IT services provider Wipro will continue to acquire companies in “spots” that are underpenetrated and look at only large targets that can be scaled up, chief financial officer Jatin Dalal told ET.
The Bengaluru-based firm has been aggressively pursuing its inorganic strategy, with chief executive and managing director Thierry Delaporte undertaking 12 acquisitions since he took over in July 2020.
India’s fourth-largest software services firm will look at acquisitions that have scalability, aid in achieving market leadership and critical mass of its own, Dalal said in an interview.
“We will never do very small acquisitions because in the services sector it doesn’t make sense,” he added.
Wipro said last month that it would buy two companies – SAP consulting firm Rizing for $540 million and consulting and programme management company Convergence Acceleration Solutions for $80 million.
The software services exporter also acquired cybersecurity consulting provider Edgile for $230 million in December.
As of December 2021, the company had made 23 acquisitions and 20 investments amounting to $4.3 billion, according to data from industry tracker Tracxn.
The company last year outlined its strategy to focus on winning large deals in the $200-$300 million range.
“These are unique assets in unique spaces. These are spots that are underpenetrated from our perspective, and we always wanted to acquire them,” Dalal said, describing the acquisitions of Edgile, CAS Group and Rizing.
Though acquisitions are a core part of its growth strategy, Wipro will balance it evenly with organic growth. “We have clearly mentioned there are two parallel tracks and not (substituted) one of the other. Organic growth has to remain very focussed,” he said.
Impact on margins
The company said its operating margins could hover slightly lower than the medium term target of 17-17.5% for the next two-three quarters due to the organic and inorganic investments made till date.
“We have seen the increase in employee cost plus subcontracting. We have invested in utilization and inorganically in two excellent businesses – Edgile and LeanSwift. They reduced the margin a little bit,” Dalal said.
The interest on a $750 million loan Wipro raised to fund its Capco acquisition last year was fixed for five years and will not be impacted by the US Federal Reserve hiking benchmark rates, he said.
Since the industry had created significant supply in the past four quarters with strong hiring of freshers, Wipro expects to overcome some of the talent shortages although attrition rates will remain high throughout the year. The company has also expanded its retention strategies across multiple areas.
“It’s a host of things. Not just compensation or opportunity to go abroad on its own that is going to retain the top talent but because the entire package is good across quality of work, comfort of retraining continually etc,” Dalal said.
The company has announced plans to promote almost 70% of its staff on a quarterly basis as a part of retention measures.
Source: Economic Times