»5 Minute Wrap Up by Equitymaster

On This Day - 23 NOVEMBER 2018
We're Ready with Our Latest Recommendation: An Infinite Return Business

Sarvajeet Bodas, Research analyst, The 5 Minute Wrapup

I wrote you last week about my latest recommendation: An Infinite Return Business. If you missed it, you can read it here.

I wrote about the duopoly nature of its industry and how it is protected by regulatory policies.

Basically, the regulations are so stringent that it's almost impossible for a new player to enter. In fact, even the pricing is decided by the regulator.

Interestingly the company we're recommending is gaining market share within the duopoly, i.e. from the other player.

Yes, despite the duopoly and the tight control over pricing - it's gaining market share.

At Smart Money Secrets, we try to find companies that are gaining market share in their industries.

We believe, the first important sign of an excellent company is that it constantly proves its ability to improve market share.

In other words, it has something going for it that pulls in customers and grows faster than the industry.

But it's not so simple. Gaining market share can good or bad.

--- Advertisement ---
A Business that Offers Infinite Returns?

The editor of Smart Money Secrets calls this an 'Infinite Return Business'.


You'll find full details in the recommendation report…

It will be released to subscribers this Monday.

Click here to get access now.

Bad Market Share Gain - This happens when one company under-prices the other and takes the profitability of the whole sector down. We call it a pricing war. This is what we saw in Telecom over last decade and specially after the emergence of Reliance Jio.

This kind of market share gain may not be sustainable because the only point of difference in the mind of the customer is the price...and that is not a good point of differentiation in my view. A company should raise its prices with inflation and not reduce them.

Market Share Gain + Price War = Bad for the Company

Good Market Share Gain - This is the category we want our companies to be in. This happens when a company gains market share by providing customers differentiation in terms of service or product.

Generally, this differentiation is difficult for competitors to imitate.

And because of this, the company can keep on gaining market share year after year.

This is generally a Win-Win Solution for both the customer and the company.

Market Share Gain + Differentiated Offering = Good for the company.

Sustainable Market Share Gain = Differentiation in Offering

Food for thought - If a company is the lowest cost producer and still provides differentiated services/products at most competitive prices, it is very good for the company.

So, when you see a company gaining market share, don't jump in thinking it is strong player.

Rather, activate the Sherlock Holmes in you and identify the source of the market share gain. More on this in today's Chart of the Day.

Coming back to our recommendation. I was surprised to see this company gaining market share in a duopoly with pricing control.

In fact, if we look at the core services, this company has nothing different to offer.

Then how it is gaining market share?

--- Advertisement ---
How to Find 'Infinite Return Businesses' to Invest in

The editor of Smart Money Secrets calls this an 'Infinite Return Business'.


He's all set to reveal the details in a recommendation report that goes out this Monday.

Click here to get all the answers.

Well after some brainstorming, reading a lot about the company, meeting the management, and finally few of its customers, we found the answer.

This company has devised a great offer that takes away the pain of its customers.

It studied their problems and pains they have while conducting their business and devised an offer that solved it. It's business then took off.

It made the offer in such a way that it was a Win-Win solution for both, the customer and the company itself.

What a sound strategy.

A little tweak in the offer and a little tweak in the payment terms resulted in sizeable profits.

And that is the reason we believe our recommendation will do well. We believe, the market-share that it is gaining is sticky and here to stay. The profits will keep growing.

We are publishing the detailed recommendation report on Monday.

If you're a subscriber, you can expect it in your inbox after market hours.

Stay tuned...

If you would like to sign up for Smart Money Secrets, you can do so here.

Chart of the Day

Talking about market share gains, it is very interesting to see a company gaining market share on the back of product/service differentiation.

However, many a times, investors and analysts get excited by looking at market share gains even if they are at the expense of profitability.

Thus, whenever we see a company gaining market share, we should be sceptical and try to investigate the reason for the same.

This is exactly what we did.

When we saw the market share gains of this company, we were stunned.

If You See This Kind of Market Share Gains, Don't Get Excited but Investigate

I activated the Sherlock Holmes in me.

The first thing I did was find out what this company is doing different from the other player and what are the dynamics of the industry.

What we found was interesting. This company does two things differently.

First, chose a different market and second, it tried to understand the problems or the pain points of its customers...and provided solutions to them.

It offered them a Win-Win solution.

Happy Customer + Happy Company = A Win-Win Solution

And if history is to be believed, win-win solutions have durability and longevity against a win-lose or loose-loose solutions.

At Smart Money Secrets, we are always try to find obvious answers, which off course don't look obvious until we find them.

Sarvajeet Bodas
Sarvajeet Bodas
Research Analyst, Smart Money Secrets

PS: You can now track the moves of 40+ super investors of India and receive cherry-picked recommendations of the most lucrative stocks bought by these market gurus. Smart Money Secrets is a premium stock recommendation service based on following the smart money, the market activities of the very best investors in India. Get access to this exclusive stock recommendation service here.

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.

Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement

Disclosure & Disclaimer: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. The Author does not hold any shares in the company/ies discussed in this document. Equitymaster may hold shares in the company/ies discussed in this document under any of its other services.

This document is confidential and is supplied to you for information purposes only. It should not (directly or indirectly) be reproduced, further distributed to any person or published, in whole or in part, for any purpose whatsoever, without the consent of Equitymaster.

This document is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity, who is a citizen or resident or located in any locality, state, country or other jurisdiction, where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject Equitymaster or its affiliates to any registration or licensing requirement within such jurisdiction. If this document is sent or has reached any individual in such country, especially, USA, Canada or the European Union countries, the same may be ignored.

This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Our research recommendations are general in nature and available electronically to all kind of subscribers irrespective of subscribers' investment objectives and financial situation/risk profile. Before acting on any recommendation in this document, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the securities referred to in this material and the income from them may go down as well as up, and subscribers may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Information herein is believed to be reliable but Equitymaster and its affiliates do not warrant its completeness or accuracy. The views/opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. This document should not be construed as an offer to sell or solicitation of an offer to buy any security or asset in any jurisdiction. Equitymaster and its affiliates, its directors, analyst and employees will not be responsible for any loss or liability incurred to any person as a consequence of his or any other person on his behalf taking any decisions based on this document.

As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst) 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407