How to Follow a Sector

8/3/2019 How to Follow a Sector

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How to follow a sector

V M Avinass Kumar

LSD


2/21

What is expected of you ?

` Develop an industry focus and business acumen.` Why and how does a business create value/make money?

` Sustain an intelligent conversation on a specific sector.

` Ability to frame viewpoints on the future and backing up the

same on the basis of authentic information.

` Gain insights into business practices/regulations to aid in

optimal decision making.


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What do we mean by following a sector ??

Understanding the Value-Chain

Understanding the Cost-Revenue Model

Latest News/Deals

Impact of Regulations

Future Trends

Competitive Scene & Major Players


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Latest News/Deals


Future Trends



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` Profitability = Revenues Costs` Identify Revenue Drivers

` How do I enhance their impact ?

` What investments should I make to enhance revenues ?

` Over what time frame ?

` What will be the impact on my top-line growth ?` How do I finance this ?

` Identify Cost Drivers` How do I lessen their impact ?

` What investments should I make to lessen costs ?

` Over what time frame ?` What will be the impact on my bottom line ?

` How do I finance this ?

` Key ratios/indicators


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Eg: Paints & Emulsions

Source: equitymaster.com


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Some key ratios /indicators

` Power: PPA (Power Purchase Agreements)` Very important for power Generation companies as it determines

the extent to which their revenues have been hedged.

` Telecom: ARPU (Avg. revenue per user)

`

Key determinant for identifying growth strategy and determiningrevenue for telecom companies.

` Pharma: Sales/R&D expenses

` Indication of extent to which the research employed has been

successful

` Banking: CASA Ratio

` Indication of interest costs for a bank since current account is

interest free and saving account interest is low. Greater the CASA,

lesser the costs.


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Latest News/Deals


Future Trends



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The Value Chain

` What is a value-chain ?` Process of linking specific functions from input through output to

delivery, enhancing the economic value of the product.

` Why should I know about it ?

` Understanding backward integration forward integration strategy.

` Identify potential for business expansion in each link of the chain.

` Helps understand synergies for M&A.

` What should I know about it ?

` State of the industry in each link of the value chain.

` Which are the companies competing in each link of the value chain.

` Latest developments in technology, competition & regulations and

the impact of these on the top-line and bottom-line of a firm.


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Eg: Oil & Gas

Source: PetroStrategies, Inc.


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Latest News/Deals


Future Trends



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` What should I know about the major players?` Which businesses of the sector are they operating in ?

` What is their differentiation ?

` What is their offerings STP ?

` What is their core competency ?


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Eg: Pharma

Ranbaxy Pfizer

` Generic Drugs, lifestyle

related drugs.

` Revital

` R&D focus on reverse

engineering

` Low-margin, high volume

drugs.

` New drug discovery and

research

` Lipitor

` R&D focus on new

molecule discovery.

` High-margin, low volume

niche drugs.


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Latest News/Deals


Future Trends



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Govt. Regulations

` Understand regulations from the following perspective:` Impact on top-line

` Eg: tariffs, restrictions on pricing.

` Impact on bottom-line

` Eg: Taxes, SEZ plans` Impact on the competitive scene

` Opening up the markets for FDI, restrictions on share-holding pattern

` Impact on future strategy

` Creating specialized plans for infrastructure development like

JNNURM thereby promoting private participation in these sectors.


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Cues for analysis

` Finance ministry sets depreciation standards for solar/windenergy assets at 80% (wdv)

` Impact on bottom-line allowing greater cash flows.

` Minimum public holding rule.

` Equity is the most expensive form of financing.

` Cost of financing increases considerably impact on bottom-line.

` Imported Gear for mega power projects to attract levy

` Increase cost of importing and make chinese products lesscompetitive in the Indian market.

`

Auctioning of 3G bandwidth` Future strategy opportunity to bring in newer technologies.

` Viability gap funding for Water supply projects.

` Encourage participation by private sector in this space.


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Latest News/Deals


Future Trends



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Future Trends

` It is good to have an opinion on the future trends of thefollowing:

` Revenue potential

` Impact of emerging technologies on Costs

` Direction of the sector in terms of new/destructive businessmodels

` Impact of regulations on growth strategy


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Latest News/Deals


Future Trends



20/21

Latest News/Deals

` Following news/deals consistently helps you understandthe sector better.

` Few suggestions:

` For News:

` Business Line Home page Industry & Economy Related Topics

` ET

Home page News News by Industry

` Trade Journal - Library

` Research Reports:

` Consult Club Resources

` site.securities.com (ISI emerging markets)


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So long, and thanks for all the fish

How to Follow a Sector

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