SAPM III UNIT INDUSTRY ANALYSIS

SAPM III UNIT INDUSTRY ANALYSIS

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Industry Analysis

• After economic analysis, we ask the question “which industries will benefit most from the upcoming economic

environment?”

• This will lead to several industries, and our analysis will lead us to choose the one that we find to be best positioned.

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What is an Industry?

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INDUSTRY GROUPS

• AGRICULTURE

• STEEL

• HEALTH CARE

• RETAIL

• AUTOMOBILES

• PHARMACEUTICAL

• FINANCIAL SERVICES

• HOTEL & TOURISM

• IT

• TELECOM

• UTILITIES

• PAPER & PRINTING

• BANKING

• FMCG

• INFRASTRUCTURE

• TEXTILE

• OIL AND GAS EXPLORATION

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SIC Code

• ECONOMIC SECTOR

– Manufacturing

– Distribution

– Services

• PRODUCT AND SERVICES

– List of what is offered by the industry

• GEOGRAPHIC SCOPE

– Local ,Regional, National, International

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Computer industry

• Different Market Segments

– Personal Computer

– Micro Computer

– Mini Computer

– Mainframe Computer

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Furniture industry

Home Furniture Office Furniture

Wooden Hosehold

Metal Household

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Industry Analysis tries to find out following answer

Difference between return for alternate industries

Future performance of currently performing companyin one period

Consistent performance over time

Risk difference between different industries

Risk variability over period of time

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ECONOMY AND INDUSTRIAL SECTORS

The economic performance of a country,to a large extent,determineFavourable and unfavourablable climate for its industrial participation

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Reasons of industrial analysis

• Provide an awareness of market performance

• Identify investment opportunities

• Important part of company’s business plan– Financial institutions

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Data Requirement

Product Line

Complementry Product

Product Growth

Product Pattern(Seasonal,Cyclical)

Econimies of Scales

Suppliers

Labour Market

Buyer and their Behaviour

Substitute Product

Prices

Marketing and Selling

Cost Structure

Logistic

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Industrial Life Cycle

It is Rise and Fall in Customer Interest

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Industrial Life Cycle

• Rise and Fall of Customer Interest

• Depend on extent of technology and innovation

• Each phase passes from four stages– Introduction Stage

– Growth Stage

– Maturity Stage

– Stability/Decline Stage

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Feature of Industrial Life Cycle

Marketing

Manufacturing

Competion

Risk

Margin

Strategy

High AdvertisingSkimming Pricing

Under CapacityHigh ProductionCost

Low

High

High butlowprofit

Increase Market Share

High Advertising

UnderCapacity Shift to High Production

Many Competitor

Groth VsRisk

High and HighProfitHigh Prices

ChangeQuality &Price Image

Market Segmentation Services

Optimum Capacity

PriceCompetition

Low

Low duetoprice war

Marketing Effectiveness

LowAdvertising

Overcapacity, Mass Production

Exit,Fewer

Very HighRisk

LowProfit

CostControl

Introduction Growth Maturity Decline

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TOOLS FOR INDUSTRY ANALYSIS

Qualitative

• Cross sectional industry performance

• Industry performnce overtime

• Difference in industry risk

• SWOT analysis

• Competition over industry life cycle

Quantitative

• Analysing employmentdata

• Analysis of emolumentdata

• Input output analysis

• Earning dataanalysis

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Cross sectional industry performance

• Aimed at finding out variability in Rate of return among various industries in given time period

• compare performance

in term of

– Sale

– profit

– market capitalisation

– dividend

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Example

• Stock market growth=10%

• Industrial growth rates

= 5% to 8%

• Stock market growth=50%

• Industrial growth rates

= 80% to - 20%

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Industry performance over time

• To identify stage of product life cycle

• Time duration 3 to 5 year

• Difficult to forecast future performance due to

compositional change

in industry

technological change

innovation

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Differences in industry risk

• Besides focussing on return also consider risk

• Specifically investigate two question– Does risk differ across industries in given time period

– Are industry risk stable over time

• Measured in term of variability in return/productive value

• Risk pattern also depend on economic situation

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SWOT ANALYSIS

• Assess strenthand weakness

• Internal capability ofindustry

• Competitive advantage or defensive against weakness

Strenth & weakness Opportunity & threat

• Evaluate opportunity and threat

• Environmental trend

• External situation

– Competitive forces

– Technology

– Government regulation

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SWOT analysis

STRENTH

• Capicity

• Competitive advantage

• Good custermor service

• High quality product

• Customer loyality

• Financial resources

WEAKNESS

• Limitation default defect

• Competitor has exploitable advantage

• Example:– Small scale industry hs poor

financial resources

– Industry that cater domestic market, would have weakness of catering to global market

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SWOT analysis

Opportunity

• Favourable condition in environment

• May be trend or need

• Growing market of industry product

• Shrinking competition

• Identification of new market

Threat

• Unfavourable situation

• May be barrior or constraint

• Slowing domestic economy

• Competition

• New entrant

• New technology

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SWOT analysis

Confront Avoid

Exploit Search

Strenth Weakness

Internal environment

Threat

External environment

Opprtunity

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Analysing Employment data

• Life cycle can be predicted by Product life cycle

• Help in identify key industries

• Identify growth and decline

• Evaluate importance of industry to economy

• DetermineCompetitiveness among industries

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Data Requrement

• Industry wise total employment in current as well earlier years• Industry wise total emolument data in current as well earlier years

Employes:Who receive wge and hold clerical superwisery post

Duration of analysisShort : Changing environmentLong : Predictive purpose

Base year

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• Employment share of sub industry

= Employment in sub industry *100

Total employment in industry

Employment in wools=2000

Total in textile =11500

% Share =2000/11500*100 ie 17.39%

• Change in employment

Current yr no. Of employes _1 *100

Base yr no. Of employes

Current employes:1500

Base yr employes:1200

% change : [(1500/1200)-1]*100ie 25 %

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Location quotient:Measure concentration of industry’s

concentratio in an area relative to rest ofnation

• Industry location quotientIndustry share of regional employment

Industry share of national employment

or

Industry’s regional employment

Total national employment

Industry national employment

Total national employment

% change in locationquotient

• [(Current yer LQ/Base yr LQ)1]*100

• LQ = location quotient

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Employment shift analysis

Base yr total national employment

National avarage growth rate

Current yr total national employment -1 Base yr total national employment

Industry avarage growth rate

Regional industry base year employment * national avg growth rate

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Emolument Data

• Sum of wages and salaries,employer’s contribution to provident fund

• And other fund and workmen and staff welfare expenses

Emolument per employ=Industry regional emolument

Industry regional emolument

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• Change in emolument per employe by industry

Current yr emolument per employe

Base yr emolument per employe -1 * 100

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Input output analysis

• Total input

Include value of fuel,material consumed,expenditure,repair costtaxes,,postage,banking charges

• Total output

value of product

byproduct

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