There are some sectors where it is generally difficult to make consistent and high RoEs, like EPC players, most railways players, many auto ancillaries etc. A company like Adani green for example makes RoEs of 20% purely on the back of large debt. The ROCE is 8% and so the business itself doesn’t generate good return ratios.
I think my takeaway is to try and avoid such sectors as much as possible, unless there is a special situation, differentiated insight for rising RoEs, or a specific trigger to unlock value that I am working with. A lot of companies in the recent bull run have been rerated on expectations of good growth, from sectors that have had structurally low ROEs. These are the companies that one needs to watch carefully and exit on time.
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