Cash rich companies can buy out distressed businesses at low prices and turn-around those businesses with infusion of cash and its managerial know-how.

Profitability may prove somewhat more stable over the course of economic upswing and downswing in case of a company diversified in unrelated businesses.

In some cases companies can make better utilization of underutilized resources or competencies.

One of the best examples in field of unrelated business diversification in Indian context is ITC. Company from its main business of cigarette has diversified into various other businesses like FMCG (Sunfeast, Ashirwad atta, matchboxes and agarbattis), Lifestyle Retailing (Willis life style), Stationeries (expression greeting cards), Hotels, Paper businesses, and Agriculture products.

For the Quarter ended 30th September 2005, company registered a net turnover at Rs. 2183 crores with a robust growth of 22.2% driven by Cigarette sales, ramp up of the Foods business, higher agri exports and improved performance of the Hotels and Paperboards, Paper & Packaging segments. The non-cigarette topline, which now accounts for 44% of the Company's Net Turnover, grew by 39% during the quarter.

Various other examples of unrelated diversifications are Wipro (IT, FMCG, Illumination), Tata (vehicles, steel, finance, telecom), Kingfisher (liquor, airlines), Reliance Industries (chemicals, petroleum, telecom).

Whether a company is going for related or unrelated business diversification, a company should check the following: -

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* Contributed by -
Ankit Kapoor & Gaurav Dubey,
PGDBM - 2006,
IMT Ghaziababd.