Companies do better and get good margins in the absence of competition in an industry. Very few companies have true monopolies, but most of them are almost monopolies. They have brand recognition or they have dominance in any particular geography.
Brokerages see an upside in these two companies that enjoy strong monopolies in their category:
Indian Energy Exchange (IEX)
Virtually, IEX has a monopoly in the power exchange sector. Although the Power Exchange of India (PXIL) is another nodal power exchange in the country, IEX accounts for 95% of the short-term electricity contracts traded over exchanges in India.
Exchanges usually occur in monopolies or duopolies. Conser the examples of the NSE and the BSE in the stock market and CDSL and NSDL which are depositories.
This is mainly because of the network effect. All buyers and sellers are on a particular exchange, therefore a buyer or seller would not switch to another exchange because everyone there on the former exchange. In other words, the first entrant in the industry is at a huge advantage. IEX being the first has a majority of the volumes on the exchange.
More participants mean better efficiency and better price discovery. New participants are likely to prefer the market leader in such cases.
ICICI Direct has a buy call on the shares of Indian Energy Exchange Limited with a target price of ₹ 190. The current market price of the company is ₹ 163.50 and this implies an upside of 16.21%.
IRCTC
IRCTC entered the primary markets in October 2019 when it got listed on the Indian bourses. The company enjoys a strong monopoly and has a 100% market share in the rail network.
IRCTC is the only entity authorised by Indian Railways to offer online railway tickets. Further, it is the only entity authorised to manage catering services on trains and major static units at railway stations.
Investors showed huge interest when the company came up with its IPO. Its IPO was oversubscribed 112 times – the highest for an IPO of a state-owned company. It has shown promising growth over the past five years. Its shares have given multibagger returns of 367.82% in the past five years.
IDBI Capital is bullish on the stock. It has a buy rating on the stock with a target price of ₹ 804 /share. IRCTC’s shares are currently trading at ₹ 729.00 and this indicates an upside of 10.29%.
Written By Simran Bafna
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