One of the best examples is the Event Management Vertical of Saregama:-
Ebitda break even business, but gives access to the artist and helps them with the future songs (all mentioned in the concalls)
ROCE takes a hit, but long term becomes imperative to the business & artist
Ebitda break even business, but gives access to the artist and helps them with the future songs (all mentioned in the concalls)
ROCE takes a hit, but long term becomes imperative to the business & artist
Or
A lower ROCE can also make the business more anti fragile:-
Carbon black capex for BKT or backward integration for Radico.
A lower ROCE can also make the business more anti fragile:-
Carbon black capex for BKT or backward integration for Radico.
Another reason for Lower roce and why it could be Beneficial is when a business enters a new vertical with very high scalability
One example here is:- Syngene
The CRO business is a moderate growing early 20s ROCE business.
One example here is:- Syngene
The CRO business is a moderate growing early 20s ROCE business.
Whereas, in order to expand the Total Addressable Opportunity
Syngene has to enter Manufacturing, which prima facie does seem a lower ROCE biz at the moment, however this is what will accelerate the growth from early teens to early 20s or higher.
Syngene has to enter Manufacturing, which prima facie does seem a lower ROCE biz at the moment, however this is what will accelerate the growth from early teens to early 20s or higher.
ROCE isn't the only metric to judge a business.
Another example is that of incumbents already being present and taking natural advantage of their positioning:-
GHCL or the likes of Tata Chemicals
New SODA Ash Plant has payback of 7 years.
Another example is that of incumbents already being present and taking natural advantage of their positioning:-
GHCL or the likes of Tata Chemicals
New SODA Ash Plant has payback of 7 years.
However, such is the strength of the industry and barriers to entry. Not many new players enter here-
Inspite of being a commodity, it displays characteristics of a stable margin business.
If I get growth, and I am here to stay for next 2-3 decades.
Inspite of being a commodity, it displays characteristics of a stable margin business.
If I get growth, and I am here to stay for next 2-3 decades.
Doesn't it make to sacrifice a ROCE a bit and deter the entry of the competitors?
Another business, which I don't want to name here.
Studying the history of that business and an interesting pattern comes up:-
Another business, which I don't want to name here.
Studying the history of that business and an interesting pattern comes up:-
You intentionally cap the ROCE at 15-17%, so that others cannot come into what you are doing.
Scale-scale and scale+backwards intergrate everywhere.
Make it enormously painful for someone else to come in.
Will take years for someone to even get to 15% roce.
Scale-scale and scale+backwards intergrate everywhere.
Make it enormously painful for someone else to come in.
Will take years for someone to even get to 15% roce.
Thus, Lower ROCE is necessarily not bad @Sanjay__Bakshi
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