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Industry Analysis

Relationship between economy & industry Past performance Demand sustainable ? Nature of competition in the industry Change in life styles and social values Government policies and regulations.

Classification of Industries normally move together


Product based End use based National Industrial Classification (NIC) 2004 Keep in mind Size & Technology Inputs and their costs Govt. regulations

Economic Cycles and Industries


Classify industries as Cyclical- capital goods, luxury Defensive- basic necessities- food, basic clothing Growth cell phones in India Some causes Govt. spending, credit availability, overcapacity Sub prime crisis Forecast future direction of economy and identify industries that are likely to do well

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0 Jan-00 May-00 Oct-00 Mar-01 Aug-01 Jan-02 May-02 Oct-02 Mar-03 Aug-03 Dec-03 May-04 Oct-04 Mar-05 Jul-05 Dec-05 May-06 Oct-06 Mar-07 PSU Auto Bank Metal FMCG Oil & Gas

Sectoral Index Movements Jan 2000-June 2007

Models for AnalysisStages of the Life Cycle


Examples
Introduction Growth Maturity Decline

S A L E S

Human genome & health care Mobile phones FMCG Pagers,video tapes

Time

Porters 5 forces- to determine competitiveness and profitability


1.Threat of new entrants 2.Rivalry among existing firms 3.Threat of substitute products or services 4.Bargaining power of buyers 5.Bargaining power of suppliers

SWOT Analysis

Internal

Strengths

Weaknesses

External

Opportunities

Threats

Industry Cement

Strengths Growing demand from infrastructure and housing sector growing World class products, dominate domestic market

Weaknesses Transportation cost leads to regional supply constraints Cost of power and credit high, capital intensive, infrastructure bottleneck for export

Opportunities Increased demand as country develops, export potential Many products patents expiring , Intellectual property rights can protect new R&D

Threats Coal shortage, possible price control, cost of transportation (petroleum prices) Cheap imports from China etc.

Chemicals

Consumer durables

Strong distribution networks, established brands Demand

Seasonal demand, low purchasing power Price of imported crude oil, price controls on finished products High working capital requirement, technology and equipment outdated Fragmented and very competitive, price regulation by govt., low R&D

Huge potential market, increased sales with credit facilities Backward integration for oil exploration in India and abroad Global market

Cheap imports

Energy

Private players (for PSU's)

Food processing

Availability of raw material, Government support, domestic market Huge untapped domestic demand, low cost of manufacturing,

Global players, low salaries may lead to manpower shortage Imports

Pharmaceuticals

Many patents expiring(can produce), new products can be patented growing health care industry Growing global markets, high fashion market

Textiles

Raw material availability, skilled labour, domestic and export market

Low productivity, reservation for SSI, old technology

Cheap imports, trade agreements, consumer resistance to child labour etc.

Past performance
Profits Analyse revenues future demand , customers and their bargaining power Analyse costs fixed, variable, major inputs and supplier power, industry norms on credit Trends in ratios

Selected industry ratios (March 2007) PBDITA/ Total income Industry sets* % RONW % Current ratio Debt/Equity ratio Price/Book ratio A/C & refrigerators 6.27 15.21 1.21 0.69 4.73 Automobile 10.97 24.22 0.95 0.41 4.01 Cement 27.45 37.05 1.37 0.76 3.9 Cotton textiles 16.69 9.55 1.54 2.04 1.7 Crude oil & natural gas 47.48 25.9 1.07 0.01 2.19 Fertilisers 12.51 9.42 1.37 0.91 1.26 Food products 12.03 18.29 1.15 1.17 2.75 Paints & varnishes 17.18 34.33 1.04 0.28 5.99 Paper 17.98 12.5 1.38 1.19 0.99 Steel 23.64 30.74 1.42 0.96 2.26 Tyres & tubes 7.91 10.38 1.14 0.98 1.55 * predefined sets in the Prowess database

Period Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07

Selected ratios for the Cement industry over time Return on PBDITA/Total Net Current Debt/Equity Price/Book income % Worth % ratio ratio ratio 17.22 4.12 1.19 1.46 1 16.49 3.2 1.19 1.76 1.14 15.83 1.57 0.94 1.67 1.2 16.52 7.68 1.06 1.49 2.52 17.03 12.45 1.1 1.3 3.25 18.35 16.25 1.19 1 5.21 27.45 37.05 1.37 0.76 3.9

Government Policy
Social or political reasons for quotas, price controls, tariffs etc. Prices of petroleum prices Telecom licenses Luxury items, tobacco, liquor Credit policy and special rates

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