Description
It explains the industry life cycle, industry analysis of information technology sector, industry analysis of automobile sector and industry analysis of automobile sector
INDUSTRY ANALYSIS
INDUSTRY ANALYSIS PROCESS
Industry analysis process includes both a macroand a microanalysis. Macro analysis of industry focuses on the business cycles and their impact on the industry and identifying the critical economic drivers of an industry. The specific issues in macro analysis are:
? ? ? ? The business cycle and industry sectors Structural economic changes and alternative industries Evaluating an industry’s life cycle Analysis of the competitive environment in an industry
INDUSTRY ANALYSIS PROCESS
Micro Analysis of industry should be preceded by macro analysis. It involves deriving specific valuation for the industry using either the discounted cash flow or relative valuation approach. The basic issues are:
? Determining the required rate of return ? Growth projections ? Cash flow/ earnings projections.
MACRO ANALYSIS OF INDUSTRY
THE BUSINESS CYCLE AND INDUSTRY SECTORS • Industry performance is believed to be related to the stage of the business cycle. • Every business cycle is different. Besides looking at the history of cycles the evolving trends should also be analyzed. • Key variables related to economic trends and industry characteristics need to be identified and monitored. • Rotation strategy needs to be worked out.
MACRO ANALYSIS OF INDUSTRY
THE BUSINESS CYCLE AND INDUSTRY SECTORS • Higher inflation is generally negative for the stock market as it increases uncertainty about future prices and costs. It harms firms that cannot pass their cost increases on to consumers • Some industries like natural resource industries benefit from inflation. • Industries that have high operating and/or financial leverage may also benefit from inflation • High interest rate is normally harmful for industries at large. Construction industry may be worst hit. Banks usually get benefited.
MACRO ANALYSIS OF INDUSTRY
THE BUSINESS CYCLE AND INDUSTRY SECTORS • Weakening domestic currency benefits the export oriented industries • Liberalizing of exports or bilateral/multilateral trading arrangements give a boost to exports • Increased consumer spending/ consumer sentiments give a boost to consumer durables industry
MACRO ANALYSIS OF INDUSTRY
STRUCTURAL ECONOMIC CHANGES AND ALTERNATIVE INDUSTRIES • Shift from primary to secondary to tertiary sectors • Joint family to nuclear family form. More and more dual-career families especially in metros. Better prospects for construction, entertainment, automobile, convenience • Aging population in US and Europe means smaller business for industries like retailing; better prospects for financial services industry
MACRO ANALYSIS OF INDUSTRY
STRUCTURAL ECONOMIC CHANGES AND ALTERNATIVE INDUSTRIES • Technology development facilitates some businesses. E-business (recall the dot-com boom!); process technology development led to the development of small scale steel mills; from dish TV to Internet TV; from outsourcing of power to captive power generation; businesses like IT process outsourcing, telecommunications have been the major beneficiaries of the revolution in networking and optical fiber technologies.
MACRO ANALYSIS OF INDUSTRY
STRUCTURAL ECONOMIC CHANGES AND ALTERNATIVE INDUSTRIES • Regulations may benefit one industry at the cost of the other industry
STOCK MARKET AND BUSINESS CYCLE
Sector Rotation
INDUSTRY LIFE CYCLE
FORCE DRIVING INDUSTRY COMPETETION
INDUSTRY ANALYSIS (INFORMATION TECHNOLOGY)
INDUSTRY ANALYSIS (INFORMATION TECHNOLOGY)
• India’s IT industry can be divided into five main components, viz. software products, IT services, engineering and R&D services, ITES (IT-enabled services) and hardware. • Export revenues continue to drive growth. Amongst the export revenues, project-based services accounted for more than 50% of the Indian IT services exports. • Multi-year annuity based outsourcing agreements are expected to increase going forward. However, the majority share of the project based revenues is going to continue on the back of custom application development and application management. • Cost leadership has been the competitive edge of the Indian software sector. However, this seems to be threatened now by MNCs.
INDUSTRY ANALYSIS (INFORMATION TECHNOLOGY)
• Going forward, the advantage of low employee costs could peter out and the sector could get commoditized. • Increased competition within the segment could lead players to ramp up selling and marketing expenses in order to acquire new customers and improve the market share, which in turn will lead to further pressure on margins. • Increasing competition, pressure on billing rates and increasing commoditization of lower-end application development and maintenance (ADM) services. • Need to move up the software value chain. To provide higher value-added services as consulting, product development, R&D and end-to-end turnkey solutions. • Focusing on the domestic market will definitely be an opportunity to take advantage of.
INDUSTRY ANALYSIS (INFORMATION TECHNOLOGY)
Supply Abundant supply across segments, mainly lower-end, such as ADM. Lower in higher-end areas like IT/business consulting, but competition is very tough.
