Understanding moat stocks

Understanding moat stocks

A moat is a hole that is used for surrounding Medieval castles as a defense measure to make it harder for invaders to attack the castle. The wider and deeper the moat, the more protected the castle.
The term Moat is also used in Economics (Economic Moats) and is a concept introduced by the business tycoon Warren Buffet. An Economic Moat is can be defined as an advantage a company enjoys over its competitors, that allows it to protect its market share and profitability.
Those who are new to the concept of Moat Stocks/ Monopoly might probably be wondering about why a Monopoly status is a privilege. Here’s why. The main threat to the continued success of any organization remains its competitors and keeping them at bay is critical for sustaining one’s position/ dominance. Over time, organizations are likely to see their bottom line eroding as competitors eat away at their market share. This is why any business (that intends to remain dominant) must establish an economic moat. Economic moat represents a company’s competitive advantage that allows it to earn above-average profits for a sustainable period. Such companies become the trendsetter and the price leader, with other players gradually following the suit.
Here’s a challenge for you. List down a few of the moat stocks you are familiar with and their whereabouts you could recollect. How many could you list?
Given below are some of the moat stocks we have handpicked for you.
IRCTC
Indian Railway Catering and Tourism Corporation (IRCTC) is involved in the provision of ticketing, catering, and tourism services to the Indian Railways. Initially established as an organization fully owned by the government, it has stocks that are currently traded on NSE. The monopoly status enjoyed by IRCTC stems from the fact that it is the only organization that operates Indian Railways. Lately, the government announced that it has plans of privatization of this sector in a phased manner.
PIDILITE INDUSTRIES
Pidilite Industries is an Indian manufacturing company involved in the production of diverse goods such as adhesives, sealants, waterproofing solutions, construction chemicals, arts & crafts, industrial resins, polymers, etc. Pidilite’s secret of success lies in its habit of constantly modifying its products and producing new products to satisfy its consumer demands. It owns Fevicol-A household name and India’s most trusted adhesive brands.
HAL
Headquartered in Bangalore, India, Hindustan Aeronautics Limited (HAL) is a government-owned aerospace and defense manufacturing company. The company incorporated as Hindustan Aircraft Limited has been operating in the industry for more than 79 years. It is one of the major aerospace companies in Asia, that began manufacturing aircraft in 1942 with licensed production of aircrafts such as Harlow PC-5, Curtiss P-36 Hawk. Managed by the Ministry of Defence of the Indian Government, it builds and modifies military and civil aircraft and is involved in the process of airport maintenance. Currently, the firm is involved in designing and manufacturing fighter jets, helicopters, jet engines, and marine gas turbine engines, avionics, software development, spare supply, overhauling, and upgrading of Indian military aircraft.
ITC Limited
Established as Imperial Tobacco Company of India Limited in 1910 with Kolkata as its headquarters, the ITC Group operates in a diverse group of industries ranging from Tobacco, FMCGs, hotels, agribusiness, etc. However, the group’s main business continues to be in the domain of tobacco. The Company is recognized as one of the most valuable business corporations and was ranked as the most admired company in the country, according to a survey conducted by Fortune India, in association with Hay Group. The top competitors of the ITC Group include Dabur, Nestle, Hindustan Unilever, and Tata.
MONOPOLY- A BOON
Companies with that monopoly status enjoy a lot of benefits with the constant demand for their products being one of their major advantages. Monopolist firms have the freedom to adopt the strategy of price differentiation wherein the same product is sold at different prices to different target markets. However, this category of market functions within certain drawbacks. Lack of competition in the market can often lead to inefficiency in operations. Besides, price differentiation can put some consumers at disadvantage.
Thus, we can say that it is an extremely challenging task for businesses to attain Monopoly status, and maintaining that status is a herculean task, despite having certain advantages. However, the absence of barriers to entry in various industries makes it relatively easier for businesses to enter a market and tap into potential opportunities.
“Monopoly is the condition of every successful business.”- Peter Thiel

Idea & Concept: Mr. Ajith
Content Development: Aswathi Satish, Niyog Consultancy Services Pvt Ltd