Over dinner with a seasoned businessman, a friend suggested the services of a business consultant who had a reputation of improving corporate profits
The young consultant studied the business over the next few weeks & recommended 3 new businesses to get into
A thread (1/n)
Many years passed. The friend caught up with the businessman & asked : Hey, did that consultant help you improve profits?
The businessman replied : “Yeah somewhat”
What do you mean?
“Earlier 100% of my profits used to come from my core business. Now it gives me 150%” (2/n)
The term “diworsification” is used to describe the over-expansion of a company into new growth projects & businesses they do not fully understand and are not in alignment with the company’s core competencies
E.g. AOL-Time Warner , Microsoft-Nokia, Videocon in telecom etc.
(3/n)
Cosmo Films is a 40-year company into films for packaging, labels, lamination & industrial applications
A recent investor presentation (Nov 2020) explains their intent to diversify into the pet care business
A case for diworsification? 🤔
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Why Rakesh Jhunjhunwala invested in Titan Company Limited? (a premise)
Rakesh Jhunjhunwala first invested in Titan Industries (as it was then called) in the 2002-03 period. The stock was available for an average of ₹60 per share
1/n
Titan in FY2003
- Shares outstanding : 4.22 crs; FV = ₹10; Market cap = ₹253 crs
- Share price performing below it’s 8-year average share price
- Net profit = ₹6.21 crs on revenue of ₹800 crores (0.77% margin)
2/n
Titan was going through organization-wide restructuring incl. cost reductions, VRS and downsizing of the company’s European operations.
Plus wage settlement with the Union leading to management lock-out in 4th quarter