Industry Analysis

1. Fundamental
Analysis

2. Top Down Approach

3. Industry Analysis
That lead us to the industry it operates in.
If we think about Maruti Udyog.

4. Industry Analysis
Industry
What are the sub-sectors of a particular industry?
What are the key revenue drivers in the industry?
What are the key concerns affecting the industry?
Other factors:
How many players are there in the industry?
What are the prospects of the particular industry in the
overall economy?
How dynamic and volatile is the industry?

5. Industry Analysis
Defining the Sub-sectors
If the company in question is
Infosys, what industry does it
belong to?
Technology, isn't it ?
However, technology is
to broad a category.
IT
Hardware Technology Services
IT
Products

6. Industry Analysis
Hardware Companies that make
products like laptops etc.
Technology IT products Companies that make
software products.
Company that make provides
IT services project management –IT
development and support – to
their clients.
NOTE
There could be companies like Infosys ,who operates in multiple sub-sector .
We then need to understand, where its revenues primarily come from.
In case ,of Infosys about 95% of it revenues come from IT services ,thus
We can analyze it is in IT services company.

7. Industry Analysis
We shall discuss the process by taking a
sample company from the Oil & Gas industry.
The company is in question is
Shiv Vani.
It’s a leading player in oil
exploration, specially
onshore exploration.

8. Industry Analysis
The first question to ask here is : The next question that comes to
What is the onshore exploration mind is, is there any other way of
industry? oil exploration or drilling?
Onshore exploration is the Yes, companies that carry out oil
industry where drilling is done on exploration in the sea, under sea
onshore. i.e. on land beds, comes in the category of
offshore drilling.

9. Industry Analysis
So, we can say oil exploration essentially has two sub-sectors:
Offshore
Oil
exploration
Shiv Vani
Onshore Falls into this.

10. Industry Analysis
Industry
What are the sub-sectors of a particular industry?
What are the key revenue drivers in the industry?
What are the key concerns affecting the industry?
Other factors:
How many players are there in the industry?
What are the prospects of the particular industry in the
overall economy?
How dynamic and volatile is the industry?
The next important step is to understand how a
company makes money in the industry. Specially, what
are the key factors driving revenues?

11. Industry Analysis
Key Revenue Drivers
Let’s look at the drivers of the onshore oil exploration business.
How dose oil exploration works?
Companies either own or rent oil rigs.
They then take on oil exploration
contracts for clients, which use these
oil rigs.
The daily cost of hiring or renting out an oil rig, is
called ‘the day rate’.

12. Industry Analysis
Key Revenue Drivers
Total Revenue: Day rate X No. of days of use
Now, number of days of use will be easy to calculate. This leaves the
more important day rate for analysis.
Depending on how the day rate varies, the revenue earned will
fluctuate.
So, what do you think will the day rate
depend on?

13. Industry Analysis
Key Revenue Drivers
The day rate would depend on the demand for rigs,
which depends upon the demand for oil exploration, led
in turn by the global demand for oil and oil prices.
Oil Exploration
High demand= High day rate
Low demand = Low day rate
How do we project the day rate?
An idea of the current
rates, coupled with historical
trends is enough to make an
information guess about the
future.

14. Industry Analysis
Industry
What are the sub-sectors of a particular industry?
What are the key revenue drivers in the industry?
What are the key concerns affecting the industry?
Other factors:
How many players are there in the industry?
What are the prospects of the particular industry in the
overall economy?
How dynamic and volatile is the industry?

15. Industry Analysis
key concerns affecting the industry

16. Industry Analysis
Industry
What are the sub-sectors of a particular industry?
What are the key revenue drivers in the industry?
What are the key concerns affecting the industry?
Other factors:
How many players are there in the industry?
What are the prospects of the particular industry in the
overall economy?
How dynamic and volatile is the industry?

17. Industry Analysis
Number of players in the industry
This determines the:
 Competition and
 The nature of operating margins that the industry
works with.
A classical example is the telecom industry.
With new players coming in, the operating margins have
been decreasing year after year.

18. Industry Analysis
Number of players in the industry
For our example – Shiv Vani, which is in the Oil an gas exploration industry.
Requires a very large capital Only large players like ONGC or
investment. Reliance have entered the industry.
Hence, entry barriers are high, and
competition is relatively low.

19. Industry Analysis
Industry
What are the sub-sectors of a particular industry?
What are the key revenue drivers in the industry?
What are the key concerns affecting the industry?
Other factors:
How many players are there in the industry?
What are the prospects of the particular industry in the
overall economy?
How dynamic and volatile is the industry?

20. Industry Analysis
Prospects of the Industry in the Economy.
We are now aware of what the industry is about and
how a company makes money in such an industry.
Let us now look at the future prospects of the industry.
Shiv Vani operates in the oil exploration
industry.
- onshore exploration.
Hence we need to know how the industry has
developed over the years, and he future trends.

21. Industry Analysis
Prospects of the Industry in the Economy.
The graph below suggests, that there is a huge gap in the
amount of oil produced by India, compared to the amount of
oil consumed in India.
This in turn implies that
imports have been
increasing with each
passing year, putting a
strain on the economy.

22. Industry Analysis
Prospects of the Industry in the Economy.
We know that an increase in local production is needed.
Does the country actually have these reserves for exploration?
Sedimentary basins in India
One can see that only a small portion of the potential
oil basins has been commercially taped till date.
Yes, there is a huge area that can be potentially
tapped by companies.

23. Industry Analysis
Prospects of the Industry in the Economy
The Indian Government has also recognized the need
for more oil exploration.
Hence, under the New Exploration Licensing
Policy(NELP),the number of blocks have increased.
That means more blocks are being brought under
exploration.
The budget for oil exploration has also increased
three-fold in the 11th five year plan.
These facts show that there is tremendous opportunity
for growth for oil exploration.

24. Industry Analysis
Industry
What are the sub-sectors of a particular industry?
What are the key revenue drivers in the industry?
What are the key concerns affecting the industry?
Other factors:
How many players are there in the industry?
What are the prospects of the particular industry in the
overall economy?
How dynamic and volatile is the industry?

25. Industry Analysis
How dynamic and volatile is the industry
An industry where products change often, changing the dynamics of the
market tends to have volatile stock movements.
For example, a company like Apple saw the stock
move up a lot in anticipation of the iPad.

26. Industry Analysis
How dynamic and volatile is the industry
Taking the case of Shiv Vani .
In India, the oil prices administered .
Hence the profitability of oil companies is not only a function of their
operating efficiency, but also on whether the government will
increase oil price.
Once oil prices are decontrolled, this industry can be analyzed like
any other industry.

27. Industry Analysis
Industry
What are the sub-sectors of a particular industry?
What are the key revenue drivers in the industry?
What are the key concerns affecting the industry?
Other factors:
How many players are there in the industry?
What are the prospects of the particular industry in the
overall economy?
How dynamic and volatile is the industry?

28. Tarjan Kr. Nonia
ISB&M
Bangalore
2011-2013
tknakk@gmail.com