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xbox
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Joined: 10/Sep/2006
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   Posted: 04/Sep/2007 at 1:12pm |
If US investors thrash a stock for diversification, then either the investors are stupid or the company management has terrible project execution skills.
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Discussion makes TED a interesting place to be. SmartCat jee, One hypothetical question.. Will shareholders of INFY be happy, if INFY forays into energy sector ? <<assuming, we all know their execution skills are very good>>. Intel should foray into cement ??
As I mentioned several times, diversification is result of ambitious promoters only. No shareholder wants/wishes it.
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Don't bet on pig after all bull & bear in circle.
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smartcat
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Joined: 29/Mar/2007
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Posted: 04/Sep/2007 at 1:28pm |
I see foreign dignitaries come to INFY campus in Bangalore and plant samplings. I always hope that they strike rich deposits of oil when they dig the ground!
Yes, it makes sense for promoters to think of diversification because 99% of their wealth is in the company. They'd naturally want to diversify a bit. If the management's execution skills are good, what's good for promoters is good for shareholders too.
For me, it does. I just read that Mukesh Ambani takes home Rs. 25 crores as his salary. Now that will be my benchmark. I will only consider investment in companies that have a net profit of more than Rs. 25 crores :)
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xbox
Senior Member
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Posted: 04/Sep/2007 at 1:39pm |
Yes, it makes sense for promoters to think of diversification because 99% of their wealth is in the company. They'd naturally want to diversify a bit.
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Aab sahi hai!!!!. Diversification is like experimentation from promoter funded by shareholder's money.
Smartcat jee, I will give you one example...Flextronics (a electronic OEM) purchased Hughes software from News corp. Hughes soft was telecom software service/product company with much higher margin (as compared to flextronics) but investor forced flextronics to sell this unit and finally they sold to KKR.
*******This is just one example in many.
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Don't bet on pig after all bull & bear in circle.
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smartcat
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Posted: 04/Sep/2007 at 2:53pm |
When companies in USA diversify, they have no choice but to diversify into a business that is already saturated. They have to beat well-entrenched competitors who have been in that business for years.
Eg: If Walmart wants to start a bank, they have to compete with Citibank, Bank of America etc. And that is very difficult when USA economy is growing at 3% per annum. Most of Citibank's profits are coming from international markets anyway.
No wonder shareholders denounce diversification in USA. In India, the situation is different. When Indian companies diversify, they do it in sunrise industries like insurance, retail and telecom. They become the first-movers, and that's how Indian companies generate sharholder value while USA companies flounder. That's the difference.
Just because Peter Lynch doesn't like diversification, we shouldn't hold similar opinions even if we are fans of Lynch. The situation in India/China is different. That's why, in the investment world, there is no Bible. We need to pick and choose investment advice from the gurus.
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kulman
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Posted: 04/Sep/2007 at 3:01pm |
That's why, in the investment world, there is no Bible. We need to pick and choose investment advice from the gurus.
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Interesting and true.
On diversification.....if the management is able to maintain ROE & ROCE in newer ventures, it does make sense.
Edited by kulman - 04/Sep/2007 at 3:05pm
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Life can only be understood backwards—but it must be lived forwards
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ndzapak
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Joined: 13/May/2007
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Posted: 04/Sep/2007 at 4:00pm |
I agree with Smartcatjee, case of India & US is completely different. RIL is taking advantage of evolution of Indian Economy – coupled with their strength of big bang execution. As Indian Economy evolves from one that has satisfied its basic needs – basic infrastructure, oil, petrochemicals, plastics , textiles to one that is now aspirational consumption- media, retail, telecom, healthcare, better infrastructure- so is RIL evolving as a corporation.
Note that RIL is not moving from its core strength-taking advantage of integration & scale by its big bang execution. That’s why probably it never went in to software services.
Infosys was never catering to the Indian Economy and thus like the US corporation it serves it will find a case for diversification difficult- may be it can start by taking care of Indian Corporations IT needs where the multinationals like IBM seems to be beating it presently.
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the Equitydesk is the best
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India_Bull
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Joined: 19/Sep/2006
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Posted: 04/Sep/2007 at 4:03pm |
How about Parsvanath developer venturing into telecom business?
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India_Bull forever Bull !
www.kapilcomedynights.com
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ndzapak
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Posted: 04/Sep/2007 at 4:11pm |
Originally posted by India_Bull
How about Parsvanath developer venturing into telecom business? |
Its about size and resultant huge free cash flows. I doubt if Parsvnath fulfils that criteria.
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the Equitydesk is the best
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