8/3/2019 How to Follow a Sector
1/21
How to follow a sector
V M Avinass Kumar
LSD
8/3/2019 How to Follow a Sector
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.
8/3/2019 How to Follow a Sector
3/21
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
8/3/2019 How to Follow a Sector
4/21
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
8/3/2019 How to Follow a Sector
5/21
Understanding the Cost-Revenue Model
` 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
8/3/2019 How to Follow a Sector
6/21
Eg: Paints & Emulsions
Source: equitymaster.com
8/3/2019 How to Follow a Sector
7/21
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.
8/3/2019 How to Follow a Sector
8/21
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
8/3/2019 How to Follow a Sector
9/21
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.
8/3/2019 How to Follow a Sector
10/21
Eg: Oil & Gas
Source: PetroStrategies, Inc.
8/3/2019 How to Follow a Sector
11/21
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
8/3/2019 How to Follow a Sector
12/21
Competitive Scene & Major Players
` 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 ?
8/3/2019 How to Follow a Sector
13/21
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.
8/3/2019 How to Follow a Sector
14/21
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
8/3/2019 How to Follow a Sector
15/21
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.
8/3/2019 How to Follow a Sector
16/21
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.
8/3/2019 How to Follow a Sector
17/21
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
8/3/2019 How to Follow a Sector
18/21
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
8/3/2019 How to Follow a Sector
19/21
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
8/3/2019 How to Follow a Sector
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)
8/3/2019 How to Follow a Sector
21/21
So long, and thanks for all the fish
Top Related