Monopoly Stock in Oil Products in India
What is Monopoly?
In accordance with Irving Fisher's definition, a monopoly is a market where there is "no competition," leading to a situation in which one specific person or company is the only supplier of a certain commodity or service.
Let's examine the question of what a monopolistic market is while we're on the subject. Monopoly markets exist when a single company has total control over the supply and cost of an item or service. A market is considered a monopoly when there is just one seller in charge of the whole supply of a certain item. In case of FMCG-Oil industry, one shall look for Oil stock market dominance.
Why should you consider a Monopoly Stock/Business?
Here are some reasons why investors might consider investing in a monopoly stock or business:
1. Limited Competition:
Monopolies enjoy the benefit of limited or no competition, which allows them to set higher prices and maintain higher profit margins. Investor always look for the company with Dominant oil stocks for investment in case of Oil monopoly.
2. Pricing Power:
Monopoly companies have substantial pricing power, as they can dictate the price of their products or services without fear of competition undercutting them. This can lead to more stable and predictable revenue and profit growth.
3. Barrier to Entry:
Monopoly businesses often have significant barriers to entry for potential competitors. These barriers can include high startup costs, proprietary technology, economies of scale, strong brand recognition, and control over critical resources.
4. Stable Cash Flow:
Monopoly companies tend to have more stable and reliable cash flow, as their strong market position allows them to maintain a steady customer base and generate consistent sales. This stability can be attractive to investors seeking reliable income streams.
5. Long-Term Sustainability:
Monopolies are more likely to survive economic downturns and market fluctuations due to their strong market position. Consumers may continue purchasing their products or services even during challenging times, providing a level of resilience to the business.
6. Potential for High Returns:
Given their ability to generate substantial profits, monopoly businesses have the potential to offer high returns on investment. This can be especially appealing to investors looking for substantial capital appreciation over the long term.
7. Dividend Growth:
Monopoly companies often have the ability to pay consistent and growing dividends to shareholders due to their stable revenue streams and strong profitability. This can be attractive to income-focused investors.
8. Strategic Investments and Innovation:
Monopoly businesses typically have the financial resources to invest in research and development, innovation, and strategic initiatives. This allows them to adapt to changing market dynamics and maintain their competitive edge.
9. Reduced Business Risk:
Monopolies face less business risk compared to companies in competitive industries. They are less susceptible to sudden market shifts or pricing wars that can negatively impact profit margins.
10. Attractive Valuations:
Investors may be willing to pay a premium for shares of a monopoly business due to its unique position and stability. This can lead to relatively attractive valuations compared to companies in highly competitive industries.
Overview of the Monopoly Stocks in Oil Industry/ Product
Marico Limited stands as a prominent player in the FMCG sector, (Oil products market monopoly), specializing in a wide range of beauty and wellness products that span global markets. Marico is one of the monopoly oil companies, with a presence across more than 25 countries in Asia and Africa, Marico boasts an impressive portfolio comprising hair care, skin care, edible oils, healthy foods, male grooming, and fabric care products. In the beginning Marico was one the emerging monopoly stocks in oil, the oil industry market share leaders, prides itself on nurturing leading brands in each of these categories, showcasing its commitment to excellence and innovation in the consumer goods industry.
Diverse Product Portfolio
Marico's product offerings span various categories, each associated with leading brands that hold a significant market presence:
1. Coconut Oil: Brands include Parachute and Nihar Naturals.
2. Super-premium Refined Edible Oils: Represented by the Saffola brand.
3. Value Added Hair Oils: Brands encompass Parachute Advansed, Nihar Naturals, and Hair & Care.
4. Healthy Foods: Covering Saffola oats, Coco Soul Coconut oil, Saffola FITTIFY Gourmet Range, and more.
5. Premium Hair Nourishment: Featuring Livon Serums and Hair & Care products.
6. Male Grooming & Styling: Brands like Set Wet, Beardo, and Parachute cater to this segment.
7. Skin Care: Brands include Kaya Youth and Parachute Advansed.
8. Hygiene: Incorporating products like Mediker and Veggie Clean.
Market Share and Revenue Breakup
Marico has demonstrated its stronghold in various market segments, evidenced by its commanding market shares:
• Coconut Oils: Market Share - 62%, Rank - 1st.
• Parachute Rigids: Market Share - 52%, Rank - 1st.
• Saffola – Super Premium ROCP: Market Share - 82%, Rank - 1st.
• Saffola Oats: Market Share - 39%, Rank - 2nd.
• Saffola Masala Oats - Flavored Oats: Market Share - 94%, Rank - 1st.
• Value Added Hair Oils: Market Share - 37%, Rank - 1st.
• Post Wash Leave-on Serums: Market Share - 63%, Rank - 1st.
• Hair Gels/Waxes/Creams: Market Share - 58%, Rank - 1st.
