Skip to main content

The quest for a profitable stock market idea is long and arduous. When the markets start to enter the bullish phase, investors chase companies with good growth prospects. During the bullish peak, a special emphasis on value stocks eliminates costly bets. But what happens when it becomes difficult to choose between one or the other of these investment styles? Currently, the valuation spread between value stocks and growth stocks is at an all time high given the high volatility. In such conditions, a bottom-up approach focused on the potential return is useful.

This approach focuses on companies with niche or near-monopoly products with high barriers to entry and higher margins. ETIG shortlisted Clean Science and Technology, Sudarshan Chemical Industries, Tatva Chintan Pharma Chem and Sona BLW Precision Forgings. They are leaders in niche products in India and abroad.

For example, Clean Science is the world’s largest producer of hydroquinone monomethyl ether (MeHQ), an absorbent used in baby diapers and sanitary napkins. The company has a global market share of around 52%. It plans to increase capacity by almost 65% in 2-3 years. The company has developed a greener way to produce anisole using vapor phase technology, making it the only player in the world to manufacture anisole. Innovation has contributed to the expansion of margins and cost competitiveness.

Pune-based Sudarshan Chemical became the world’s third largest pigment manufacturer in 2011 among the top 20 players. Despite the commoditized nature of pigments, the company personalizes the end product for each customer, creating barriers to entry for new players and also requiring a long cycle of approval from customers. It undertook a 750 crore investment to increase its capacity and built one of the most efficient chemical complexes in India and the world, with a strong emphasis on effluent treatment. This will help Sudarshan to become one of the leading providers of world-class color solutions.

Investors may also consider Tatva Chintan, the only manufacturer of structured directing agents (SDA) for zeolites in India and the second in the world. Zeolite-based SDA is used as a catalytic converter to reduce NOx emissions in BS6 engines. The SDA segment contributes 40% of the total turnover. Advanced chemistry is a high barrier to entry. In addition, the company manufactures electrolyte salt for supercapacitor batteries, which is crucial for battery efficiency.

The fourth company on our radar is Sona BLW Precision Forgings. The company’s expertise in precision forging for gears has given it an advantage in the electric vehicle (EV) segment as it can meet requirements such as high power density, better torque and vehicles. lightweight at lower prices. Although there is a high barrier to entry for EV equipment suppliers, Sona BLW’s ability to gain share is higher due to its technological prowess and lower cost advantage. It has an installed capacity of 40 million gears per year and plans to invest 1,000 crore over three years to increase its capacity.