No company operates in isolation. Where the performance of a company depends on its own capability to grow and take opportunity of the market/industry, it is very important that the prevailing market/industry conditions are favourable. Hence, understanding the industries that companies operate in is very important. This will help you to a) Understand the company’s business and its performance
b) Gauging the opportunities and threats
By the end of this series, you will learn what factors drive the growth of different industries and what factors affect them?
While many of us know how to go about analyzing a company, we tend to ignore the broader picture i.e. industry/sector analysis. However, analyzing an industry is important to understand a company’s business and performance as also gauge the opportunities and threats for future growth. Infact, investing in a ‘somewhat good’ company in a growth sector can give you better returns than investing in a very good company which is part of a sector that is slowing down. Thus, it is crucial to analyze an industry before you move on to individual companies.
But, how do you do this? What do you look for? Is there a framework to analyze industries?
One of the most favourite and highly tracked sector in any economy is the Auto sector given its importance to the economy. According to a recent report published by KPMG, the Auto sector has been a key driver of the Indian economy, accounting for around 4% of India’s GDP and over 200,000 jobs. The sector is especially of interest after it has emerged stronger from the recent global downturn, and sales across all segments have seen record breaking numbers in the recent past. Thus, for a sector of prime importance to the economic growth of our country, understanding it and the associated companies is a must for every investor.
So, how exactly does the Indian Auto sector work? And what are the factors that drive it’s growth?
The Consumer Durables industry consists of durable goods and appliances for domestic use such as televisions, refrigerators, air conditioners and washing machines. Instruments such as kitchen appliances (microwave ovens, grinders etc) are also included in this category. This industry includes all those goods which are durable i.e. products whose life expectancy is at least 3 years. These products are hard goods that cannot be used up at once. According to recent industry reports, the steadily growing market for consumer durables is estimated at Rs. 300 billion.
Segmentation of the Consumer Durables Industry: The consumer durables industry can be broadly classified into 2 segments: Consumer Electronics and Consumer Appliances. Consumer Appliances can be further categorized into Brown Goods and White Goods. The key product lines under each segment are as follows:
What does the Past Say? Here’s the review..
In the last two decades, the global face of India has undergone a significant transition. The Indian economy has witnessed an impressive growth during this period. And the sector that has largely driven this transition is the IT sector. Its contribution to the GDP in the last decade has increased tenfold from 0.6% to 6% currently and is still growing; its role in generating employment has also been remarkable. Thus, the IT sector has changed the lifestyle of many Indians, leading to increased income and comfort level.
With such hype surrounding this sector, it becomes imperative that investors have a good understanding of this sector. More so, when companies like Infosys and TCS , which have proven gold mines to investors, form a part of this sector.
So how does the IT sector work? What are the future prospects of the sector? Also get a glimpse of the top players in this sector and whether they are worth investing in.
Defensive sectors are those that are known to fall less than the market as well as show less appreciation This is because earnings of companies from these sectors are relatively stable and predictable both in good times as well as bad.
But, a ‘defensive sector’ which has proven different is the Pharma Sector. While Sensex crashed by close to 55% (in the period Dec-2007 to Jan-09), the BSE Healthcare index dropped by around 34%. However, what has been surprising is that the BSE Healthcare Index has outperformed Sensex over the last 2 years registering a growth of 52% CAGR as compared to the 42% clocked by Sensex. Few companies that led this growth were Cadilla Healthcare, Dr. Reddy’s Laboratories, Ranbaxy etc.
So, how does the Pharma sector actually work? And what are the factors that will drive its growth? Also get a glimpse of the top players in this sector and whether they are worth investing in.
Stock Shastra #48: Indian Power Sector (Generation & Supply) – Powering the growth of the Indian Economy
One sector on which all sectors/industries are dependent on is the Power sector. No other sector/industry would be able to function without the power sector which fulfils their energy requirements. The power sector plays a critical role in the economic progress of our country. Due to the fast-paced growth of India’s economy, the country’s energy demand has been growing continuously. To boost economic growth and human development, one of the Government of India’s top priorities is to provide all its citizens with reliable access to electricity by 2012.
With a mixed portfolio of sources for generation, the power sector comprises of companies like NTPC (the largest company in thermal power generation), NHPC (leader in Hydro power) etc. More so, the FDI inflow in this sector has been on the rise in the last 5 years.
So, how does the Indian Power sector actually work? What lies ahead for this sector? Also get a glimpse of the top players in this sector and whether they are worth investing in.
The Indian Tyre Industry is an integral part of the automobile industry and its fortunes are interdependent on those of the Automobile players. Popular brands like MRF, Apollo, CEAT form an integral part of this industry. Over the last 9 years, this industry has grown by a good 15%.
After suffering a slowdown in FY09, the industry witnessed a significant recovery in FY10 backed by robust auto demand. However, in FY 11, high raw material (rubber) prices affected the margins and depressed the profits of the tyre companies.
So, going forward, should you invest in the tyre industry?
With memorable jingles and advertising slogans like ‘Har Rang kuch kehta hain’, Paint companies have for years brought colour to our lives. From a business perspective as well, the Indian Paint industry has grown at a rate of above 15% for the past few years. The last year proved to be even better with the industry recording a growth of more than 20%.
This industry comprises of strong companies like Asian Paints, Kansai Nerolac, Berger Paints etc. Asian Paints, the most well-known paint brand, thrives on a strong moat (sustainable competitive advantage) that it has managed to build for itself over the years. Also, it has proven to be a gold-mine for investors.
So, how does the Indian Paint industry work? Also, which are the investment-worthy companies in this industry?