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xbox
Senior Member
Joined: 10/Sep/2006
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Posts: 2001
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   Posted: 04/Sep/2007 at 5:36am |
On diversification.....if the management is able to maintain ROE & ROCE in newer ventures, it does make sense.
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Kulman jee, yeh to wahi baat hui...ki mai to test paper tabhi likhho ga jab mere marks 75% aayenge. 
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Don't bet on pig after all bull & bear in circle.
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shivkumar
Senior Member
Joined: 02/Oct/2007
Location: India
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Posts: 2037
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Posted: 24/Nov/2007 at 3:08pm |
Originally posted by Vivek Sukhani
exactly...i am plying a similar game in seshasayee papers, thirumalai chemicals , century enka and cheviot. Porritts and spencer asia also fits this bill along with GE Shipping...... |
Can vivek or anyone else comment on the cash flows of Century Enka and how the company is investing its profits?
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Vivek Sukhani
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Joined: 23/Jul/2006
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Posted: 24/Nov/2007 at 5:23pm |
Cash flows of Century Enka is quite good. The company is genrating a money which is not getting reflected owing to very high depreciation. The company provides depreciation to the tune of nearly 25 rupees per share. Although the debt/equity is less than 1:1, yet the quantum of jump in debt last year has led to extremely high interest pay-out. I think if the company goes for a rights issue at a premium of 140 per share, and in the ratio of 1:2, the distortions can be easily rectified. That ways the company can raise 150 crores and repay a major chunk of the borrowings. The company has completed its capex, and the only thing which the CFO has to do is to repay the borrowings. It is generating 50 crores from depreciation which can be jollywell utilised to settle off borrowings. And if sound working capital management is done, a lot of unlocking can be done.
Also, we shall remember we are getting an A-group, dividend paying stock at about 25 p.c. discount to book, excluding this year's earnings. As an investor, I think this leaves quite a bit on the plate.....
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Blues Soul
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Joined: 24/Nov/2007
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Posts: 15
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Posted: 24/Nov/2007 at 6:17pm |
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Diversification is important for an organisation as a de-risking strategy. Hence, if large companies have deep pockets, they should diversify. Suppose there is a major US recession and IT outsourcing from the US gets severly reduced, what will happen to companies like Infosys, Satyam? If they were diversified, they would be in a better position to handle the adverse environmental conditions. Ford, Enron, IBM etc - single product / sector companies have faced problems whenever their sectors have faced a slowdown. In contrast, GE - a highly diversified conglomerate and Sony have weathered such stroms much better.
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Vivek Sukhani
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Joined: 23/Jul/2006
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Posted: 24/Nov/2007 at 7:05pm |
You can indulge in anything you feel like, so long as it is your own money. Diversification is sometimes taken avail of, thanks to shareholders like me who start shouting for higher and still higher dividends at the AGM. So, they are forced to kill cash and hence forced to diversify
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Blues Soul
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Joined: 24/Nov/2007
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Posted: 25/Nov/2007 at 7:02pm |
Boards that manage large public companies and decide in favour of diversification, are normally controlled by the promoters / largest group of shareholders. Hence, the "owner's" / shareholders' interest are adequately protected - at the same time, what is good for the company in the long term, principally drives such decisions.
Hence, such boards should not get swayed by vocal minority shareholders, who are interested in getting cash at the fastest. Tomorrow, when the company runs out of new cash since it did not diversify and mitigate its risks by broad-basing its revenue streams, the minority shareholder will sell the shares and again "invest" in other cash rich companies.
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Ajith
Senior Member
Joined: 06/Aug/2006
Location: India
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Posts: 1284
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Posted: 25/Nov/2007 at 10:20pm |
Smartcat made a good point some time back about there being more opportunities in India than in US and further even in their(Reliance,ITC,Tatas) diversifification strategy there is a gameplan -a unifying link with core strenths like distibution network,project execution skills ,abilty to attract talent etc etc.
But diversification is almost always only for such large companies able to withstand setbacks.
Edited by Ajith - 25/Nov/2007 at 10:26pm
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Ajith
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