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The Equitymaster Research Digest

Is Something Interesting Cooking in Telecom?
Jul 1, 2016

Let's face it: The cement industry isn't exciting. There's no real product differentiation, the business is capital intensive, and volume growth moves more or less in line with the broader economy.

The temptation is to rate the industry poorly for long-term shareholder wealth creation.

But if you think this is true in all parts of the world, you are in for a big surprise.

Take the case of Cemex. The company is among the largest cement producers in the world. However, the returns it earns from its Mexico operations are much higher than what it earns in the US.

Why? Is there something in the water at its Mexican plants? Of course not. The product it sells in both countries is identical. The difference is industry structure.

Cement buyers in the US tend to be big, powerful construction companies. These companies account for a large percentage of the US cement industry's sales. And by virtue of their power, they get favourable terms from the producers, which stifles the profitability of the US cement industry.

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