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Good vs Bad Monopoly stocks! - YouTube
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hi everyone welcome to today's video so
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on today's video we are going to have a
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discussion on what type of monopoly
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stocks you should be buying and what
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type of monopoly stocks you should be
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avoiding super important video for the
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simple fact that right now the markets
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are somewhat lukewarm there are great
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buying opportunities and usually when
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you are a new retail investor your
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intent is that hey let me google what
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monopoly stocks in india are you will
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get this list and you will go and invest
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your money in these type of companies
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and in many of these companies you will
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end up making permanent loss so please
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watch this video make note super
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important video from that perspective i
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will present a very easy to understand
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analysis of monopoly companies but
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before i jump into the core of the video
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i want you to take a look at this
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particular chart of coal india this is
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one of the monopoly companies and what
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you will find is this that back in 2010
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the stock was trading at roughly 350
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rupees right now the stock is trading at
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180 rupees and the worst part is that
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honestly it did not go up much in any of
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these phases but again here is the list
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of monopoly stock companies for you in
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india you will see coal india has been
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one of the monopoly stocks story number
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two take a look at the chart for nestle
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so this stock has consistently given an
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upward trending curve so if you would
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have invested in this monopoly company
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you would have made money no doubt about
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that now let's take example number three
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of itc now itc for the last 10 years it
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has been trading at that 220 levels and
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it has gone up it has come down it has
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gone up and it is literally trading
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sideways that is what is happening with
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itc stock so all three monopolies but
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all three are presenting very very
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different stories so what type of
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monopoly companies to invest in versus
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what type of monopoly companies you
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should avoid let's quickly discuss that
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so there are five key reasons why you
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should be avoiding certain monopoly
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stocks so let me walk you through this
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list one by one so the first reason is
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that if it's a psu company and if it is
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trading at a slightly higher price or
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even at an average price you should
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avoid buying it why i will explain that
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in a minute second if the company has
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limited growth potential or limited
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growth prospects please avoid it there
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is no point in mind three if the company
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has unclear growth prospects then you
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could consider avoiding that company
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fourth if the nature of the business is
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cyclical that some years it goes up some
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year it goes down avoid it fifth and
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final point if the government
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intervention in that sector is high or
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is going to become high avoid that
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sector altogether so these are five
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specific reasons let me go point by
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point and it will give you very good
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clarity so let us first and foremost
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understand why you should not be
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purchasing too many psu stocks to begin
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with a classic case in point is the
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irctc case study everyone thinks almost
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all the retail investors think that you
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know what irctc is a great stock when i
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ask them why because it's a monopoly
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stock and it has given so much run up
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okay so let me talk about two three very
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very quick points let me show you the
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investor holding in irctc so you will
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clearly see that the investor holding of
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fis is coming down even diis is coming
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down only publix investing is going up
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why because we are so attached to
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railways we see it as a monopoly stock
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we think that you know what something
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like irctc will forever go up in profits
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its revenues are going to break all the
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records indian railways will enter japan
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also indian railways will enter china
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also everywhere it will enter and we
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will become super filthy rich
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incorrect perspective and i will tell
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you systematically why there are two
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prominent reasons first and foremost the
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psu companies are run with the intent of
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serving the nation so to say or serving
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the politicians i don't know you comment
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and tell me below that is the first key
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reason they are not even trying to make
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sustained profit this is the same
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problem that coal india also had this is
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the same problem that irctc is also
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having and this is the same problem that
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even psu banks also have that despite
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having massive competitive advantage
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their focus is not profit making for
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example let's understand by using a
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banking example what is the objective of
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psu banks the objective of psu bank is
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network extension so they go all across
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the nation they build more branches even
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if that branch is running unprofitably
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the psu banks will continue to run these
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branches simply because they want to
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give accessibility now this is a noble
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aim i'm not trying to comment on the
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social aspect of it i'm just telling you
