Software is not Wipro's most profitable business

Which is the most profitable business of Wipro Ltd?

Software, right? Wrong.

It is consumer care and lighting, which recorded a return on capital employed of 86 per cent, compared to 41 per cent for global IT services and products in the last quarter (April-June)!

Nobody within the company is seeking to make much of this (the operating margin of the IT business continues to be higher) but the figures underline two realities: one, Wipro's consumer care and lighting business, which was the main business before software came along, has been consistently profitable and two, the last quarter has seen a sharp rise in the ROC from the pervious year's 60 per cent, compared to the fall in ROC in IT services from 62 per cent.

It is therefore not surprising that Consumer Care is actively looking at brand acquisition in the current year.

The company will say no more but it is clear that there will be action as soon as an under performing brand with potential is identified in a space where competition is not excessive.

Sales of consumer care and lighting have gone up by 9 per cent (year on year) for the last two successive quarters to reach Rs 90 crore (Rs 900 million), and gross margins have grown by 5 per cent to reach Rs 9 crore in the last quarter.

This, says Vineet Agrawal, president of the segment, is creditable in the current context of the FMCG industry. Prospects look good in view of the satisfactory monsoons and the buoyancy in consumer sentiments.

The consumer care and lighting business, all but forgotten in the years when IT services grew exponentially, returned to the limelight in the last financial year with two acquisitions, Glucovita, a glucose drink from Hindustan Lever and the marketing rights of Chandrika, an ayurvedic soap.

"We are happy with the acquisition of Glucovita which has done well since acquisition," says Agrawal.

While inorganic growth is anticipated in soaps, the existing brands are delivering. Santoor, the company's flagship brand, raised its market share in Andhra Pradesh where it is the leader among all soaps to 18 per cent.

Wipro's products are stronger in the south and west. The acquisition of Chandrika can indicated a desire to test the waters in the ayurvedic area before going in further.

In the lighting business the company's thrust is in energy management systems which provide lighting solutions to commercial and institutional customers looking for aesthetic lighting and brightness management.

One focus in on outdoor systems; some of Bangalore's newest flyovers have street lighting devised by Wipro.

In the retail part of the lighting business, bulbs and tubes, Wipro has only a 5 per cent market share compared to Phillips' 35 per cent.

But these are the only two players which make adequate returns. GE, for example, has been cutting output in successive quarters.

The challenge here is to remain profitable while growing in the segment with a future, the energy efficient compact fluorescent lamps, where unauthorised cheap Chinese imports are a rogue competitor.