Indian stock markets have generated many multibaggers and has created lot of wealth. There are over 4000+ listed companies in India. These include both public and private sector companies operating across various sectors and industries. One of the many ways to identify a potential multibagger stocks for 2023 india is to bet on companies which have a dominant market position, i.e monopoly stocks.

Monopoly stocks are shares of businesses with little to no competition in their market. These companies are typically leaders in their respective industries and have a dominant market position. Their dominant market position provides pricing power and potential for long-term earnings, which can generate wealth for shareholders. Obviously, there are more parameters and factors that need to be analyzed before investing such as valuation, future growth etc. , but choosing an industry leader is always a better alternative.

In this article, we have selected 5 small and midcap monopoly companies which also meet our fundamental criteria. We have chosen companies which are high cash generating and require less capital to grow. They have corrected significantly from their peak and offer some margin of safety for fresh entry.

Let’s get into brief details of each of these companies.

Indian Energy Exchange (IEX)

IEX is engaged in providing an automated trading platform for the physical delivery of electricity, renewables, and certificates. It offers various trade markets, such as the electricity market, green market, and certificates. The electricity market includes day-ahead market, term ahead market, real-time market, and cross border electricity trade. The green market includes green term ahead market and green day-ahead market. The certificate market includes renewable energy certificates and energy-saving certificates. Its products include day-ahead market, green day-ahead market (G-Dam), term-ahead market, real-time market, green term ahead market, rec market, escerts market, trading calendar, clearing holidays, weekly regional loss. Buyers and sellers electronically submit bids during the market session and the matching of bids is done on a double-sided closed auction mechanism with a uniform market clearing price.

IEX has close to ~90% market share in electricity and energy trading making it a clear monopoly in this business. Another power exchange i.e “Hindustan Power Exchange (HPX)”, which is supported by the BSE, PTC India, and ICICI Bank, began operations in 2022. Due to this, IEX has lost some market share. As a result of which its stock price has corrected by more than 50% from its all-time high of 314.

Central Depository Services (India) Limited

CDSL is engaged in providing depository services, data processing services, and others to capital market participants. The Company operates through three segments: Depository Segment, Data Entry and Storage, and Repository.

Depository Segment includes providing various services to the investors like dematerialization, re-materialization, holding, transfer and pledge of securities in electronic form and providing e-voting services to companies. Data Entry and Storage segment relates to Centralized record keeping of Know your Customer (KYC) documents of capital market investors. Repository segment provides policyholders/warehouse receipts holder a facility to keep insurance policies/ warehouse receipts in electronic form and to undertake changes, modifications and revisions in the policy/receipt.

In FY21, the company became the first depository with more than 3 crore demat accounts. CDSL has ~70% market share in depository business and ~60% market share in KYC registration agency (KRA). CDSL business is linked to capital market activities and therefore goes through cycles. However, given low penetration, it has a good long-term potential.

Computer Age Management Systems

CAMS is a mutual funds transfer agency. The Company provides services for investors, services for distributors and services for businesses. Its services for investors include myCAMS, GoCorp, e-KYC, CAMSPay e-mandate, CAS – CAMS + KFintech, capital gain/loss, digital bank mandate change, net asset value (NAV) and Income distribution cum capital withdrawal (IDCW), transmission helpdesk and investor touchpoints. The Company’s services for distributors include edge360, e-KYC, distributor mail back services, service requests, the Association of Mutual Funds in India (AMFI) services and distributor helpdesk. Its services for businesses include mutual funds, reconciliations, loans against mutual funds, payments, AIF & PMS, account aggregators, insurance companies and sandbox. It also serves its customers through a range of touch points, such as the pan-India network of service centers, white label call centers, online, mobile app and chatbot.

CAMS also has ~ 70% market share in the mutual fund registrar market share. It’s a proxy play on growing financialization in India and increasing number of mutual funds investors. During Jan-Mar’23 quarter FIIs have increased their stake in CAMS.

Indian Railway Catering and Tourism Corporation Ltd.

IRCTC is a mini-ratna company owned by the government. It offers online ticketing, catering, and travel services. Its segments include Catering and Hospitality; Internet Ticketing; Travel and Tourism, and Packaged Drinking Water (Rail Neer). It also operates s air ticketing agency for booking air tickets on official tours for government employees.

IRCTC has a complete monopoly in the internet ticketing and catering business. With the Internet ticketing and Catering contribute ~80% of IRCTC’s revenue. Balance 20% comes from packaged drinking water (Railneer), tourism etc. It has no competition in the ticketing and catering business, making it a complete monopoly. Government policy changes can impact growth and earnings, posing the only risk to this business

Indian Rail Finance Corporation

IRFC is the financing arm of the Indian Railways. The Company operates through the Leasing and Finance segment. It focuses on leasing, lending and borrowing operations. The Company’s primary business is financial leasing of rolling stock assets, which includes both powered and unpowered vehicles, such as coaches, wagons, trucks, flats, electric multiple units, containers, cranes, trollies of all kinds, and other items of rolling stock components. It is engaged in leasing of railway infrastructure assets and national projects of the Government of India and lending to other entities under the Ministry of Railways (MoR). It is also a lender for other entities in the railway sector, including Konkan Railway Corporation Limited (KRCL), IRCON and Railtel, among others.

IRFC has no default risk or NPA issues as it lends to government owned entities under the Ministry of Railways (MoR). There are no listed peers or comparable companies with similar business models. IRFC trades at an attractive valuation of 0.8x book value due to no default risk and low competition.

Conclusion

In this article, we reviewed some of the monopoly stocks in India that have dominant market position. These monopoly stocks have now corrected significantly from their highs and offer a good margin of safety for long-term investors. Some of these companies like IRFC have a high dividend yield of ~5%. If govt policy remains favourable, such companies can create lot of wealth for their shareholders. This is because monopoly stocks can earn stable revenue and profits over time due to the absence of competition.

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Disclaimer: The above article is only for information and doesn’t constitute any investment advice.