Companies that make critical products for their clients (intermediates, sp chemicals) where an inferior product would make significant damage & the cost of which is a small part of customer’s operations, enjoy bargaining power.
But, here it is very important that they sell to many small customers rather than a few large ones. Specialisation in niche markets yields great margins unless there is technological obsolescence.
No big listed co would run the risk of taking small reductions in price of inputs. Especially when stakeholders would easily question the miniature quantum of savings. MNC tyre companies, biologics, pharma, crop protection, and sp chemicals are examples..
As a long-range investor in such high specialties, it is again important that margins are not like the honey-pot that would attract a swarm of competing bees & insects. Margins just 2-3% greater than the next best competition would suffice to be an outstanding investment.
Even though these phenomenal companies are well priced, they are not as well priced as fmcg majors despite better profit margins. Why?

Because their asset turns are too low owing to cap heavy operations. Hence, ROCE is still less than fmcg players which have high asset turns.
To further spruce up margins, fmcg folks are going the asset light way by outsourcing manufacturing & fighting the war on the branding, distribution& innovation front. Here, many young Turks with good innovation are fighting using e-commerce. The competition will only get intense
Owing to the intense competition, it only gets tougher to get a pie out of the discerning Indian’s wallet. Incremental growth with rising per capita income seems too well priced in this space.
Whereas, in intermediates, sp Chemicals, and crams space, the stickiness and growth opportunity is there while not a great deal of such growth seems priced in. Investing is about buying the future without paying a dime for it, right?
Since these companies are capex intensive, please also have a look at these well highlighted risks:

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