Best Monopoly Stocks in Mining and Mineral Products

Monopoly stocks are companies that operate in markets with minimal or no competition, granting them the power to control and dominate those markets. These companies possess substantial market influence, often because of formidable obstacles to market entry, like the need for substantial capital investments or patented technology.

These stocks offer investors significant advantages owing to their commanding market presence. They are often viewed as superior investment choices due to their steady revenue streams and predictable earnings growth. Consequently, these stocks can yield substantial returns for investors and are frequently seen as enticing investment prospects.

Best Monopoly Stocks in Mining and Mineral Products

The mining sector in India stands as a fundamental pillar of the nation’s economy. It serves as a vital source of primary raw materials for numerous critical industries.

India boasts significant reserves of various minerals, including Iron ore, Bauxite, Chromium, Manganese ore, Baryte, Rare earth, and Mineral salts. Notably, India ranks as the world’s second-largest producer of crude steel. India also ranks fifth and fourth for coal and zinc production in the world, respectively.

However, within the coal and zinc industry, a substantial portion of the country is represented by only two primary producers, monopolistically contributing more than 82% and 78% to the coal and zinc industries, respectively.

In this blog, we’ll delve into two economic powerhouses in India that hold monopoly over the market:

1. Coal India Limited (CIL)
2. Hindustan Zinc Limited (HZL)

Let’s get started!

Now, let’s look at these stocks in brief.

Coal India Limited – Coal

Coal India Limited is a government-owned corporation engaged in the sale of coal and coal-derived products for industrial use. It operates in various coal categories, including coking coal, semi-coking coal, non-coking coal, washed coal, and coal fines. Accounting for approximately 82% of the nation’s coal output, it ranks among the world’s major coal producers.

Corporate Profile:

Coal India Limited was founded in 1973 as Coal Mines Authority Ltd. It is headquartered in Kolkata. The company is a “Maharatna” enterprise under India’s Ministry of Coal. CIL is the global leader in coal production, with operations spanning eight Indian states and a mining subsidiary in Mozambique named Coal India Africana Limitada.

Market Position:

• Holds a monopoly, contributing over 80% of India’s coal supply, primarily to the power sector.
• In FY 2021–2022, it sanctioned 16 mining projects with a capacity of 99.84 MT annually, completing five projects with a 12.60 MT annual capacity in FY 2022.

Production and Utilisation:

• Manages 318 mines as of April 1, 2022, comprising underground, opencast, and mixed mines. 
• Operates 13 coal washeries, including those for coking and non-coking coal, with a total capacity of 24.94 MTY.
• Capacity utilisation stood at 77% in FY 2022, processing 1,733 M. Cum of coal and overburden.

Product Range:

Offers a diverse product portfolio, including coke, semi-coke, non-coke, washed coal, and value-added products like tar, heavy oil, and more. Its major customers include industries like coal cement, fertiliser, and brick kilns, accounting for 82% of total output.

Financial Highlights:

• Invested ₹15,400 crore in capex during FY 2022, supported by internal resources.
• Established subsidiaries for solar PV and renewable energy production in 2021.
• Committed to reducing its carbon footprint, with plans to install 3,000 MW Solar Projects by FY 2024. Emphasises environment-friendly coal loading and handling.

Market Insights:

The stock dynamics of CIL have been influenced by recent increases in government share supply and equity dilutions, leading to changes in the company’s financial landscape. E-auction prices declined due to increased volumes and global coal price drops.

Global aluminium production trends indicate subdued growth.

Performance Highlights:

• Despite e-auction price volatility, CIL’s EBITDA remains strong, supported by additional charges. 
• The aluminium market outlook remains cautious, with price risks associated with global demand.
• However, profit pool analysis in the logistics sector reveals changing dynamics, with rail and trucking shares shifting.

Outlook:

CIL’s diversified revenue streams and competitive pricing strategy provide resilience. The aluminium market may face pricing pressure due to increased capacity in China. The company’s annual report offers a balanced view of the company, highlighting both positive and challenging aspects. Investors can make informed decisions based on the comprehensive market assessment presented in the report.

Hindustan Zinc Limited – Zinc and Silver 

Hindustan Zinc Limited (HZL) is an Indian integrated mining and resources company with a strong presence in the zinc, silver, cadmium, and lead production sectors. The company holds a significant market share equivalent to 78 % in the primary zinc business.

Corporate Profile:

HZL is the fourth-largest zinc-lead smelter globally and ranks as the world’s second-largest zinc-lead miner. The government of India currently holds a 29.5% stake in the company, while Vedanta Limited, the parent company, holds 64.9%.

Market Position:

HZL enjoys a dominant market share in the zinc sector. It operates in a competitive landscape with industry rivals like India Coal, Hindalco, and NALCO.

Production and Utilisation:

HZL operates four mines in India, including Rampura Agucha, the world’s largest zinc mine. The company also operates three smelters and two refineries. In FY 2022, HZL produced 9,60,000 tonnes of zinc, 240,000 tonnes of lead, and 6.6 million ounces of silver. The company’s capacity utilisation stood at 94% in FY 2022.

Product Range:

HZL’s product portfolio includes zinc, lead, and silver. The company also produces sulphuric acid, which is used in the production of fertilisers. HZL’s major customers include the construction, automotive, and electrical industries.

Financial Highlights:

• In FY 2023, Vedanta and HZL invested $1.2 billion crore in capex, supported by internal resources. 
• HZL has also announced plans to invest in renewable energy, with a target of 300 MW solar power capacity by 2022.

Market Insights:

• The global zinc market is expected to grow at a CAGR of 3.8% from 2021 to 2026. 
• The lead market is expected to grow at a CAGR of 3.1% from 2021 to 2026. 
• The silver market is expected to grow at a CAGR of 7.5% from 2021 to 2026.

Performance Highlights:

• HZL’s EBITDA margin stood at 52% in FY2023, supported by higher metal prices. 
• The company’s revenue from operations increased by 16% in FY2023.
• HZL’s Rampura Agucha mine was recognised as the “Best Mine in India” at the 18th Annual Mines Safety Week in 2022.

Outlook:

HZL’s strong financial performance, high ROCE, and robust dividend yield make it an attractive investment option. The company’s profitability metrics, including net profit margin and operating profit margin, reflect its efficiency in the industry. A low debt-to-equity ratio indicates a relatively low level of financial leverage. HZL’s dividend yield of 19.59% may appeal to income-focused investors.

Conclusion

In conclusion, Coal India Limited (CIL) and Hindustan Zinc Limited (HZL) serve as prime examples of “monopoly stocks” in the Indian market. CIL’s undisputed leadership in coal production and HZL, commanding zinc, lead, and silver sectors, exhibits impressive financial performance and optimistic growth prospects. Both firms have smartly ventured into renewable energy, displaying adaptability to industry changes, and offering investors lasting growth and stability.

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Disclaimer: This blog is exclusively for educational purposes. The securities quoted are exemplary and are not recommendatory.