Warren Buffet popularized the term "moat" in the investment industry.
A moat is a deep, broad ditch enclosing a castle or fort, generally filled with water and used as a defense against attack, according to the dictionary. These moats were constructed in medieval times to make it as difficult as possible for an adversary to breach the castle in the event of an attack.
Which Indian companies will draw Warren Buffett's attention if he searches for equities in India? He'll put his money into stocks with a large economic moat. In simple terms, a corporation with a broad moat acts as if it has a market monopoly.
When it comes to investing in the stock market, prudent investors consider the concept of a Wide Economic Moat. In truth, a wide economic moat is a metric for determining how real and long-lasting your competitive advantage is. A company with a large economic moat usually commands a higher stock market valuation. To comprehend what a stock moat is, one must first comprehend the many types of moats that a company might build.
Asian Paints has a strong financial track record, which indicates that the company has an impenetrable moat. A broad moat allows a corporation to withstand competition challenges and remain a market leader. Asian Paints Ltd has established two impenetrable moats over the years: high brand equity and a strong distribution network.
To date, both of these moats - high brand equity and a strong distribution network - have been the company's main growth drivers. Asian Paints goods are extensively available since no merchant can do without them.
DMart is a wonderful company whose moat is its supply-chain management - how they manage their inventories, pay their suppliers on time, negotiate the best pricing, ensure product quality, pass on savings to customers when possible, and so on. In the retail industry, they have enviable stability in debtor days, inventory turnover, and other return percentages.
DMart, unlike any other retailer, has a cluster-based expansion strategy. Before expanding to other locations, the Company is concentrating on extending their penetration in places where they currently have a presence. All of its franchises are lucrative as a result of its business plan. This is quite uncommon in retail establishments, with even Reliance Fresh having to close some of its locations due to diminishing revenues.
Fevicol - Pidilite
Consumer & bazaar and business to business are the two key segments in which the company operates. Adhesives, sealants, art and craft products, and building and paint chemicals are all part of the consumer and bazaar business. Nearly 80% of overall revenues come from a diverse range of items aimed at carpenters, painters, plumbers, homeowners, and students.
It's no surprise that Buffett like the metric: many companies with high ROEs display the high-quality, moat-like business characteristics that he enjoys discovering.
The company's brands are divided into three key areas. Fevicol, Fevicol Marine, Fevi Kwik, M-seal, and Fevicryl are among the company's most well-known names. Even in rural places, these brands have a large distribution and market dominance. They're high-volume, low-margin items.
In India, Pidilite is the largest adhesive manufacturer. The company began operations in 1959 with its most well-known adhesive brand, Fevicol, and has since built a presence in more than 80 countries throughout the world. Adhesives, sealants, pigments, industrial resins, construction and paint chemicals, and other products are presently produced by the company. It currently has over 500 goods in its portfolio.
Maruti has carved out a niche in the consumer auto market by regularly introducing new models that cater to practically every demographic.
In India, the corporation is involved in the passenger car segment of the automobile industry. Scale, innovation, distribution, and a low-cost structure are all used to achieve market domination in this industry (as the business is asset-heavy). In India, the firm is the market leader in the passenger segment, with exports to 95 countries. The business strategy is such that passenger car sales account for the majority of revenue (about 85% of total revenue), followed by spares, service, and component sales (around 11 percent ).
Although the company has a strong track record of financial performance and profitability, the industry is experiencing a significant slowdown. Because of the pandemic's global scope, export growth will also slow in the future.
SBI has a network that it can leverage across all of its activities, including banking, insurance, and asset management.
India's largest bank is the State Bank of India (SBI). The government-owned bank has a 23 percent asset market share and a 25 percent market share for total loans and deposits.
In terms of total assets, SBI is India's largest bank. The opening of salary accounts for all government employees has been one of the company's largest moats. This also helps them to cross-sell their items to their current clientele.
According to Mcap, Tata Consultancy Services has recently overtaken Accenture as the world's largest IT firm. Tata Consultancy Services (TCS) is a Tata Group company. Information technology (IT) services and consultancy are the company's specialties. They now have a presence in 46 countries. Because of significant switching costs, TCS has a tight economic moat. The organization is concentrating on developing and maintaining long-term customer connections that will result in repeat business. They benefit greatly from the switching expenses their clients may incur, in addition to its size being a considerable moat. They continue to profit from the first-mover advantage in the United States, with 95 percent of their new business coming from their existing customers.
Nothing beats investing in a firm with high-profit margins for value investors. A large moat, on the other hand, is not a financial metric or a ratio that can be easily calculated. Based on the self-study, the researcher must draw a conclusion (the four actions listed above). It's also a good idea to keep an eye on the overall market scenario in addition to the company's finances. Companies that operate within a moat must operate at a high-profit margin (margins). However, it is also necessary to examine the margins' long-term viability. As a result, one-year margin figures are insufficient. We should seek for data that have remained consistent over the last 5-10 years and have a high average.
The stocks mentioned above are only examples of moat businesses; however, investors must conduct their own due diligence before investing in any equities. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates, and authors do not accept culpability for losses and/or damages arising based on information in the article. Caution needs to be exercised as mutual funds are subject to risks associated with the stock markets.