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Wipro Consumer arm to buy China FMCG firm

Livemint:  September 23, 2016

Bengaluru: Wipro Consumer Care and Lighting’s Singapore arm has agreed to buy Zhongshan Ma Er Daily Products Ltd, a Chinese fast-moving consumer goods (FMCG) company, for an undisclosed amount in an all-cash transaction.

Wipro Consumer Care said this would be its second biggest acquisition since it bought Unza Holdings Ltd, a Singapore consumer goods firm, for $246 million in 2007.

This will be Wipro Consumer Care’s 10th acquisition since 2003; and with this, it expects its international businesses to account for 55% of its total global revenue.

The company said it has spent around $600 million in total on buyouts over the past 13 years.

“From our perspective, it’s a great acquisition because it doubles our revenue in China. If we go back to 2007 when we acquired Unza, we were about RMB82 million in China alone; and with this, we will have a run-rate of close to about RMB1 billion (close to Rs1,000 crore),” said Vineet Agrawal, chief executive officer of Wipro Consumer Care and Lighting.

The deal, which is subject to regulatory approvals, has taken Wipro Consumer Care six years to consummate.

China will become the company’s third largest market after India and Malaysia, once the deal is closed. Wipro expects to close the transaction by end-October and anticipates that the newly acquired firm will start contributing to its revenue post that.

Zhongshan Ma Er is a family-run business based in South China’s Guangdong province, with 55% of its sales in shower products and 45% in liquid detergents.

“This gives us immediate access to resources that will help us fuel faster growth in our business, and enable us to unlock the true potential of our brands,” said Chen Rui Qiang, chief executive officer and founder of Zhongshan Ma Er in a statement.

Talks between the two firms first happened in 2010, but the Chinese firm was not sure if it wanted to sell itself and Wipro wasn’t sure what the valuation ought to be. “When it didn’t work out, we decided to hold off serious negotiations for a while, but stayed in touch. It was picked up again about two years ago,” Agrawal said in an interview.

“China is one of the largest markets in FMCG but a tough one,” said Edelweiss Securities Ltd’s senior vice-president Abneesh Roy, adding that this was the first major buyout in the FMCG space of a Chinese company by an Indian company.

Indeed, China is not an easy market to crack, with challenges ranging from the basic and obvious language barrier to gaining a thorough understanding of local laws and markets.

Wipro’s Agrawal says the key is to get the strategy right.

“We believe that if we go in, rather than spread thin by having 2% market share (in, say, each province) we’d rather go in one or two provinces; expand market share so that we can be dominant there.”

Wipro Unza already has a presence in South China’s Guangdong and Hainan provinces in the personal wash and deodorant categories, with its Enchanteur and Romano brands. Zhongshan operates mainly in Guangdong.

“(That way) our costs are lower as well as the fact that we can break into competition. This acquisition helps us to do that,” added Agrawal. The Wipro executive, along with a few colleagues, sported gray t-shirts with the number 10 on it in red in the front to mark the number of acquisitions and “silk route to China reinvented” behind at the press conference on Thursday.

Still, this doesn’t shift Wipro’s focus away from India entirely, despite the fact that the domestic consumer economy hasn’t been doing well, Agrawal said, adding that they are constantly on the lookout for deals across segments and geographies depending on gaps in their portfolio.

“Indian (consumer economy) growth has slowed, but is likely to revive on the back of a good monsoon, urban recovery, etc. Penetration of most consumer segments in India is one of the lowest in the world and with the second largest population (globally), the Indian market offers a huge opportunity,” said Edelweiss’ Roy.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.