Why you must add these under-the-radar monopoly stocks to your watchlist

Warren Buffett has made most of his wealth by investing in monopoly stocks. (Image: Pixabay)
Warren Buffett has made most of his wealth by investing in monopoly stocks. (Image: Pixabay)

Summary

  • These little-known companies have cornered their respective markets. How are they set up for 2024?

Monopoly businesses hold a unique position in various sectors, ensuring significant influence and market control. Take, for instance, the Indian Railways, a behemoth in the railway industry.

What about monopoly in stock exchanges? Well, the BSE competes directly with the National Stock Exchange (NSE). So, there is no monopoly there.

However, the Multi Commodity Exchange of India (MCX), which trades basic metals and energy, has a monopoly on trading of these commodities.

We are huge admirers of monopoly stocks. But do you know who else likes them? It's none other than investing legend Warren Buffett. He has made most of his wealth by investing in monopoly stocks.

He refers to these stocks as companies with economic moats. What is a moat?

An economic moat is a company’s ability to maintain competitive advantages over its competitors to protect its long-term profits and market share.

Now, the theme of monopoly stocks is very popular among rational investors. To counteract this herding bias towards only the top and well-known monopoly companies, we have filtered out a few lesser-known monopoly stocks for you to add to your watchlist.

Let’s delve deeper into some of the hidden gems that hold more than 80% of the market share in their respective industries.

#1. C.E. Info Systems

C E Info Systems (MapmyIndia), popularly known as MapmyIndia, is a data and technology products and platforms company, offering proprietary digital maps as a service (“MaaS"), software as a service (“SaaS"), and platform as a service (“PaaS").

The company is India’s leading provider of advanced digital maps, geospatial software, and location-based IoT technologies. It accounts for 95% of the total marketcap of the industry.

MapmyIndia has been an early mover (started in 1995) in India’s digital mapping and pioneered digital mapping in India.

It is India’s leading provider of advanced digital maps, geospatial software & location-based IoT technologies serving B2B and B2B2C enterprise customers.

MapmyIndia has 95% market share of the in-dash navigation market for India. While it enjoys over 80% market share in automotive OEM navigation software.

The company is into two main business verticals: 

  • Map and data products 
  • Platform and IoT products.

Through the first vertical of map and data products, MapmyIndia provides advanced maps representing the real world in 2D and 3D.

These are updated continuously in near real-time for place updates, location-based events, safety alerts, changes in road conditions, live traffic, and weather.

The company also builds and releases digital maps for countries outside India, such as Sri Lanka, Bangladesh, Nepal, Bhutan, Myanmar, UAE, and Egypt.

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Coming to the financial performance of the company from 2020 to 2024, sales have increased at a 5-year compounded annual growth rate (CAGR) of 23%, and net profits have risen by 46%.

The return on equity (RoE) and return on capital employed (RoCE) have averaged at 20.8% and 19.4%, respectively, over the 5-year period.

The total revenue from operations grew by 35% YoY. The growth was broad-based with consumer tech & enterprise digital transformation revenue up 49% YoY to 1.9 bn, and automotive & mobility tech revenue up 23% to 1.8 bn.

In FY24, the map & data revenue rose by 23% to 1.4 bn, while platform & IOT revenue surged by 42% to 2.4 bn. Net income grew by 23% YoY, with cash & cash equivalents reaching 5.5 bn by FY24-end.

The open order book and the annual new order bookings increased significantly, up 63% to 8.3 bn in FY24.

With a focus on IoT-led business, the company aims to surpass 10 bn in revenue by FY27-28, reflecting optimism for future growth and profitability.

#2. DreamFolks

DreamFolks Services Ltd is India's largest airport service aggregator platform facilitating an enhanced airport experience to passengers leveraging a technology-driven platform. The company is a market leader in the airport lounge aggregation industry in India.

Dreamfolks facilitates access to the following airport-related services – lounges, food and beverage, spa & wellness, meet and assist, airport transfer, transit hotels /nap room access, golf games & lessons, visa services, and E-sim.

The company enjoys a 95% market share in the airport lounge business.

The company's asset-light business model integrates global card networks operating in India, credit card and debit card issuers, and other corporate clients, including airline companies, with various airport lounge operators and other airport-related service providers on a unified technology platform.

It has partnerships with all five card networks in India (Visa, MasterCard, Diners/Discover, and RuPay) and key clients like ICICI Bank, Axis Bank, Kotak Mahindra Bank, HDFC Bank, and SBI Cards.

It also collaborates with major corporates, including Indigo, Go Airlines, Air Asia, Vodafone Idea, Jet Privilege, Hettich India, Easy Trip Planners, and Mahindra Holidays, enhancing its customer base.

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From 2020 to 2024, the company has experienced significant growth. Sales have increased at a 5-year CAGR of 36%, and net profits have risen by 35%.

The return on equity RoE and RoCE have averaged 37% and 46.4%, respectively, over the 5-year period.

The company achieved revenue of 11.3 bn in FY24, recording a strong growth of 47% while facilitating approximately 11 million passengers in the year.

The company has observed significant increase in adoption of digital tools like web access and self-check-in kiosks, contributing to 10% of monthly passengers. Its company’s railway lounge business witnessed robust growth, growing by 3.5x in FY24.

Services other than Indian airport lounges have contributed 6% of the total revenue, in FY24. It is further expected to reach 15-20% in the next 4-5 years.

Going ahead, the company is expecting the revenue to grow at a 20% CAGR for the next 3 years, by focusing on expanding service portfolio, diversifying client base, and expanding geographically. It is also committed to maintaining gross margins in the range of 11-13%.

#3. ZF Commercial Vehicle Control System India

This company is the market leader for advanced braking systems, conventional braking products, and related air-assisted technologies and systems in India.

It has a strong customer base, like TATA, Ashok Leyland, Audi, and more. It has 85% of the market share in its industry.

The company provides its products and services to various segments, such as trucks, buses, off-highway, defence, cars, and fleets. some of its products are electronic braking system (EBS), automatic slack adjusters, actuators, brake chambers, and others.

It also provides spare parts and after-sale service to its customers.

It has five manufacturing facilities, an advanced technology development center, a vehicle testing facility, and a nation-wide aftermarket distribution and services network.

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Regarding the financial performance of the company from 2020 to 2024, it has experienced decent growth. Sales have increased at a 5-year CAGR of 6%, and net profits have risen by 9%.

The RoE and RoCE have averaged at 10% and 13.2%, respectively, over the 5-year period.

The revenue and net income have grown by 10% YoY and 27.4% YoY, in FY24, led by growth in the commercial vehicle industry experienced growth in FY 23-24. In its OE sales, the company has managed to outperform market growth.

The company also observed growth in the aftermarket sales driven by new products and digital solutions. In the exports of services, significant growth was observed due to increasing engineering activity.

However, its exports experienced degrowth due to inventory reductions and shipment delays.

The management maintains a positive outlook towards exports due to increasing order books and new projects.

Conclusion

Investing in India's monopoly stocks presents a unique opportunity due to their strong pricing power, high market share, and stable profitability.

However, potential risks include regulatory changes, technological disruptions, and shifts in consumer preferences.

Regulatory risks are especially pertinent as governments may intervene to foster competition and protect consumer interests.

Public and political scrutiny can also impact stock prices, highlighting the importance of evaluating these factors alongside financial stability and market position.

Additionally, ethical considerations and corporate practices may influence public perception and regulatory scrutiny, potentially affecting stock performance.

Investors are advised to conduct thorough research and consider these factors carefully before making investment decisions in monopoly stocks.

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

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