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from a pure profit making perspective
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that this is probably not a good move
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now this was a similar problem even in
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the airlines industry a classic case in
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point is the air india story now air
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india ran a lot of unprofitable routes
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simply because it wanted to give access
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to a lot of people who did not have
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access to airlines for example they
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would run certain routes and fill 30 out
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of 100 seats why because they are
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improving accessibility they are not
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there to optimize the profits per se
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there is an entire political story also
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that i can tell you here but i will
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avoid telling it but i hope you get the
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picture that psu organizations are not
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run with the intent of making money to
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begin with
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second key problem that psu enterprises
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have that in case there is an entity
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which is profit making then politicians
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figure out a way to siphon profits off
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so the word of the day today is siphon
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let me know what does that mean so the
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politicians simply siphon the money off
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a classic case in point again is irctc
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now here is an announcement that was
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made somewhere on october 28th 29th and
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the headline reads that irctc shares
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sharply recovers after government
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scrapes order on 50 convenience fee
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revenue sharing so if you actually go
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and read this article what happened on
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october 29th last year and i had made a
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video also on that that in a curious
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policy flip-flop the ministry of railway
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on friday reversed a decision taken less
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than 24 hours earlier in which it had
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asked irctc to share with it half the
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revenues collected as convenience fee
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from users so the moment this
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announcement came in the irctc stock
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fell a lot now because ministry of
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railways will start taking your profits
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so the stock price fell and next day it
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was announced that no no you're not
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going to do that just relax then the
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stock prices came back up but the
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important point from this narrative is
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fairly simple that with just one move
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the entire company's market cap can
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dramatically change so it's always risky
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to invest in psu stocks unless you are
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getting them at very very good prices
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now the second key reason to avoid some
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monopoly stock is that if the growth
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prospects are very very limited a
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classic case in point is the bhel stock
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again take a look at this list of
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monopolies in india bhl features into it
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and what bhel simply does is that it's
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an integrated power plant equipment
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manufacturer engaged in designing
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engineering manufacture erection all
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this stuff for power transmission
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industry this that it is a flagship
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engineering and manufacturing company of
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india owned and controlled by the
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government of india so that is what bhel
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does now let us take a look at the
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profit and loss statement and what you
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will see is that the sales have hardly
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grown in 2010 sales were 33 and a half
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thousand now it's standing at twenty
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thousand and it has barely moved above
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33 maybe two three years that's it so it
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has been a very slow sales growth
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company now ask yourself why is that the
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case so it's very simple and it's very
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mathematically driven so what are
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profits so profits are revenues minus
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cost right everyone would have
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understood and use this formula at some
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stage in our life so what are revenues
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revenues are price times the quantity so
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what happens with companies like vhel
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that every ad hoc basis they will keep
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on winning some contract so as to get
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certain businesses but does the
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management of bhel has any incentive to
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increase this quantity or the number of
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contracts that they are winning the
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answer is no they don't care
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basically you have other companies which
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are private companies they will push
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really hard they will probably give
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bribes also they will do 100 different
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things to increase this queue right
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there is just no point right second key
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thing about the prices now again i don't
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need to go at the back end it's very
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given that at the back end there is a
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lot of shady stuff that goes into
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pricing of any particular thing for
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example if a psu company is selling
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product x i'm not talking in context of
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bhel because i'll get sued so this is
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not a comment on bhcl or any particular
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psu i'm just giving you a general case
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and you tell me whether this is right or
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not right so for example if a psu
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company is selling any product let's
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call it x if the price of that product
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is 100 then a private player would want
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to sell that at 120 rupees but a psu
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company would not bother at all sell it
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at 50 they don't care as long as they
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are making little bit of commissions
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along the way so the point is that there
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is no incentive to grow this revenue
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this is very very important and also
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there is very limited scope of cutting
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cost how think about it this way that
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let's say tomorrow rpa technology or
