Billionaire Azim Premji-led Wipro Ltd, which clubs businesses such as soaps, light bulbs and medical diagnostics in a diversified conglomeration led by information technology, said on Thursday it would hive off its non-IT businesses into a new privately-held company, Wipro Enterprises.
The folding in of the non-IT units wil help Wipro focus on its core global information technology business, giving it more elbow room, and is also expected to give a boost to its share price.
In response to the step, Wipro shares surged by 7% before closing up 3% at Rs.61. Premji controls 78% of shares in Wipro.
The company’s non-IT units, which mainly focus on the domestic market, include consumer care and lighting, infrastructure engineering and medical diagnostics.
It currently clocks sales equivalent to a billion US dollars but IT services contributed 86% to its revenues and 94% to its profits during 2011-12.
Wipro said non-IT businesses had become big enough to sustain themselves independently.
“I am confident that the demerger will enhance value for our shareholders and provide fresh momentum for growth,” chairman Azim Premji said in a statement, adding Wipro was “committed to both the businesses.”
Wipro Enterprises will remain an unlisted firm with Premji as its non-executive chairman. Premji will remain as the executive chairman of Wipro Ltd.
The company will give shareholders the option to exchange their existing Wipro Ltd shares with those in Wipro Enterprises. This could see Premji divesting up to 2.7% in Wipro Ltd.
“It will enable Wipro to raise the level of public float,” said Harit Shah, analyst at brokerage house Nirmal Bang. A higher public holding usually raises the rating of shares among international investors, boosting price.
“The demerger will only help us improve our profit margins… as it will help in simplication, clarity in the minds of customers, target companies, investors and analysts,” said Suresh Senapaty, Wipro CFO.