INSUBCONTINENT EXCLUSIVE:
Investing in monopoly or near-monopoly companies is considered safe.What approach do you follow while investing in equities?Are you among
those who invest in stocks which grow sales and profits at a fast rate, i.e
growth stocks?Or do you follow the rules of value investing and wait for the right time to invest in value stocks?There have been several
debates around growth stocks vs value stocks
We think this has distracted investors from identifying the right companies.This is where monopoly stocks come in
Investing in monopoly or near-monopoly companies is considered safe.It's why investing legends like Warren Buffett are attracted to monopoly
With the absence of intense competition, a company is poised to do well and generate profits with strong cash flows.In July this year, we
wrote to you about the top 4 companies that are strong monopolies
The article pointed out IRCTC, IEX, CAMS, and CDSL.We went a step ahead in November and wrote about India's top monopoly stocks to watch out
for.In continuation to this, we're back with 6 more companies that are near monopolies
Although these companies don't have 100% market share in their segments, they command a dominant position.These companies should be on your
watchlist for 2022.#1 Wabco IndiaWabco India is a subsidiary of Wabco Holding Inc, USA, and is engaged in the business of manufacturing and
marketing conventional braking products, advanced braking systems, and other related air-assisted products and systems.It also provides
software development and other services.The company holds around 80% market share in medium and heavy vehicles braking system.Being a market
leader, the company boasts of strong customer base, including Tata, Ashok Leyland, Audi, and many more.It has 5 manufacturing facilities, 2
in Chennai, 2 in Jamshedpur, and one in Pantnagar
It also has a technology center and a vehicle testing facility.The company's stock holds the status of one of the most highly priced stocks
Currently, Wabco India shares trade at Rs 8,500 levels, just 2% away from its 52-week high.Over the year gone by, Wabco shares are up around
53%.The company has a lot to show in terms of financials
It has reported steady revenues and profits over the years
It has zero debt on its balance sheet.Given its monopoly status and good financials, mutual funds seem to be bullish on the stock
They have increased their stake in the company over the past four quarters.#2 Coal IndiaWith around 80% market share in coal production in
India, Coal India is one such public sector undertaking (PSU) which makes this list. Coal India possesses 48% of its reserves and accounted
for around 83% of India's total coal production for fiscal 2021
In India, 57% of the primary commercial energy is coal-dependent and Coal India alone meets to the tune of 40% of primary commercial energy
requirements.While the government ended the monopoly status of Coal India in Budget 2020, the company still holds a dominant position in
market.In last year's budget, Finance Minister Nirmala Sitharaman announced commercial mining of coal by the private sector which ended Coal
India's monopoly.The above move did not hurt Coal India as it was falling short of targets
The nation imports coal to meet the shortfall even as demand is expected to grow at 5%.With the world's largest coal reserves, Coal India
Yet, the company consistently fails to meet the demand and overall expectations.What more, it has not been able to meet its revised targets
either.As Coal India's monopoly ended, it boosted its output
The company appointed contractors for 15 new mines to meet its targets.In the past year, shares of the company have underperformed benchmark
indices and gained just 8%.Even with good financials and a track record of strong dividend yields, the company has the reputation of
underperformance (like ITC).In the last ten years, Coal India has paid 18 dividends
Its dividend yield stands at over 10%.#3 Asahi India GlassThird on the list we have Asahi India Glass - India's leading value-added and
integrated glass solutions company
It's a dominant player, both in the automotive and architectural glass.Asahi India provides end to end solutions in the entire glass value
chain - from the manufacturing of float glass, processing, fabrication, and installation.It has around 70% market share in automotive glass
Nearly three out of every four cars, SUVs, and MUVs manufactured in India has the company's glass.With this dominant position in the Indian
auto glass market, the company is recognised as a go to supplier
Its customers include Maruti Suzuki who is also its promoter, Hyundai Motors, Tata Motors, Mahindra, Toyota, MG, Renault, and many
more.While the company has good track record on the financials front, debt is the only worry
Over the years, Asahi India Glass has taken more debt on its books than equity.Its debt to equity ratio has stayed above 1 for the past 16
At one point in 2013, the debt to equity ratio even ballooned to 38.6! That's massive.An important point to note here is that the company is
consistently reducing debt.Over the past one year, shares of the company have gained 75%.The stock could rally some more as demand outlook
for the architectural glass has improved with the revival in residential real-estate demand.#4 IndiaMART InterMESH Established in 1999,
IndiaMART InterMESH is the largest B2B online market space connecting buyers with sellers
It enjoys more than 55% market share in India's online B2B classified space.The company provides a platform for small and medium enterprises