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robotic process automation technology
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comes into the picture
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now indian railways employs such a big
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workforce and there are obvious cost
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saving opportunities by rationalizing
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the workforce do you think that indian
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railways can take that step of firing
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people they can't do it because there
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will be people sitting on dharna and
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bunch of other different different
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things again this is me just speaking
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and analyzing a business i am not here
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to give the social aspect of it so from
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that particular perspective whenever you
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find monopolies that has limited growth
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prospects that they can't increase their
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business they are not even interested in
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increasing their business they don't
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have a lot of avenues in terms of
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cutting cost please avoid it that's a
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simple piece of advice that i'll give
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you point number three on certain
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occasions depending on the type of an
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investor you are you could consider
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avoiding companies where the growth
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prospects are not clear there is a
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difference between point two and point
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three point two is that the company does
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not have many avenues to grow in terms
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of increasing its revenues or bringing
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down the cost point number three is that
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there is no clarity on growth the
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classic case in point is the itc story
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for example if you take a look at the
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itc business you will see that the sales
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of itc has been consistently growing
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it's not as if that there was any kind
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of sales problem it's not as if that
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there is any kind of profit problem it's
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a net profitable company but why is it
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that the itc stock does not move the
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reason there is fairly simple that hey
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the clarity on the most profitable part
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of itc's business is not there which is
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what which is that itc sells a lot of
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cigarettes and every time the budget is
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announced people start fretting people
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start believing that you know what itc
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stock is going to go down because the
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government is going to impose more
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syntax this that and it becomes a
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problem for a company like itc that
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despite doing everything in their hand
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despite generating good results despite
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having good management despite
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performing well in the market their
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stock price just does not go up and one
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of the prime reasons is that business
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clarity is limited am i an investor in
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itc yes i am an investor in itc i'm
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still holding the stock i am very happy
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with the dividends it's a defense talk
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for me and that is the reason why i'm
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holding it but i do understand that that
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business clarity with itc is not really
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there the moment the narrative for a
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company like itc changes from that hey
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from a cigarette manufacturing business
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we are pivoting to fmcg and that is
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bringing us a lot of revenues or our
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hotel business is bringing us a lot of
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revenues itc stock will become a rocket
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so that's a simple point that you need
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to keep in mind point number four you
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must avoid cyclical businesses the
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classic case in point is the coal india
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story so here let me give you a very
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quick understanding of what coal india
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does so coal india is mainly engaged in
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mining and production of coal and also
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operates coal washeries so basically
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whenever the mining of the coal in india
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goes up whole india stock will go up
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whenever the mining of the coal in india
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goes down coal india stock will go down
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that's a simple story that is all it is
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now do you know how much the indian
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government is going to import coal next
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year the answer is no you don't know and
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neither can we predict and therefore
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there is no point in getting into these
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cyclical businesses because some year
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they can give a very good run up some
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year they will not give a run up for
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many years they will just move sideways
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and it becomes a headache for you
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despite owning a monopoly stock so that
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is a simple story and can i prove it to
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you yes for example if you just simply
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google coal imports in india here it
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says the coal import is likely to be
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close to 180 to 190 metric ton in fy
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2022. now these numbers can also go for
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a toss depending on the macroeconomic
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situations for example due to russia
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ukraine crisis lot of crisis in the
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energy sector now if india can india
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will go and import more of coal who
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knows they might not extract so much
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coal and direct coal india to extract a
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lot of coal because they just want to
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preserve their reserves given all this
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macroeconomic situation can you and i
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predict no we cannot predict how much
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coal is going to get extracted in india
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via coal india and there is just no
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point in getting into these type of
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stocks from that particular perspective
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now comes the fifth and the final point
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that be on a lookout for sectors where
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the government intervention is going to
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be high and please avoid those type of
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stocks and sectors
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let me give you a parallel example not
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from the stock market but from the
