. Our manpower utilisation is back to normal. Our manpower ratio is 60 per cent experienced versus 40 per cent from campus.
Which means you plan to take those recruits who had been given offer letters last year but were told to hold on till January 2003?
Yes, we have started recruiting. It is about 200 a month. They (the fresh recruits) are coming in now.
What is the intake likely to be this year?
It depends how much we grow this year. We will be picking up significant net addition.
What is the pricing pressure like?
We will not lose a good customer because of a temporary rate competition but we will work with strict floors, in terms of rates. Our approach is to increase our net profit. That will be an important consideration. So there could be some pressure on the margins, but we don't expect that to be too substantial.
On the technology front, is there increased activity in the embedded area for Wipro?
We are getting good growth there. But, it is also because we are expanding the geographies, going moderately into Europe. It is also because we are expanding the segments. We are getting strong in consumer segment. Previously we were directed towards IT and telecom companies. We are expanding the size of the basket.
On the systems integration front, except for the Lattice order, we have not seen too much?
A lot is in the pipeline. We feel optimistic.
At the time of results announcements, you sounded gung-ho about the bio-informatics sector. Has Wipro seen some progress here?
As to prospects in India, we offer a range: After sales service for medical systems and life sciences sectors, engineering for re-exports and software exports in healthcare. The domestic IT business addresses hospitals. As a company, we have developed our expertise over time. Now we are putting it altogether into one business unit, which will focus on building the healthcare market. We have put a senior person in charge. This unit was formed about 5 weeks ago. We plan to look at it and do it very seriously.
Are team sizes for telecom services growing for you?
Telecom services is doing well and team sizes are growing. Only telecom equipment manufacturers struggled last year due to over capacity. The latter segment will still take 6-9 months, even a year to stabilise. There too, companies are under so much pressure that India becomes attractive. Last year, we reported $50m. We expect good growth this year contributing to more than 10 per cent of revenues.
On software pricing, if we go back in time, would you change your decision to walk away from the GE business?
At the time, margins were less attractive, the market was booming and they asked for equity conversions in addition to pricing. It all became very omplex. But GE is a first rate company to work with. We work with them on other fronts but are not part of a regular on-going supplier contract. We have no regrets on moving out. It brought back a confidence into the organisation that you can make such a shift. It also restored the credibility to the sales force that a floor is a floor. We cannot keep giving away money to get business. There is a certain value, below which we will not sell. A lot of improvement in our sales system is a result of that message. Our market development is a result of that message.
At the time of results announcements for the last quarter, every other company had announced its BPO intentions. With so many players, do you see challenges in that sector?
We have invested in Spectramind. It is number two now in terms of size, next to GE. We believe that is a superior strategy, instead of setting up something afresh. BPO is a sticky business. The customer puts a lot into your court, when he outsources BP (business process) to you. Software companies are mature enough now for that market.
The retail ISP segment is not doing too well. What are your plans here?
We are just servicing existing customers. We aren't in the B2C state anymore. Everyone is losing his shirt in this business. We don't want to keep on losing shirts. (Subsequent to this interview, media reports said that Wipro was selling its ISP customer base to Satyam Infoway for an undisclosed amount).
You have driven the Six Sigma initiative hard in Wipro. What are the profitability measurements? Did you start out with any objectives?
Roughly, we target savings due to Six Sigma at between 8 and10 per cent of operating income. We have realised huge productivity gains.
Prospects of outsourcing have buoyed sunken spirits the last few months. But aren't international companies soon going to realise that setting up their own bases in say, India, may be a better idea, instead of handing over a contract to a third party? What is the future model for software development going to be?
I think we are moving more towards a global delivery model. More work which require on-site presence will be done by local people who understand customers. You are going to see an approach where companies like us will try to acquire overseas companies to build that front-end expertise, to build that brand image with customers. Overseas companies including the EDS', the Accentures, the IBM Global Services', the PWCs and the KPMGs, will either work with Indian partners or have a larger presence in India. We run 40 development centres for customers such as Lucent, Sequent and IBM. Half of these customers have their own subsidiaries and India development centres. Typically, a third of their efforts come from their own DC. Partners do two-third. This because, partners do a better job, for software is our business; and, we treat customers with respect, for, an internal division does not give the same respect to an internal customer.
How is the pressure on profitability?
We will do well on profits this year. There is some pressures on margins. Domestic IT business would be better over the last year. Specialised segments (like system integration and outsourcing), which we have entered, have more potential on margins.
You were talking about your customers demanding more value for the fee he pays. But, typically we always found CEOs shying away talking on return on investment either saying it is difficult when it involves technology. Now, is it absolutely measurable?
No. In our own company, we have started to measure the investment in technology as to how much return it gives x the returns would come from automation. Say if you consolidate the pay-rolls across the company or consolidate the computer requirement in a one point process there will be a substantial saving in capital, in processing cost and the people you require. Then it is measurable, but not perfectly.
What is your take on the PC industry? In the last 5-6 years, there has been no major growth, if any. And we have seen a lot of depressing news. Is it a business to be in, still?
We have started focusing a lot on Asia-Pacific. Our IBM partnership is for Asia-Pacific including Japan We are a solutions partner. We are using the hardware market partly as a Trojan horse to get into customer bases and satisfy complete customer requirements. A significant part of profits comes from services. Hardware is profitable too. In terms of returns on equity it is quite attractive. We have always made money on it. Not money that you can get starry eyed about, but good money.
We gather that you are mulling manufacture of PCs for Dell.
Dell does not have that model. We are interested in Dell for their services business. We are in discussions with them for after-sales services.
This is often repeated. Would you be diluting your stake any time soon?
It will automatically happen if we do an acquisition. Part of acquisition will come by way of stock (Mr Premji's stake in the company is about 80 per cent).
How do you see the Chinese threat in your industry?
China is serious about software and we should consider the threat seriously. We don't think we can underestimate the Chinese for anything. They are a very determined people, and there is a lot of national backing. If they decide on a thrust area, they go after it. But, they are still about four-five years away from India in technology, project management skills and English speaking abilities. Their software export was only about $160 million. As to business opportunity, whenever it comes, we will be there. We are a global delivery company, and we need to be wherever customers want us.
Some of your competitors have already announced their plans for China?
(Smiles) Let them learn first, we will learn from them. China is a difficult market to operate in.
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