Top 3 Small Cap Monopoly Stocks, the stocks which has strong moat in their business.
Usually investing in small cap monopoly stocks is always risky, if they grow well we may get better returns else the small cap stocks will correct a lot and our wealth will be vanished. But if you select proper small cap companies which built strong moat around their business will get success and there will be less chances to collapse their business. The moat is nothing but the entry barriers for other companies who wants to enter into the new business segment. But these companies built very strong moat and entry barriers around their business. The below five stocks are almost monopoly stocks in their business and these companies has strong moat for their businesses and these companies having leading market share in their relative industries. these stocks are performing well and growing constantly.
Small Cap Monopoly Stocks:
1. Solar Industries India Ltd
This company is the leading and largest manufacturer of Industrial and Defence explosives. solar India provides complete blasting solutions, which includes packaged bulk explosives and initiating systems to meet its customer needs across the globe.. also with a wide range of products this company is at the forefront of indigenizing technology and are developing new products for Defense and millitary applications.
This company also entered into the business of Propulsion system for Space application which is synergistic with current business of ammunition and made a decision to invest in a startup skyroot aerospace for manufacturing of space launch vehicles and economic explosives has also started manufacturing strap in booster motor for PSLV rockets. this company has also presence in 55 countries and 34 manufacturing units across the world.
Mainly their explosive will be used in construction, Road and Infrastructure, mining, quarries, tunneling, defence and hydro projects. this company created a strong entry barriers to the new entrants that their products are explosives and that to their clients are government companies and defence there is no possibility to enter new companies as they required very toughest approvals and the government and the defence may not change their clients frequently as they will sign for long term contracts. As this company is one of the small cap monopoly stocks.
Financials :
This company’s market cap is RS. 16000 Cr. If you look at their revenue break up they are generating 26% of revenue from Housing and Infra, 17% of revenues from Coal India Ltd, 12% of revenues from Non CIL and Institutions, 6% of revenues from Defence and from Exports they are generating 38% of revenues. And then if you look at company’s return ratios ROE is grown with 20.4% CAGR, ROCE is grown with 21.8% CAGR and they are maintaining 12.2% as Net profit margin. If you look at share holding pattern promoters holding FIIs are holding 5.53%, DIIs are holding16.7%, promoters are holding 73.2%. This company is almost debt free company and company has been generating positive cash flows.and trading above 50, 100 and 200 DMAs and company is trading above average PE median 39.6 PE.
Technicals :
The company is trading around 1768 and the key support is 1550 to accumulate this stock in corrections.
Conclusion :
We can add this stock in every further corrections at major support levels those we have mentioned in technicals. company has lof of potential to grow in coming years as indian economy is yet to grow more and the government of india spending more on defence. and this company created a stron entry barriers those will not allow other companies to enter into this business.
2. Garware Technical Fibres Ltd
Garware Technical Fibers Ltd is the company formerly known as Garware Wall Ropes Ltd is one of India’s largest and leading manufacturer of Technical Textiles. This company established in 1976. Now the Garware group has multiple subsidiaries in different business segments.
This company is popularly known for providing world class innovative solutions in high performing aquaculture cage nets, agricultural nets, fishing nets, coated fabrics, polymer ropes and geosynthetics. Also this company is a market leader of synthetic cordage in India.
This company is also received ISO 14001 and ISO 9001 certifications in the year of 2015 and 2019 consecutively. Garware Technical Fibres
Also awarded as Star Export House award for so many years, also received the largest sports goods and sport nets exporter award from the sports goods export promotion council sponsored by The Ministry of Commerce, Govt of India. This company is having strong presence in 75+ countris across the world.
This company almost occupied major market share in manufacturing nets. this company grabbed the all market share where the nets to be used and they are manufacturing almost all types nets in different types of business segments like Agriculture, aquaculture, shipping, fisheries, sports, geosynthetics and many more they had in their product line. in the fisheries segment this company is having almost 17% of market share across the world. as globally there is lot of fishing activities are currently going on around the world as lockdown is lifting slowly.
Products :
Financials :
Garware Technical Fibres Ltd is a small cap company as it’s market cap is Rs 6738 crores. if you look at company’s revenue breakup, the company is generating 83% of revenues from synthetic cordage, 17% of revenues from fabric and industrial products.