as well as individuals to showcase their products and services on digital platforms
Today, the company boasts of a portfolio of 120 m plus buyers, 6.4 m suppliers, and 71 m listed products and services.Since its listing on
the bourses, the stock of IndiaMART InterMESH has had a great run
In February this year, shares of the company soared to Rs 9,950 from the issue price of Rs 973.That's almost 10x gains
But the stock has come under pressure of late.India's only listed B2B marketplace is facing near-term challenges with medium and small
enterprises, which form the bulk of its client base.The company's client additions have gone down due to lockdowns, which are taking a toll
on the stock.Still, IndiaMART's near-monopolistic nature and its unique business has won the favor of investors
The company is cash positive and carries no debt
Its sales and profits have grown consistently for the past five years, with one exceptional year.#5 Delta Corp Delta Corp is the largest
It's also the only listed Indian gaming company.The company has a dominant presence in Goa's offshore casino market
It has around 55% market share in the organised casino market in India with three major areas of business.Apart from this, the company has
also forayed into online gaming, with the acquisition of Adda52.com.As the company has a first mover advantage, it enjoys synergies of
opening up new casinos at locations
Getting the necessary approvals in its business is very tough and this is great for the company as there's almost no competition.The centre
is unlikely to issue new licenses to new players
Also, land-based casinos are allowed only in five-star hotels
So Delta holds a competitive advantage here.The company has not yet received permission for its casino in Daman
If it gets approval, its revenues will go up.India has allowed entry for vaccinated tourists from 99 countries and opened borders after
This is beneficial for the beleaguered hospitality sector and for a stock like Delta Corp.The company has massive operations in Goa, a state
that's a favorite with foreign tourists
As more tourists pour into Goa, the higher are likely to be the footfalls for Delta Corp.Ace investor Rakesh Jhunjhunwala has been holding
on to this stock in his portfolio for several years now
He acquired 12.5 lakh shares in the company through a bulk deal back in 2016 at an average price of Rs 106.54.#6 Bajaj Consumer CareBajaj
Consumer Care is a dominant player in India's hair oil industry, with a pan-India presence, well-diversified product basket and multiple
brands. Its flagship brand - Bajaj Almond Drops Hair Oil is a leading name in the Hair Oil market. In the light hair oil (LHO) category,
Bajaj Consumer has maintained its dominance over the years
As per its annual report, the company's market share in this category has increased by 1.9% to 62.5% in fiscal 2021
This give it a monopolistic status in the LHO category.However, it's not just a LHO player anymore and has expanded reach by foraying into
coconut and amla hair oil categories with Bajaj Amla Aloe Vera Hair Oil and Bajaj Pure Coconut Hair Oil.The hair oil (coconut and
non-coconut) industry in India is the second largest personal care category, valued at nearly Rs 12,800 crore
Marico, Bajaj Consumer Care, and Dabur command around 62%-63% of the market share.This year, Bajaj Consumer achieved the highest-ever value
market share of 11.1% in the total hair oil market
The company is among the top dividend paying companies having paid Rs 8-9 per share average dividend in the last 10 years
For fiscal 2021, two thirds of profit were paid out as dividend.Despite the monopolistic status, shares of Bajaj Consumer have
Have a look at the company's performance over the past five years.While the industry itself is not a fast growing one and is at one of its
lowest points in terms of growth at present, there is a substantial scope for the top players with deep pockets to increase market share at
the cost of other local brands, and outgrow the industry.Are all monopolies risk free?A simple answer to this question would be a firm
No.Why?There have been cases in the past where companies enjoying monopoly went bust when there was a stiff competition.As Tanushree
Banerjee, co-head of Research at Equitymaster, rightly pointed out in one of her editorials, to think that all monopolies are risk free is a
huge mistake.Here's an excerpt of what she wrote,If you are wondering whether monopolies in India have destroyed wealth, look no further
than the public sector units...Coal IndiaVSNL (bought over by Tata Communications)BHELNTPCAnd of course, there are the unlisted ones like
Air India which accumulated billions in losses over decades.It's not that the private sector monopolies stay untainted
Bharti Airtel lost its wealth creating potential as soon as India's telecom sector saw stiff competition.Maruti Suzuki and L-T have
struggled to retain their market share over past decade.So, it's not the absence of competition or the market share that determines true
wealth creating potential of monopolies.While investing in monopoly businesses, look out for companies with strong moats.Do take into
consideration the company's business's ability to maintain its competitive advantage over its peers.Overall, evaluate your favourite
monopoly stock like any other business, which has chances to fail.Happy Investing!Disclaimer: This article is for information purposes only
It is not a stock recommendation and should not be treated as such. (This article is syndicated from Equitymaster.com)(This story has not
been edited by TheIndianSubcontinent staff and is auto-generated from a syndicated feed.)
