India’s Top 5 Monopoly Shares to Look Up

India's Top 5 Monopoly Shares to Look Up

Shares of Power Grid gained 44% compared to 29% gains from BSE Sensex.

Back in July 2021, we wrote to you about top 4 companies that are strong monopolies.

The article pointed to IRCTC, IEX, CAMS, and CDSL.

This time we are back with another set of companies. Let’s take a look at the top 5 monopolies of India that you need to look out for.

These 5 companies dominate their sectors with a large slice of the pie.

# 1 Power Grid

Power Grid was formed in 1992 and is one of the largest companies in the public sector (PSUs). From humble beginnings it has grown at an extraordinary pace to quench the thirst for power of India.

The company operates under the Ministry of Power and acts as a connecting factor between energy-generating companies, such as NTPC, and power-trading companies by carrying electricity through their national grid.

Power Grid is India’s largest power transmission company with a market share of more than 36%. When it comes to getting renewable energy to the home of every Indian, it has a crucial role to play in the coming decades.

It owns and operates the inter-state transmission network. Thanks to its efficiency, the company consistently maintains the availability of its transmission system at more than 99%. This is similar to international utilities.

If creating a national grid requires significant capital, which can only be provided by the government, it makes Power Grid a strong monopoly player.

What’s more, Power Grid is enjoying massive gains from the growth in capacity for renewable energy, EV charging network, and 5G telecom.

Moreover, it is a dividend rich stock. The dividend yield at the current price is well over 5%.

In the last year, shares of the company have gained 44% compared to 29% profits of BSE Sensex.

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# 2 Nestle

Nestle India has a market share of 96.5% in cereals for children (Cerelac) and 66.6% market share in baby formula (lactogen NAN).

That’s massive!

Cerelac is an instant cereal for toddlers over the age of 5 months as a supplement to breast milk.
So what makes Nestle a strong monopoly player?

Baby food in India is a prescription drug, which means it cannot be advertised in the country. The World Health Organization (WHO) prescribes breast milk as the best source of nutrition. Thus, the government would be skeptical to grant fresh licenses for producing baby food in India.

As a result, Nestle has a barrier to entry into the children’s book market.

Nestle is also a market leader for other products including Maggi Noodles, Milkmaid, Nescafe, among others.

The company has zero debt on its balance sheet, pays dividends consistently, and is a consistent creator of wealth.

Check out the chart below to see the performance of Nestle India’s 10-year shares:

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# 3 Hindustan Aeronautics

Hindustan Aeronautics (HAL) is the largest defense PSU and holds 100% dominance in aerospace and defense production.

The company is a dominant supplier of aircraft, helicopters, engines, avionics and accessories, as well as the main provider of services for maintenance, repair and overhaul to the Indian Defense Forces.

It has to deal with limited competition from the private sector due to the high capital intensity and long gestation periods for the development of production opportunities in the sector.

The increased focus of the government on indigenization with the ‘Make in India’ and ‘Atmanirbhar Bharat’ policies have improved the future growth prospects of the company.

Also, after years of research and development (R&D), the company won a major contract in February 2021 that reversed its declining order book. Currently, HAL has a robust order book of around Rs 80,640 crore.

Most recently, HAL signed a $ 716 million deal with GE Aviation to supply engines.

It was also reported today that the state-owned company will produce four light helicopters (LUHs) under limited series production by 2022-23.

In the past one year, shares of the company have gained 56%.

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# 4 Multi Commodity Exchange (MCX)

Multi Commodity Exchange (MCX) is the largest commodity futures exchange in India with a market share of more than 95%.

It has an almost monopoly position in steel metals, base metals and crude oil trade in India.

MCX facilitates the online trading of commodity derivative transactions. An MCX trading account allows you to trade in a wide range of goods.

The company has consistently remained India’s leading exchange in commodity derivatives and enjoys strong market equity as it provides a reliable trading platform for commodity derivatives through transparent price discovery.

For the quarter ended September 2021, MCX reports weak bottomline and topline due to the impact of weak volumes in light of the return of the pandemic, as well as the commodity volumes are negatively impacted by the restrictions on economic activity.

Surprisingly, shares of MCX are currently trading where they were a year ago.

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In the previous quarter ended June 2021, Rakesh Jhunjhunwala owned 2,500,000 shares, or 4.90% stake in MCX. He relinquished his entire stake in the quarter of September 2021.

Meanwhile, mutual funds increased their stake by a substantial 3.8%.

# 5 Zydus Wellness

Zydus Wellness has more than 90% market share in sugar-free products. The product ‘Sugar Free’ has a strong presence in India with a market share of 94% of the sugar substitute category.

The company also has several other brands such as Complan, EverYuth, Nycil, Glucon-D, Sugarlite, and Nutralite.

In May this year, the company said that five of its brands, Glucon-D, Sugar Free, EverYuth Scrub, Peel Off, Face Mask, and Nycil, have maintained leadership positions in their respective categories since March 2021.

What makes Zydus a strong monopoly player? Now, it has access to solid research facility owned by Cadila Healthcare, its parent company that owns 57.6% of Zydus. With the help of Cadila, Zydus conducts research into the product and ensures that all products are thoroughly tested and have no side effect for consumers.

If we are to go by estimate, the market for artificial sweeteners in India is worth 150 crore Rs and is expected to grow in double digits. The segment is driven by the increasing prevalence of diabetes, obesity, and heart disease due to the high consumption of sugar-based products.

In the run-up to Covid-19, Zydus’ ‘Sugar Free’ product witnessed double-digit growth as consumers opted for a healthier lifestyle. The company now plans to push the product further and also increase its distribution and launch marketing campaigns.

For the quarter ended September 2021, Zydus Wellness posted weak figures. It reported a standalone net loss of Rs 2 crore compared to a net loss of Rs 21.8 crore in the same quarter last year.

Revenue, on the other hand, grew by 12.3% to Rs 383.7 crore.

Like MCX, shares of Zydus Wellness have also been trading throughout the year.

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Invest in monopolies

While much has been said about investing in monopoly companies, you need to investigate whether the company can remain profitable for the future.

For example, in our previous article on monopoly stocks, we mentioned IRCTC, CAMS, IEX and CDSL, companies with good financials.

However, unlike the previous set of companies, the financials of some of the companies mentioned in this article are questionable.

Also, without the lack of government support, monopolies are difficult to establish and maintain.

Legendary investor Warren Buffett has always discussed the idea of ​​investing in companies with channels.

A moat in general is a deep, wide trench around a castle, fort or city, typically filled with water and intended as a defense against attack.

When investing, it refers to the ability of a company to maintain its competitive advantage over its peers in order to protect market share and guarantee sustainable profits.

The wider the trench, the stronger the firm. If the channel is weak, competition will eventually spoil the game, erode returns, and take market share and profit overtime.

Therefore, a smart way to invest is to choose companies with strong channels.

Of course, one must also examine the valuations of the company, such as the intrinsic value and safety margin.

Happy Investing!

(This article is a Syndicate of Equitymaster.com.)

(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)


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