Market structure can be
Perfect competition market
Oligopoly/duopoly market
Monopoly market
It very difficult to find accurate info about pricing power, no of competitors and purchasing power of buyer within an industry
So, how can an analyst sitting on a desk figure out the industry structure?
Return on capital employed is one of the metric which tells about industry structure and a firms standing in the industry.
If market/industry structure is conducive then only individual firms can earn abnormal return for a sustained period of time
Abnormal returns attract competition. Competition rages cost war to gain market share.
Hence, diluting ROCE of the dominant player.
This scenario can be avoided, if an individual firm has characteristics which makes it difficult for new entrant to enter the market (barrier to entry).
MMP industries currently has three business segments
- Aluminium powder
- Aluminium foil
- Aluminium conductor
Aluminium powder is the business where Mmp industry is earning abnormal rate of return
We can see that aluminium powder is consistently generating roce above 24%
Whereas business with poor industry structure generating sub par ROCE.
Company is generating consistent cash flows.
Aluminium powder business generates high ROCE, cashflow and is growing rapidly.
Reason for rapid growth is
Aluminium powder is used for manufacturing AAC blocks
AAC block is replacing red bricks
listed players manufacturing AAC block
Big bloc construction (contract manufactures from Ambuja)
HIL
Jk Lakshmi cement
Ultra tech
Shree cement
Unlisted player like magiccrete
Recently big bloc commercialised a new aac block plant other players are also planning more capex
https://www.financialexpress.com/opinion/no-bricks-in-the-wall/1557150/
Which Brick is Best for House construction 2023 | AAC Block vs Red Brick vs Flyash Brick
Shyam metallic and sarda energy are producing fly ash bricks
Need to dig further, whether red brick industry is being disrupted (it seems to be true)?
Which will be more beneficial aac block or fly ash brick.
Now the ugly part
-
Capital allocation of promoter seems to be dodgy
Using cash flows of aluminium powder business to enter into highly commoditised industry of aluminium foil makes no sense. -
JV with Toyal group (selling same product)
Next part of analysis is to meet up with big developers to-
- confirm disruptions for red brick
- Out of aac block and fly ash brick which one is preferable
Meet/ask aac block manufacturers about Mmp industries competitive advantage
Disclosure: invested in MMP industries.
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