Demand
Demand largely depends upon the state of the global economy and willingness of corporations to go in for new software services and greater discretionary spending rather than consolidating existing systems. With uncertainties in global economy, domestic demand will be a key growth driver.
INDUSTRY ANALYSIS (INFORMATION TECHNOLOGY)
Barriers to entry Low in the ADM segment, which is prone to relatively easy commoditisation. In high-end services like IT/business consulting, where domain expertise creates a barrier. The size of a particular company/scalability also creates barriers to entry, as these firms have built up long-term relationships with major clients and to take business away from them is not easy. Low, due to intense competition (oversupply), particularly in the lower-end ADM space. Low differentiating power is also another reason. High, at the higher end of the value chain.
Bargaining power of suppliers
INDUSTRY ANALYSIS (INFORMATION TECHNOLOGY)
Bargaining power of customers High, mainly due to intense competition among suppliers/vendors. However, it is lower in higher-end services like consulting and package implementation. Competition is global in nature and stretches across boundaries and geographies. It is expected to intensify due to the attempted replication of the Indian off shoring model by MNC IT majors.
Competition
INDUSTRY ANALYSIS (AUTOMOBILE)
• The Indian automobile segment can be divided into several segments viz. two-wheelers, three wheelers, commercial vehicles (light, medium and heavy), passenger cars, utility vehicles (UVs) and tractors. • Demand is linked to economic growth and rise in income levels. Per capita penetration at around seven cars per thousand people is among the lowest in the world (including other developing economies like Pakistan in segments like cars). • While the industry is highly capital intensive in nature in case of four-wheelers, capital intensity is a lot less for two-wheelers. Though three-wheelers and tractors have low barriers to entry in terms of technology, four wheelers is technology intensive.
INDUSTRY ANALYSIS (AUTOMOBILE)
• Costs involved in branding, distribution network and spare parts availability increase entry barriers. With the Indian market moving towards complying with global standards, capital expenditure will rise to take into account future safety regulations. • As compared to their global counterparts, both the two-wheeler as well as four wheeler segments are relatively lesser fragmented. With more foreign players entering pricing power is likely to diminish going forward. • Industry has a high fixed cost component. Operating efficiency through increased localization of components and maximizing output per employee is of significance. • Volumes are important. India is a large market. • Premium products are also finding an increase in demand.
INDUSTRY ANALYSIS (AUTOMOBILE)
Supply Some amount of excess capacity. while India would be capable of producing 5.4 m cars a year by 2014, domestic demand is likely to edge up to between 3.5 and 4.8 m units. Largely cyclical in nature and dependent upon economic growth and per capita income. Seasonality is also a vital factor. High capital costs, technology, distribution network, and availability of auto components.
Demand
Barriers to entry
Bargaining power of suppliers
Bargaining power of customers Competition
Low, due to stiff competition.
Very high, due to availability of options. High. Expected to increase even further.
INDUSTRY ANALYSIS (POWER SECTOR)
• Currently central institutions like National Thermal Power Corporation (NTPC) and the State Electricity Boards (SEBs) dominate the power scene in India. • India has adopted a blend of thermal, hydel and nuclear sources with a view to increasing the availability of electricity. Thermal plants at present account for 64% of the total power generation, hydro-electricity plants contribute 25% and the rest comes from nuclear and wind. • Average transmission and distribution losses (T&D) exceed 25% of total power generation compared to less than 15% for developing economies. • The T&D losses are due to a variety of reasons, viz., substantial energy sold at low voltage, sparsely distributed loads over large rural areas, inadequate investment in distribution system, improper billing, and high pilferage.
INDUSTRY ANALYSIS (POWER SECTOR)
Supply Many projects have been planned but due to slow regulatory processes, especially in the distribution segment, the supply is far lesser than demand. Currently, India needs to double its generation capacity in the next 7 to 10 years to meet the potential demand.
Demand
The long-term average demand growth rate is 6% to 7% per annum and is expected to grow at faster rate in the future.
Barriers to entry are high, especially in the transmission and distribution segments, which are largely state monopolies. Also, entering the power generation business requires heavy investment initially. The other barriers are fuel linkages, payment guarantees from state governments that buy power and retail distribution license.