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education market so back in 2009
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government made an announcement that you
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know what if you run a private school
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unaided which does not even get help
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from the government they will have to
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reserve 25 percent of the seat for
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weaker economic sections of the society
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great move from a social perspective but
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i can present an entire argument as to
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why many good schools which were
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offering education at a low cost if they
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have to go and reserve 25 percent of the
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seats on which they are not making much
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money they had to close down and that
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decreased the supply of education also
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in india now of course we can all
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present our own stories here but the
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point that i'm trying to drive home here
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is fairly simple that government
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intervenes quite excessively in a bunch
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of different businesses so please try to
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avoid those businesses because with one
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stroke of a pen 25 profitability of any
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business can go down great news if you
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invest in tech companies then this type
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of situation is very difficult to play
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out why because government itself does
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not understand tech if you don't trust
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me go and look at the type of websites
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and the cyber cell infrastructure that
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they have and that is the reason why
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technology companies have grown really
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really fast because by the time
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government understands anything
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technology companies move on to the next
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level so therefore there is no point in
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investing in businesses where the
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government intervention is likely to be
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high so classic case in point here will
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be hindustan aeronautical limited it's a
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defense company it produces a lot of
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defense related equipment aircrafts etc
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i am not an investor in hcl from this
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simple fact okay so before i walk into
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explaining which of these companies i
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will buy from this monopoly list let me
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do a very quick commentary on what type
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of monopoly stocks you should be buying
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so there are three specific criteria
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that you should keep in mind number one
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the firm should look to make profits a
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classic case in point is nestle now tell
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me how many different type of maggies
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are there now nestle is a market leader
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in the maggie market and it keeps on
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launching new brands after brands after
[836]
brands of maggie that you know oats
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maggie atta maggie this maggie green
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maggie pink maggie what not right so the
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bottom line is that nestle is a company
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that is actually interested in making
[844]
profit it will go do market research it
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will go study consumer buying patents it
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will go negotiate good deals with
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distributors so all these things point
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to what it simply points to the fact
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that nestle actually is interested in
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making profit and if it is a monopoly
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then of course it can retain its
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position because it is working so hard
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to maintain its profit margins so it's a
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definite investable company from that
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particular perspective number two the
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company should have specific mode a
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classic case in point is something like
[870]
let's say pd light now pity light has a
[872]
product called as fevicol now do you
[875]
remember the tag line of fevicod
[878]
so that tagline in itself is recalled
[880]
and remembered by crores and crores of
[882]
people and every time they go on a shop
[884]
to buy any kind of adhesive their
[886]
preference would be to buy fevicol they
[888]
will not even say furniture
[890]
though they will simply go and say
[892]
fevicol they do now commanding that
[894]
particular brand value is a massive mode
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or a competitive advantage for a
[898]
monopoly that is not going to go away at
[900]
least for the next 10 years so it
[902]
becomes an investable company now third
[904]
and finally a monopoly of course will be
[906]
big you might be paying premium
[908]
valuation so you must remember that a
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monopoly also needs to have a very clear
[912]
growth path so i told you pedilite and
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nestle's story now think about it this
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way now here is the press release of
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nestle so you'll see nestle india
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launches maggi deshkiri dominate so this
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is a brand campaign that they have
[923]
launched they have launched fight
[924]
against covet they have launched like a
[925]
bunch of different different things we
[927]
have launched like number one cola mint
[929]
beverage milo in india they have
[931]
launched maggie fusion noodles okay
[932]
another variant of maggie so if you go
[934]
through this entire list you will
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quickly see that you know what they are
[937]
just exploring new paths to
[939]
profitability why because they will be
[940]
able to launch new products sell it make
[943]
more money in the market so they are on
[945]
that product launch road map and
[946]
whenever the economy improves they will
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continue to exhibit similar behavior
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similarly talk about pity light story
[952]
they launched fevicol first now they are
[954]
getting into a bunch of other different
[956]
products and here is their product line
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so the point is that they made fevicol
[960]
stand out now they are getting into a
[962]
range of other products and that will
[963]
keep on generating a lot of money for
[965]
them so there is a very clear growth
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path to profitability so now let's move
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on to the final section where i will
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just go through this list and talk about
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which stocks i will be buying in this
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market versus not so irctc i will not
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buy i've explained the reason hal i will
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not buy nestle i will buy coal india i
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will not buy hindustan zinc no i will
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not buy itc i already have so i will not
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buy mariko i will definitely buy pd lite
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i will buy concor i will not buy bhel i
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will not buy so this is my point of view
[993]
explained about monopoly stocks of
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course you can have different arguments
[996]
different reasons for buying what price
[998]
you are buying etc etc but i hope that
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this video helped you pick up a
[1002]
framework of analyzing these monopoly
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companies so i hope you enjoyed the
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video please press the like button and i
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will see you tomorrow
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you
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