Four Indian Companies Walking a Fine Line

Several Marquee Indian Companies are now Testing Grasim’s recent move into paints, Ultratech’s Fory Into Cables and Wires, and IndiGo’s venture into hotels have raised eyebrows. But in Each case, there’s a strategic logic: GRASIM and Ultrate can Leverage their existing cement distribution networks, while indigo’s set in indigo’s instable brand can experts naturally into

Others, however, have ventted into businesss far after from their core competencies –often with damaging results.

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Here are four listed Indian companies that show how overextenation can strain even established businesses.

Unitech: Diversification derailed the core

By the Early 2000s, Unitech Had Cemented Its Positions India’s Top Real Estate Developers, with Residential Complexes, Commercial Projects, And Amusement Paraks Spraks Sprawled Cross more than 14,50000.

Following India’s 2005 Liberalization of Foreign Investment in Real Estate, Unitech Drew Substantile Foreign Interest and Saw Its Stock Soar by 3000% in a year.

Flush with Cash, The Company Ventured Into Telecom in 2007. The venture saddled unitech with cripping debt. The 2G spectrum scandal that followed LED to canceled licenses, Criminal Charges Against Its Promoters, and the Forced Sale of its Telecom Operations. At Its Peak, The Company Owed 8,000 Crore in Debt.

The collapse spilled into its core real estate business: stalled projects, mounting client complaints, regulatory interventions, and Severe Brand Erosion. Thought Unitech has Pivoted Back to Real Estate, It Faces A Long Road to Recovery from the Debt Burden, Reputational Damage, and Years Lost Chasing An Ill-Fated Diversification.

Ok Play India: Stretching to Thin

Ok play began as a manufacturer of water tanks, but over time expanded into a disparet set of businesses: Toys, Auto Components, Delivery Boxes, Mannequins, Mannequins, and Electric Three-WHELERS. Management has cited plastic as the common thread – but the reality has been convincing.

The company struggled to leverage any synergies betteren these businesses, failing to transfer brand strength, manufactory capabilitys, or distribution scale across segments. Its core toy business continues to drive most of its revelations, while newer ventures have mostly added losses and distraction.

Despite Management’s stated Goal of Doubling Toy Revenues Annually and Targeting 15-20% Growth in other segments, its history of lost possesses casts doubt on such projections. Recent expansions into home décor and air purifiers only Raise Further Concerns. For ok play, focus on profitable segments raather than new distractions appears critical.

Patanjali Foods: early signs of overreach

Investor Favorite Patanjali Foods, Once An Edible Oil Company, Has Successfully Transformed Into A Browader FMCG Player by Acquiring Fooods and Home & Personal Care Business from Parent. Today, It Ranks As India’s Third-Larget FMCG Company by Revenue.

However, while it has climbed the revealed ranks, Profitability Remains a Weak Spot. Revenues have also also been vulnerable to Volatile Edible Oil Pries. The Growing Contribution of Higher-Margin Segments has Esed Some of that that Concerns, and after Several Years of Underpaerformance, The Stock has been outperforming Since Since June 2023.

But recent moves have raised concerns that patanjali may be drifting into “DIWORSICATION.” Its investment in wind power generation has already resumed in intermittent losses. Even if that can be justified as captive green energy for its core operations, its more recent forces into construction and infrastructure with kbc global, and insuction with Magma Generaal Insurance, Markie Clear departures from its core strengths. How Management Navigates these ventures remains to be seen.

Balmer Lawrie: Overdivarsification Hits PSUS Too

Establed in the Pre-Independence Era, Balmer Lawrie is now a Central Psu Under the Ministry of Petroleum and Natural Gas, Classified as a Miniratna-I Company. As the company itself puts it, there is scarcely a business it hasn’t ventted into.

It has ventted into tea, shipping, insurance, banking, and manufacturing over the years. Today, It Operates Across Eight Strategic Businesses Spanning Manufacturing and Services. Its manufacturing portfolio incluses Industrial Packaging, Greases and Lubricants, and Chemicals, AlongSide Refinery and Oil Field Services. While some of these businesses are adjacent, the company’s sprawling portfolio sugges an Overextation of its operating focus.

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In Its Travel Vertical, Balmer Lawrie Offers Services Ranging from Travel Planning, Ticketing, Forex, And Hotel Bookings to Visa Processing and Travel Insurance. It also Runs Logistics Operations, Including Cold Chain Logistics and Door-to-DOOR FREGHT FORDIDING.

Who Logistics Contributes a fifth of the company’s reviews, its subsidiary, visakhapatnam port logistics park, has been a drag on prop life. The Travel Vertical has Limited Revenue Contribution, with a Bulk of the Business Still Being Driven by Industrial Packaging, and Greases and Lubricants. Result? Distractions from Multiple Fronts Have KEPT Profits Volatile.

When Diversification Boxes Diworsification

Diversification isn’t inherently negative. Expanding Into Upstream or Downstream Segments Can Lower Costs, While Entering Adjacent Businesses Can Help de-Risk Operations and Cushion Agation Against Business-CyCLE OR SESONASS

Also read | Why some Indian companies are paying dividends despite posting losses

The Real Concern Arises when Companies Venture Into Industries Entrely Unrelated to their core strengths. Done Well, Such Mrows Can Mark The Early Stages of Building A Diversified Congress – Aas Seen With Reliance Industries Ltd or itc ltd. But execution is critical, and professionally managed firms are better equipped to navigate the risks. Even then, conglomerates often trade at a discount, with the whole Valued Less than the Sum of their parts.

If a company has proven its strength in its core business, investors may be willing to back unrelated diversification – Patanjali Foods Being One Example. But when companies alredy struggling at the core venture into unrelated businesses, they risk spreading themselves too thin. Bull Markets May Temporary Lift Such Stocks on a wave of optimism, but when sent cools and fundamentals reassert themselveslves, these weaknesses are quickly expert.

For more such analyses, read Profit Pulse,

Ananya Roy is the Founder of Credibull Capital, A SEBI-Registered Investment Adviser. X: @ananyaroycfa

Disclosure: The Author does not hold shares of the company discusing. The views expressed are for informational purposes only and should be considered investment advice. Readers are encouraged to conduct their own research and consult a financial professional before making any investment decisions.