Fundamentals of Financial Management

Assignment

Diversified Sector Companies WACC analysis

Submitted by – Yash Bansal
PG-203
Batch 3

Introduction
Diversified Sector Companies are businesses that operate across multiple industries
or sectors rather than concentrating on a single market or product line. These
companies engage in various business activities, which could range from manufacturing
to services, energy, finance, consumer goods, or technology. The primary aim of
diversification is to spread risk by reducing the company's dependence on any one
particular industry, market, or product.

Purpose of Diversification:
 Reducing Risk: Operating in multiple sectors reduces the company's exposure
to risks tied to one particular industry.
 Maximizing Profits: Multiple revenue streams can drive higher profits and offer
growth opportunities.
 Stability: Diversification helps stabilize financial performance, especially during
economic cycles where some sectors may perform better than others.

Industry Analysis of the Diversified Sector

Large Cap Companies – ITC ltd, Grasim Industries Ltd., 3M India & Gujarat
State Petro
1. ITC Limited
 Industry: FMCG, Retail, Hotels, Paperboards & Packaging, Agri-Business
 Overview: ITC is a diversified conglomerate operating across several key
industries. It is particularly dominant in the FMCG market, where it leads in
products like packaged foods, personal care, and cigarettes. It also has a strong
presence in the hotel industry (Taj Hotels) and packaging (ITC Paperboards).
This diversification allows ITC to manage risks across sectors while benefiting
from stable revenue streams from its consumer goods and hospitality sectors.
2. Grasim Industries Limited
 Industry: Cement, Textiles, Chemicals, Financial Services
 Overview: Grasim, part of the Aditya Birla Group, is a large player in the cement
industry through its subsidiary, UltraTech Cement. It is also involved in textiles,
chemicals, and financial services. Its diversification in financial services (Aditya
 Birla Capital) and chemicals allows it to counteract fluctuations in the cyclical
nature of the cement industry.
3. 3M India
 Industry: Industrial Products, Healthcare, Consumer Goods, Electronics
 Overview: 3M India is a significant player in sectors like healthcare (medical
products), industrial products (abrasives, adhesives), and consumer goods (Post-
It Notes, Scotch tape). Its innovation-driven portfolio across multiple sectors
allows it to stay competitive and mitigate risks from market volatility in any single
industry.
4. Gujarat State Petroleum Corporation (GSPC)
 Industry: Energy (Oil & Gas), Infrastructure
 Overview: GSPC is primarily involved in the oil and gas industry, with operations
in the exploration, production, and distribution of natural gas. This company’s
diversification in infrastructure projects allows it to leverage growth opportunities
in India’s energy and construction sectors.
Mid Cap Companies – Birla Corp ltd, Prism Johnson Ltd. & Surya Roshni Ltd

5. Birla Corporation Limited

 Industry: Cement, Textiles, Manufacturing
 Overview: Birla Corporation is a key player in the cement industry with its
popular brand, Mangalam Cement. It also has diversified operations in textiles
and manufacturing. The cement business is critical in India’s infrastructure
development, while textiles and manufacturing provide stability and complement
the company's portfolio.
6. Prism Johnson Limited
 Industry: Cement, Real Estate, Building Products
 Overview: Prism Johnson is a major player in the cement industry, providing key
construction materials. The company also operates in the real estate sector and
building products, which allows it to diversify its revenue base. As infrastructure
and housing growth continue in India, Prism Johnson’s diversified portfolio
positions it well for long-term growth.
7. Surya Roshni Limited
 Industry: Lighting, Steel, PVC Products
 Overview: Surya Roshni is known for its lighting products and steel products
(steel pipes). It also manufactures PVC products. This diversification helps the
company balance between the demand for infrastructure materials (steel) and
consumer goods (lighting), benefiting from India’s growing industrial and
construction sectors.

Small Cap Companies – Jash Engineering, Balmer Lewrie & co Ltd. & Godavari
Biorefineries Ltd.
8. Jash Engineering
 Industry: Engineering, Water Management, Infrastructure
 Overview: Jash Engineering specializes in water management and engineering
solutions, with products like sluice gates and valves. The company’s
 diversification into infrastructure and water solutions aligns with India’s growing
needs for sustainable urban infrastructure.