If you look at the country wise revenue breakup this company is generating 51% of revenues from exports as it has strong presence in 75+ countries and 49% of revenues from India. If you look at shareholding pattern promoters are holding 52.6%, FIIs are holding 8.94% and DIIs are holding 3.25%. this company’s last 3 years average return ratios are like ROE is 20%, ROCE is 24.3% and the Net profit margin is 15.5%.
This stock price is trading above the stock’s average median PE 24.5. This company is almost a debt free company as it is continuously reducing their debt and this company is generating positive cash flows.
Technicals :
Currently stock is trading at Rs. 3268. as we are looking to build long term portfolio we can add this stock in the corrections. the next key supports are to add in the corrections, 3090 and 2750 are major supports. this stock is in Up trend from the inception.
Conclusion :
As we are adding this stock for long term we can add this stock in every correction. already key support levels mentioned above in the technicals.
As this company is one stop solution for all the needs related to the nets across the various industries. No company has this much of diversified product base in the industry. it has the great potential to grow more as already major countries doing fishing are now opened for fishing as this company is havin 17% of market share in fishing nets across the world.
3. Fine Organics Ltd
Fine organics Ltd is the leading producer of the widest range of additives for foods, polymers, cosmetics, coatings etc. and this company produces speciality additives for diverse applications. This company is an established and reputed international player of oleochemical based additives that rooted in India.
Fine organics green additives have been effectively replacing potentially hazardous chemicals in wide range of industries such as plastics, packaging, foods, cosmetics, rubbers, coaating etc and this company’s additives are majorly bio based and sage to use and bio degradable.
This company has 450+ products, 800+ direct customers and 180+ distributors network. Fine organics has strong presence in 70+ countries across the world. this company has the 40% of the market share in oleochemicals and 90% of the market share in additives market, almost we can say it as monopoly as this company is one of the small cap monopoly stocks.
Products :
If you look at the company’s diversified product portfolio this company offers food additives, polymer additives, additives for coatings, additives for cosmetics, feed nutrition additives and speciality additives.
What are additives ?
Additives are the chemicals but no harmful chemicals that can improve the conditions where they are for example in the foods segment these additives will help to store the food and increases the life time when food was packed. almost all the packaged food will protected by these type of additives also known as chemicals but no harmful as they are green chemicals means they produce from the natural resources. Also the additives will help to improve the performance of things.
Why this company is having no competition ?
a. Companies like fine organics are numerously few across the world.
b. As this company is having good loyal customers.
c. Highly regulated
d. Complex Technology
As this industry is highly regulated there is huge entry barriers like regulatory approvals which does not possible for new companies to take approvals form the country as now every country focusing on nutrition and healthy food. And even the technology used by these companies are highly complex. So new entrants will not show interest in this business.
Financials :
Fine organic Industries Ltd is a small cap company as it’s market cap is Rs 9385 crores. If you look company’s three year average return ratios, ROCE is 31.1%, ROE is 25.5% and the Net profit margin is aroung at 10%. if you look at share holding pattern of the company, Promoters are holding 75.0%, FIIs are holding 6.8%, DIIs are holding 11.4%. This company consistently generating positive cash flows from it’s operations. company’s debt to equity is 0.12, which is negligible, so we can say that company is almost debt free. this comkpany trading at expensive valuations.
Technicals :
Currently company trading at Rs 3061. this stock currently trading above 50 and 100 DMA, which is still we can see it as bullish. as we are looking for long term portfolio we can add this stock in further corrections. the important levels are 3000, 2700 and 2150. else you can add this stock for every 10 – 15% correction.
Conclusion :
Fine Organic Industries Ltd is monopoly in the Oleochemicals business as it’s holding almost 90% market share and 40% market share in green additives which are essential in various industries that includes food and cosmetics. as every one looking for green chemicals which are not harmful, in coming future this stock will grow a lot and i am seeing lot of potential in this company.
Already we’ve been discussed the small cap monopoly stocks Part 2, Click here to check out.
Disclaimer : Every company analysis that i am providing here is purely based on my personal view only. so before investing into any of these stocks plese do your own research and build conviction towards the stock by understanding the business model and the scope of the company. so that you never feel fear for small corrections.