Wipro's Window May Be Closing

HONG KONG -- They could well be kicking themselves in the boardroom of Wipro Ltd., once India's most valuable company and still one of its three most important technology firms. In line with huge falls in other Indian tech stocks, as well as shares around the world, highly profitable Wipro has seen its shares tumble around 50% from their high earlier this year.

For all of its successes, Wipro probably has missed its best chance to raise the currency it and other Indian companies will need to stay globally competitive: stock listed on a globally accepted exchange such as the Nasdaq.

So far, Wipro is remaining coy about when it might decide to list. "We have not decided on timing -- we've just taken approval from the board to be listed with either an ADR or GDR," said Renee Jhala, head of Wipro corporate communications in Bangalore.

Only last month did Wipro's board finally give approval for the company to apply for a foreign listing, with the aim of raising as much as $500 million. If successful, it would join India's Infosys (INFY Quote) and Satyam Infoway (SIFY Quote) as the only Indian techs easily available to American investors outside of a mutual fund. These Indian stocks have been some of the most spectacular performers over the past year, and have fallen hard in the tech meltdown of 2000.

The reason Wipro and its competitors would want to list outside of India -- an option that's been open to them for only two years -- is that these firms need "to create the currency that will help them acquire U.S. companies. They're outgrowing their home market," said a longtime Wipro analyst whose firm does not allow him to be quoted by name. The need to keep acquiring is all the more important when, as does Wipro, you trade in triple digits times earnings.

The major challenge facing Wipro and its IT service competitors is that India's cost-competitiveness is eroding. As foreign firms such as General Electric (GE Quote) and British Airways (BAB Quote) are increasingly realizing the benefits of setting up their own global back offices in India, Indian firms feel the need to acquire front-end businesses to stay competitive.

The foreign challenge will not go away. Foreign investment in India is on the rise and has plenty of room to grow. As a percentage of economic output, foreign direct investment flows to India in 1998 were worth just 14% of those flowing into China, and about a third of those going to protectionist South Korea.

If Wipro is to acquire foreign companies, it would prefer to use stock. But who wants to buy Indian stock, especially in a notoriously illiquid company such as Wipro? Better to offer Nasdaq stock, goes the reasoning.

Too bad the market is cratering.

Infosys and Satyam Infoway's parent, Satyam Computer Services Ltd., both doubled their profits in the fourth quarter of fiscal 2000, which ended March 31. But even though the prices of both stocks have plunged along with technology stocks the world over, Infosys and Satyam's parent in India remains a better value than Wipro, according to analysts and fund managers.

Wipro "is too expensive and the right value is seen at almost half the current value," given that it now trades at 237 times expected earnings for 2001, said Sangeeta Purushottam, head of research for S.G. Securities Asia. S.G. has a sell rating on Wipro. "This is significantly higher than other blue-chip software companies," added Purushottam.

Wipro's multiple is double that of other such companies, said Sanjiv Duggal, manager of the HSBC India Fund. (The fund is not available to U.S. investors, but worth tracking because of Duggal's consistent outperformance of his peers).

While his fund has owned Wipro in the past, now it's "too expensive and fairly illiquid," said Duggal.

Mutual fund investors eager to position themselves in the Indian tech sector could do worse than the closed-end India Fund (IFN Quote). At the end of last year, it listed no holdings in Wipro, but did have a lot of Infosys and Satyam. In three years, it has performed much better than the (EMGIX Quote)Eaton Vance Greater India Fund, which declared Infosys as its top holding at the end of January.

Both funds soundly outperformed the (LEXGX Quote)Lexington Worldwide Emerging Markets Fund, which last year held Satyam's profitable parent but then wisely sold it before it fell. Lexington's performance was not as strong, but it offers international diversification the other single-country funds don't.

Why has Wipro held back from listing? One reason is that its major shareholder and CEO, Azim Hashim Premji, owns 75% of the stock, and is the only manager of any significance in the company. That's made the stock highly illiquid in India, helping to send Wipro's price up quickly, but also making it prone to a nasty fall.

Premji's reluctance to share the wealth was evident in another sphere: Employees these days want stock options, but Wipro was way behind the rest of the industry in cutting employees in for a slice of the equity. Many have left for competitors.