9. Balmer Lawrie & Co. Ltd.

 Industry: Logistics, Chemicals, Packaging
 Overview: Balmer Lawrie operates across logistics, chemicals, and packaging
industries. Its logistics services are integral to India’s supply chain, while its
packaging and chemicals divisions serve the consumer goods and industrial
sectors. This diversification allows the company to benefit from India’s booming
e-commerce and manufacturing sectors.
10. Godavari Biorefineries Ltd.
 Industries: Bioenergy, Chemicals.
 Diversification Strategy: Godavari Biorefineries is a leader in the bioenergy
space, producing biofuels and biochemicals. With increasing global demand for
renewable energy, its diversification into the chemical sector (biochemicals)
enhances its sustainability focus, positioning it well for future growth.

Observations and Findings

MARKET Cost of Cost of
COMPANY Total Equity Total Debt WACC
CAP (CR.) Equity Debt
ITC 5,12,703 73,641.50 303.43 19.63% 1.20% 19.55%
GRASIM 1,75,200 1,38,938.38 1,41,545.39 15.83% 4.35% 10.04%
3M INDIA 31,909 2,14,690.34 1,817.78 95.53% 6.53% 94.78%
GUJARAT 14,38,263.8
16,353 13,961.38 23.83% 1.65% 23.62%
PETRO 6
BIRLS CORP 8,468 6,673.81 3,903.47 19.11% 6.03% 14.28%
PRISM
6,601 1,643.43 1,747.78 12.20% 7.85% 9.96%
JOHNSON
SURYA ROSHNI 5,501 2,166.39 35.77 29.32% 19.78% 29.16%
JASH
3,835 35,121.06 8,007.55 23.93% 15.12% 22.30%
ENGINEERING
BALMER
3,233 23,354.00 11,341.00 22.80% 26.53% 24.02%
LAWRIE
GODAVARI BIO 874 5,067.91 105.40 16.72% 16.85% 16.72%

Financial Insights
1. Capital Structure Analysis
 Debt vs. Equity Dominance:
o GRASIM has a near-balanced capital structure (₹1,38,938.38 Cr.
equity vs. ₹1,41,545.39 Cr. debt), suggesting moderate leverage.
o ITC, 3M INDIA, and SURYA ROSHNI are equity-heavy, with minimal
debt, indicating conservative financing strategies.
 o BALMER LAWRIE has a high debt-to-equity ratio (~0.49), which may
increase financial risk, especially given its high cost of debt (26.53%).
 Implications:
o Companies like GRASIM and PRISM JOHNSON use debt efficiently
(lower WACC than cost of equity).
o 3M INDIA and GUJARAT PETRO rely almost entirely on equity, leading
to a very high WACC (94.78% and 23.62%, respectively).
2. Cost of Capital & WACC Trends
 High WACC Companies (Riskier Investments):
o 3M INDIA (94.78%) has an extremely high cost of equity (95.53%),
possibly due to perceived risk, low liquidity, or speculative valuation.
o GUJARAT PETRO (23.62%) and SURYA ROSHNI (29.16%) also have
elevated WACC, suggesting investors demand higher returns.
 Low WACC Companies (Efficient Capital Use):
o GRASIM (10.04%) and PRISM JOHNSON (9.96%) benefit
from cheaper debt financing, reducing overall capital costs.
o GODAVARI BIO (16.72%) has nearly equal cost of equity and debt,
indicating balanced risk perception.
3. Market Cap vs. Financial Health
 Large-Cap (ITC, GRASIM):
o ITC has a massive market cap (₹5,12,703 Cr.) but a high WACC
(19.55%), meaning investors expect high returns despite its stability.
o GRASIM has a lower WACC (10.04%), making it a more efficiently
financed large-cap firm.
 Mid/Small-Cap (3M INDIA, BIRLS CORP, JASH ENGINEERING):
o 3M INDIA’s extremely high WACC suggests overvaluation or high
business risk.
o BIRLS CORP (14.28%) and JASH ENGINEERING (22.30%) have
moderate WACCs, but JASH’s higher debt cost (15.12%) could be a
concern.
4. Key Red Flags & Opportunities
 Red Flags:
o 3M INDIA’s WACC (94.78%) is unsustainable—likely a data error or
extreme risk premium.
o BALMER LAWRIE’s cost of debt (26.53%) > cost of equity (22.80%)—
rare and indicates severe credit risk.
o SURYA ROSHNI’s high cost of debt (19.78%) despite low debt
suggests expensive borrowing terms.
 Opportunities:
o GRASIM & PRISM JOHNSON have low WACCs, making them
attractive for value investors.
o ITC’s low debt (₹303 Cr.) and strong equity base make it a low-risk
defensive play, though expensive.