Barriers to entry
INDUSTRY ANALYSIS (POWER SECTOR)
Bargaining Power of Suppliers Not very high as government controls tariff structure. However, this may change in the future. Bargaining power of retail customers is low, as power is in short supply. However government is a big buyer and payment by government can be erratic, as has been seen in the past. Not high currently. The Electricity Act 2003 aims to encourage investments, thereby increasing competition. Bargaining power of customers
Competition
doc_468754901.pptx
It explains the industry life cycle, industry analysis of information technology sector, industry analysis of automobile sector and industry analysis of automobile sector
INDUSTRY ANALYSIS
INDUSTRY ANALYSIS PROCESS
Industry analysis process includes both a macroand a microanalysis. Macro analysis of industry focuses on the business cycles and their impact on the industry and identifying the critical economic drivers of an industry. The specific issues in macro analysis are:
? ? ? ? The business cycle and industry sectors Structural economic changes and alternative industries Evaluating an industry’s life cycle Analysis of the competitive environment in an industry
INDUSTRY ANALYSIS PROCESS
Micro Analysis of industry should be preceded by macro analysis. It involves deriving specific valuation for the industry using either the discounted cash flow or relative valuation approach. The basic issues are:
? Determining the required rate of return ? Growth projections ? Cash flow/ earnings projections.
MACRO ANALYSIS OF INDUSTRY
THE BUSINESS CYCLE AND INDUSTRY SECTORS • Industry performance is believed to be related to the stage of the business cycle. • Every business cycle is different. Besides looking at the history of cycles the evolving trends should also be analyzed. • Key variables related to economic trends and industry characteristics need to be identified and monitored. • Rotation strategy needs to be worked out.
MACRO ANALYSIS OF INDUSTRY
THE BUSINESS CYCLE AND INDUSTRY SECTORS • Higher inflation is generally negative for the stock market as it increases uncertainty about future prices and costs. It harms firms that cannot pass their cost increases on to consumers • Some industries like natural resource industries benefit from inflation. • Industries that have high operating and/or financial leverage may also benefit from inflation • High interest rate is normally harmful for industries at large. Construction industry may be worst hit. Banks usually get benefited.
MACRO ANALYSIS OF INDUSTRY
THE BUSINESS CYCLE AND INDUSTRY SECTORS • Weakening domestic currency benefits the export oriented industries • Liberalizing of exports or bilateral/multilateral trading arrangements give a boost to exports • Increased consumer spending/ consumer sentiments give a boost to consumer durables industry
MACRO ANALYSIS OF INDUSTRY
STRUCTURAL ECONOMIC CHANGES AND ALTERNATIVE INDUSTRIES • Shift from primary to secondary to tertiary sectors • Joint family to nuclear family form. More and more dual-career families especially in metros. Better prospects for construction, entertainment, automobile, convenience • Aging population in US and Europe means smaller business for industries like retailing; better prospects for financial services industry
MACRO ANALYSIS OF INDUSTRY
STRUCTURAL ECONOMIC CHANGES AND ALTERNATIVE INDUSTRIES • Technology development facilitates some businesses. E-business (recall the dot-com boom!); process technology development led to the development of small scale steel mills; from dish TV to Internet TV; from outsourcing of power to captive power generation; businesses like IT process outsourcing, telecommunications have been the major beneficiaries of the revolution in networking and optical fiber technologies.
MACRO ANALYSIS OF INDUSTRY
STRUCTURAL ECONOMIC CHANGES AND ALTERNATIVE INDUSTRIES • Regulations may benefit one industry at the cost of the other industry
STOCK MARKET AND BUSINESS CYCLE
Sector Rotation
INDUSTRY LIFE CYCLE
FORCE DRIVING INDUSTRY COMPETETION
INDUSTRY ANALYSIS (INFORMATION TECHNOLOGY)
INDUSTRY ANALYSIS (INFORMATION TECHNOLOGY)
• India’s IT industry can be divided into five main components, viz. software products, IT services, engineering and R&D services, ITES (IT-enabled services) and hardware. • Export revenues continue to drive growth. Amongst the export revenues, project-based services accounted for more than 50% of the Indian IT services exports. • Multi-year annuity based outsourcing agreements are expected to increase going forward. However, the majority share of the project based revenues is going to continue on the back of custom application development and application management. • Cost leadership has been the competitive edge of the Indian software sector. However, this seems to be threatened now by MNCs.
INDUSTRY ANALYSIS (INFORMATION TECHNOLOGY)
• Going forward, the advantage of low employee costs could peter out and the sector could get commoditized. • Increased competition within the segment could lead players to ramp up selling and marketing expenses in order to acquire new customers and improve the market share, which in turn will lead to further pressure on margins. • Increasing competition, pressure on billing rates and increasing commoditization of lower-end application development and maintenance (ADM) services. • Need to move up the software value chain. To provide higher value-added services as consulting, product development, R&D and end-to-end turnkey solutions. • Focusing on the domestic market will definitely be an opportunity to take advantage of.
INDUSTRY ANALYSIS (INFORMATION TECHNOLOGY)
Supply Abundant supply across segments, mainly lower-end, such as ADM. Lower in higher-end areas like IT/business consulting, but competition is very tough.
