Another case of "diworsification" by a company that seems to be incapacitated to generate returns from the excess cash in its balance sheet and does not wish to return the same to the shareholders. Madras Cements’ decision to venture into sugar manufacturing business at a total investment of approximately Rs 4.5 bn seems to have no logic other than the temporary reversal in sugar cycle. Further, the improved sugar realisations would be offset by higher cane prices. Such instance of companies diversifying into unrelated businesses despite lack of expertise and insufficient rationale is a case of disregard to the rights of minority shareholders.
It is important to look at the holistic picture and have an individual opinion rather than get swayed away by the public consensus. This is the view of the man who pioneered the retailing boom in India - Mr. Kishore Biyani, the founder of India’s largest retailing company - Pantaloon. In an article in the Wall street Journal, Mr. Biyani wrote, "Almost daily doses of bad news on television screens and newspapers have possibly done as much damage to the economy as the events on either side of the Atlantic." I completely agree with him. Mr. Biyani’s predicament is based on the fact that an overwhelming majority of Indian consumers are self-employed, who can neither get laid off nor can have pay cuts. Consider some statistics he has provided. The share of the national income represented by proprietor-run concerns and partnerships is 35%. The share of companies is around 15%, government around 25%, and agriculture around 25%. Combine agriculture and the self-employed in industry a...
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