Shares of Wipro Ltd. (WPRO), India’s third- largest software exporter, are poised for their biggest daily gain in almost two months after the company agreed to separate its consumer care and lighting businesses.
Wipro rose 3.9 percent to 364.20 rupees as of 1:11 p.m. in Mumbai after rising as much as 6.9 percent, heading for the biggest jump since Sept. 6. The benchmark Sensex Index rose 0.1 percent, while larger rival Infosys Ltd. (INFO) dropped 0.3 percent.
Separating units that make baby soaps and light bulbs will help billionaire Chairman Azim Premji increase focus on the information technology business, which accounted for 86 percent of Wipro’s 372 billion-rupee ($6.9 billion) revenue in the year ended March 31, amid intensifying competition from rivals including Cognizant Technology Solutions Corp. (CTSH:US) Wipro has missed analysts’ earnings estimates for four straight quarters amid slower spending on software services in North America.
“Investors will be able to make a better judgment of both the businesses,” said Sandip Sabharwal, chief executive officer of portfolio management at Mumbai-based Prabhudas Lilladher Pvt. “The two separate companies could create more value for shareholders than a single one.”
The move will also help Premji increase Wipro’s public ownership and meet India’s shareholding requirement. Premji, his family and related entities, who own 80 percent of the company, need to reduce their stake to 75 percent.
Wipro’s founders’ stake may reduce by as much as 2.7 percent if all minority shareholders exercise the option of exchanging Wipro Enterprises shares for Wipro stock held by Premji and his family, Chief Financial Officer Suresh Senapaty said in a conference call with reporters today.
Wipro, which started as the Western India Vegetable Products Ltd. in 1945, today approved the separation of Wipro Consumer Care & Lighting, Wipro Infrastructure Engineering and Medical Diagnostic Product & Services business into a closely held company called Wipro Enterprises Ltd., according to a filing made to exchanges.
Wipro Ltd. will be focused exclusively on providing information technology services, according to the statement.
Splitting the units “is anticipated to provide fresh impetus for both Wipro Ltd. and Wipro Enterprises Ltd. to pursue their individual growth strategies,” the company said in the statement. “The demerger is also expected to improve the competitiveness in their respective markets.”
The separation is expected to be completed next year, according to the statement.
Wipro shareholders can either receive one share with face value of 10 rupees in Wipro Enterprises for every five shares of Wipro, or get one 7 percent redeemable preference share in Wipro Enterprises, with a face value of 50 rupees, for every five equity shares of Wipro they hold.
Shareholders also have a third option of exchanging the shares of Wipro Enterprises and receive in return shares of Wipro held by Premji. They will be offered one share of Wipro for every 1.65 shares of Wipro Enterprises, according to the statement.
“I would like to have a share of the consumer division as well,” said Manish Sonthalia, who manages $300 million in equities at Motilal Oswal Asset Management Co. in Mumbai. “If they are going to have a focused approach on the consumer side of things you’ll want to give them the benefit of doubt that they can scale up the consumer division as well.”
Premji is Asia’s seventh-richest person with a net worth of $14.3 billion, according to the Bloomberg Billionaires Index. His fortune has dropped by $1.8 billion, or 11.2 percent, so far this year.
Premji in 1977 changed the company’s name to Wipro after moving into computer hardware and software.
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