Demand
Demand largely depends upon the state of the global economy and willingness of corporations to go in for new software services and greater discretionary spending rather than consolidating existing systems. With uncertainties in global economy, domestic demand will be a key growth driver.
INDUSTRY ANALYSIS (INFORMATION TECHNOLOGY)
Barriers to entry Low in the ADM segment, which is prone to relatively easy commoditisation. In high-end services like IT/business consulting, where domain expertise creates a barrier. The size of a particular company/scalability also creates barriers to entry, as these firms have built up long-term relationships with major clients and to take business away from them is not easy. Low, due to intense competition (oversupply), particularly in the lower-end ADM space. Low differentiating power is also another reason. High, at the higher end of the value chain.
Bargaining power of suppliers
INDUSTRY ANALYSIS (INFORMATION TECHNOLOGY)
Bargaining power of customers High, mainly due to intense competition among suppliers/vendors. However, it is lower in higher-end services like consulting and package implementation. Competition is global in nature and stretches across boundaries and geographies. It is expected to intensify due to the attempted replication of the Indian off shoring model by MNC IT majors.
Competition
INDUSTRY ANALYSIS (AUTOMOBILE)
• The Indian automobile segment can be divided into several segments viz. two-wheelers, three wheelers, commercial vehicles (light, medium and heavy), passenger cars, utility vehicles (UVs) and tractors. • Demand is linked to economic growth and rise in income levels. Per capita penetration at around seven cars per thousand people is among the lowest in the world (including other developing economies like Pakistan in segments like cars). • While the industry is highly capital intensive in nature in case of four-wheelers, capital intensity is a lot less for two-wheelers. Though three-wheelers and tractors have low barriers to entry in terms of technology, four wheelers is technology intensive.
INDUSTRY ANALYSIS (AUTOMOBILE)
• Costs involved in branding, distribution network and spare parts availability increase entry barriers. With the Indian market moving towards complying with global standards, capital expenditure will rise to take into account future safety regulations. • As compared to their global counterparts, both the two-wheeler as well as four wheeler segments are relatively lesser fragmented. With more foreign players entering pricing power is likely to diminish going forward. • Industry has a high fixed cost component. Operating efficiency through increased localization of components and maximizing output per employee is of significance. • Volumes are important. India is a large market. • Premium products are also finding an increase in demand.
INDUSTRY ANALYSIS (AUTOMOBILE)
Supply Some amount of excess capacity. while India would be capable of producing 5.4 m cars a year by 2014, domestic demand is likely to edge up to between 3.5 and 4.8 m units. Largely cyclical in nature and dependent upon economic growth and per capita income. Seasonality is also a vital factor. High capital costs, technology, distribution network, and availability of auto components.
Demand
Barriers to entry
Bargaining power of suppliers
Bargaining power of customers Competition
Low, due to stiff competition.
Very high, due to availability of options. High. Expected to increase even further.
INDUSTRY ANALYSIS (POWER SECTOR)
• Currently central institutions like National Thermal Power Corporation (NTPC) and the State Electricity Boards (SEBs) dominate the power scene in India. • India has adopted a blend of thermal, hydel and nuclear sources with a view to increasing the availability of electricity. Thermal plants at present account for 64% of the total power generation, hydro-electricity plants contribute 25% and the rest comes from nuclear and wind. • Average transmission and distribution losses (T&D) exceed 25% of total power generation compared to less than 15% for developing economies. • The T&D losses are due to a variety of reasons, viz., substantial energy sold at low voltage, sparsely distributed loads over large rural areas, inadequate investment in distribution system, improper billing, and high pilferage.
INDUSTRY ANALYSIS (POWER SECTOR)
Supply Many projects have been planned but due to slow regulatory processes, especially in the distribution segment, the supply is far lesser than demand. Currently, India needs to double its generation capacity in the next 7 to 10 years to meet the potential demand.
Demand
The long-term average demand growth rate is 6% to 7% per annum and is expected to grow at faster rate in the future.
Barriers to entry are high, especially in the transmission and distribution segments, which are largely state monopolies. Also, entering the power generation business requires heavy investment initially. The other barriers are fuel linkages, payment guarantees from state governments that buy power and retail distribution license.
Barriers to entry
INDUSTRY ANALYSIS (POWER SECTOR)
Bargaining Power of Suppliers Not very high as government controls tariff structure. However, this may change in the future. Bargaining power of retail customers is low, as power is in short supply. However government is a big buyer and payment by government can be erratic, as has been seen in the past. Not high currently. The Electricity Act 2003 aims to encourage investments, thereby increasing competition. Bargaining power of customers
Competition
doc_468754901.pptx