Here Are India Inc.’s Consistent Market Share Gainers

One advice from several market veterans to investors to ride out this pandemic-fuelled uncertainty is to look for companies that are leaders in their sectors.Atul Suri of Marathon Trends Advisory and Macquarie India’s Head Sandeep Bhatia told BloombergQuint in separate conversations that market share leaders are better placed at a time when the pandemic is expected to hurt earnings. And a recovery will be painful with Asia’s third-largest economy estimated to contract sharply by most economists.The logic is that the market leaders are better equipped to cushion themselves, they will grow faster once the economy rebounds after the pandemic. They scale of operations could contribute to higher profitability at lower costs.But how to identify these market leaders? One way could be to look at sectoral leaders that consistently gained market share over peers in the last few years till the pandemic struck. And that threw up a list of six companies..Selection CriteriaCompanies whose market share has been consistently rising or has doubled between 2017 and 2020.A minimum of 5% share in 2020.Companies that fall in the industry group with a minimum 10 players.Market cap greater than Rs 2,500 crore:Here’s how these market leaders fared and was analysts expect:.Apollo HospitalsBloomberg Classification: Medical-HospitalsIndia’s largest hospital chain saw its market share grow from 28.5% in 2017 to 36.4% in 2020.In FY20, revenue and adjusted earnings per share rose 16.4% and 93.4% year-on-year, respectively.Elara Capital said in a report that the company can accelerate growth without making large capital investments as its net debt is expected to reduce from 2021-22 onwards. New hospitals are performing well and will contribute in improving margin.JP Morgan said the medium-term growth trajectory is on-track, aided by expansion in new hospital margins, and improvement in profitability.Risks: Drop in hospital occupancy and impact on profitability due to the pricing caps imposed by states on Covid-19 treatment..UltraTech CementBloomberg Classification: Building Products-CementIndia’s largest cement maker’s market jumped from 14.3% in 2017 to 20.6% in 2020.Revenue and Ebitda declined 33% and 30% year-on-year, respectively, in the quarter ended June, the period worst affected by the Covid-19 lockdown.Ebitda margin improved to 26.5% from 25.9%, aided by a 34.3% drop in expenses.According to a report by KR Choksey, the cement maker’s expansion in the eastern region will help it to gain market share in the region. UltraTech is likely to be a key beneficiary of the government’s recently announced fiscal stimulus and infrastructure push as it’s in a position to cater to the additional demand, the report said.ICICI Direct said that the management’s focus on gaining retail share, cost cuts, pan-India presence and falling net debt are key growth drivers.Risks: Delay in construction and infrastructure activities and labour shortage for end-use industries..Polycab IndiaBloomberg classification: Wire and cableIndia's No. 1 maker of cables and wires improved market share from 22.3% in 2017 to 25.4% this year.In June 2020 quarter, the revenue, Ebitda and net profit declined 50%, 74%, and 13%, year on year, respectively.Anand Rathi sees 2020-21 to be tough but strategic steps like reducing obsolete stock, financing distributors and dealers to improve working capital and cost cuts will offer long-run benefits. The company’s leadership in the fast-growing cables and wires (including exports), a wide distribution network, and a healthy balance sheet (over 20% return on equity in 2019-20) are other positives, it said.According to a report by LKP Securities, the growth in the wires & cables business will be supported by the government’s initiatives in the infrastructure, power, housing, and agriculture sectors. Polycab’s strong brand equity and distribution network will help the company in recovering from the loss of operations in the first quarter, the brokerage said.Risks: Volatility in raw material prices and the slowdown in government spending..TitanBloomberg classification: Retail-JewelleryIndia’s biggest branded jewellery maker saw its share jump from 4.2% in 2017 to 8.7% in 2020.The company’s jewellery business’s revenue declined 56% year-on-year due to lockdown in the quarter ended June. And it reported an operating loss of Rs 253 crore due to higher other expenses.ICICI Direct, however, remains positive on the long term growth of the company citing brand patronage, comfortable liquidity position and more than 22% return on equity and 28% return on capital employed in 2019-20.A JP Morgan report said Titan stands to benefit from higher market share as jewellery purchases shift to organised players and unorganised market becomes less competitive. It cautioned that risks from Covid-19 impact will be a drag on 2020-21 operating metrics.Risks: Delayed recovery in jewellery business after the Covid-19 disruption..HDFCBloomberg classification: Finance-mortgageIndia’s largest housing finance company improved market share from 58.1% in 2017 to 64.7% in 2020.Operating profit and net earnings rose 21% and 37% sequentially but fell 1.4% and 5% over a year earlier, respectively, the quarter ended June.A report by Nirmal Bang said the mortgage lender has better asset quality than peers as non-individual bad loans declined 61 basis points quarter-on-quarter to 4.1% as of June. It cited a strong balance sheet and year-on-year improvement in return on assets from 2.2% to 3.6% and in return on equity from 13.5% to 22.2% in 2019-20 for its optimism.JP Morgan said HDFC’s falling cost of funds, improved pricing in the corporate business and better servicing will help it to counter the competition from public sector banks. It has sufficient capital and provisions to take care of any significant hit in its books, it said.Risks: Delayed recovery in the real estate sector and increased provisions due to Covid-19 could affect profitability in the near term..KEI IndustriesBloomberg classification: Wire and cableThe maker of cables and wires improved its market share from 10.8% in 2017 to 19.8% in 2020.Revenue and net profit declined 31% and 21%, respectively, over a year earlier in the quarter ended June.Anand Rathi, however, said that the company reported strong performance in a tough quarter. It cited order book of Rs 2,950 crore, diversified customer base, strong exports growth of 70% and better returns ratios (RoE: 17%/RoCE: 19.3% in 2019-20) as positives.According to an Elara Capital report, with the improvement in the dealer network and efforts to build capacity, the company is well poised to take advantage of India’s infrastructure investments of Rs 111 lakh crore in the next five years.Risks: Delay in industrial capex, low order inflows, slowdown in execution, and higher raw material prices.

Here Are India Inc.’s Consistent Market Share Gainers

Sectoral leaders can help ride through uncertainty and recoup faster. But how to identify these?

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