Wipro Consumer acquires Zhongshan-based FMCG brand to boost China biz

Wipro Consumer Care and Lighting, the FMCG arm of Wirpo Enterprises, on Thursday announced that it has entered a definitive agreement to acquire 100 per cent shareholding in Zhongshan-based Ma Er to boost its presence in the fast growing toiletries and liquid detergent space in South China.

The deal ,which is expected to gain regulatory approvals by the end of October ,will be the company's second largest acquisition after Unza Holdings Ltd., that it acquired back in 2007 for $246 million. Wipro did not disclose the financials of the deal citing a confidentiality agreement with the seller.

"From our perspective it's a great acquisition because it doubles our revenue in China, ,making it our third largest market. The other interesting part is that we become very dominant in the Guangdong province," said Vineet Agarwal, CEO of Wipro Consumer Care and Lighting.

With a revenue run rate of around $75 million in the current financial year, Zhongshan Ma Er will help increase Wipro's earnings from China to around RMB 1 billion ($150 million). Wipro says it will become one among the top three players in the shower and liquid detergent segments in China's Guangdong province.

Guangdong is one among the richest provinces in all of China with an annual GDP of around $1.1 trillion.

The acquisition will largely be funded by internal accruals, but Wipro could explore taking a small amount of short term or long term debt depending on the economic situation. The cost of acquisition excludes the the two manufacturing plants where Zhongshan Ma Er makes its products.

"We have a three year pre-signed agreement to continue manufacturing and we can extend it based on mutual agreements. But we already have two manufacturing plants in China, so we can decide to expand that or we could setup a new facility," added Agarwal.

Zhongshan's acquisition is especially significant given its portfolio of liquid detergent brands which Wipro could leverage to serve its other markets. The company says liquid detergents is among the fastest growing categories in the FMCG sector in India, Malaysia, Vietnam, the Middle East and China.

After the completion of the acquisition, 55 per cent of Wipro's consumer care business revenues will be derived from foreign markets, as compared to 51 per cent at present. The deal will also take the company's employee strength up to around 10,000 people, 25 per cent of whom are in India.

Out of the $600 million that Wipro has invested in acquiring FMCG companies over the past 13 years, it has invested $500 million in companies from Southeast Asia and China. According to Agarwal, all the acquisitions made so far have yielded great revenue results for the company, with each being valued at four or five times their acquisition cost today.