In FY22, Marico's revenue distribution highlighted its domestic and international business segments. Approximately 71% of total consolidated revenues originated from the domestic market, with coconut oils constituting 40%, refined oils 25%, value added hair oils 21%, and personal care products (male grooming, skin care) around 5%. On the international front, about 23% of total consolidated revenues were generated, with key export countries being Bangladesh, South East Asia, Middle East, and South Africa.
Distribution Network and Capex
Marico boasts a widespread distribution network encompassing approximately 5.6 million outlets across India, out of a total of roughly 12 million outlets in the country. This comprehensive reach is supplemented by contributions from Modern Trade and e-commerce, contributing 14% and 9% respectively to the domestic business in FY22. The company's commitment to growth and innovation is further highlighted by its capital expenditure, with an investment of 132 Crore in FY22 for capacity expansion and maintenance of existing manufacturing facilities.
Strategic Investments and Growth Focus
Marico is driving its growth agenda through a 4D strategy, focusing on Diversification, Distribution, Digitalization, and Diversity. This strategy encompasses premiumization of Hair Nourishment, scaling up non-CNO (Coconut Oil) portfolio in Bangladesh, enhancing distribution channels through Sales 3.0 framework, boosting digital presence, and fostering an inclusive and diverse organizational culture.
Furthermore, the company has made strategic investments to fuel its digital transformation journey. Investments in Apcos Naturals and HW Wellness Solutions underline Marico's commitment to building scalable digital-first brands. These investments align with Marico's pursuit of sustainable growth and innovation in the ever-evolving FMCG landscape and that’s what makes it the Top monopoly stocks in oil.
Strong Position in Market Segments
Marico's commanding position in the market is underscored by its leading market shares in key product segments. The company maintains a notable presence with brands like Parachute, Nihar Naturals, and Oil of Malabar, capturing a substantial volume market share of approximately 62%. Similarly, Marico sustains its market leadership in the super premium refined edible oils in consumer packs category, with a market share of about 83% as of March 31, 2022. The value-added hair oils category also showcases Marico's dominance, boasting a 28% value market share as of December. 31, 2022, with brands such as Nihar Naturals, Parachute Advanced, and Hair & Care firmly established. Therefore, the company is oil industry market leaders.
Geographical Expansion and Diverse Portfolio
Marico's revenue mix highlights its commitment to diversification. While coconut oil and refined edible oil portfolio contributed 65% of the revenue in FY22, there is a strategic focus on newer and rapidly growing product categories. This approach reflects Marico's dynamic response to changing consumer preferences and market trends, positioning it for sustained growth in diverse segments.
International Business Resilience
Marico's international business portfolio showcases resilience and stability due to its market positioning. The company has managed to establish a foothold in various product categories across different regions. While established segments such as coconut oil and value-added hair oils remain integral, Marico's expansion into shampoos, skin care, baby care, and other portfolios in different geographies bolsters its international revenue stream.
Robust Distribution and Financial Efficiency
Marico's robust distribution network, spanning clearing and forwarding agents, stockists, distributors, and direct retail outlets, fuels its impressive volume growth. The company's agility in reaching both rural and urban markets positions it for consistent business expansion. Despite raw material price volatility, Marico's strong brand portfolio, pricing power, efficient cost management, and nationwide distribution network enable it to maintain profitability.
Financial Risk Profile and Acquisitions
Marico's financial risk profile remains sturdy, supported by healthy cash generation, a well-structured capital framework, favourable debt protection metrics, and cautious capital spending. Dividend pay-out ratios have remained consistent, with the company's minimal long-term debt and bank limit utilization providing a favourable outlook. Marico's strong liquidity allows for moderate-sized acquisitions without significantly impacting key credit metrics, and the company's judicious approach to opportunities ensures its financial resilience.
The FMCG industry's competitive landscape presents a challenge, as players face heightened competition and the need to manage raw material price increases. While Marico has demonstrated the ability to maintain its market positioning and pricing, the industry's dynamic nature, influx of new products, and emergence of direct-to-consumer players in the premium segment contribute to intense competitive pressure.
Raw Material Price Fluctuations
Marico's exposure to raw material price fluctuations, particularly in sourcing key inputs like copra, sunflower oil, rice bran oil, and polymers, constitutes a notable risk. As these costs account for over 50% of sales, even slight price variations can impact operating margins. Marico's profitability hinges on geoclimatic conditions, international price dynamics.
Marico's business risk profile is expected to remain robust, bolstered by its well-established presence across diverse product categories. Furthermore, the financial risk profile is anticipated to stay sound, benefiting from robust cash generation and a favourable capital structure. There are many monopoly companies in oil sector but if you are looking for oil industry investment opportunities that is fundamentally strong then this stock is for you.
|Key Financial Ratios||As of FY23|
|Compounded Sales Growth (5 Yr)||9|
|Compounded Profit Growth (5 Yr)||10|
|OP Margin (%)||23.17|
|Cash Conversion Cycle||20|
|Return on assets (%)||20.8|