1. M.Com. Part-II Security Analysis and Portfolio Management Mitrendu Narayan Roy Assistant Professor Department of Commerce

2. Industry Analysis

3. Overall Structure International Environment Economy Industry Player-1Player-3Player-2 Entry Exit Inputs Outputs

4. Key Features Past sales and earnings performance; Permanence; Attitude of the Government; Labour conditions; Competitive conditions; Stock prices of the firms relative to their earnings.

5. Key Features FeaturesDiscussion A. Past sales and earnings performance Analysis of sales, earnings and fixed costs B. Permanence Relevance of the product; Technology Government policies C. Attitude of the Government deregulation allowing FDI High tariffs; legal restrictions; D. Labour conditions important for labour intensive industry E. Competitive conditions product differentiation cost advantage economies of scale F. Share prices relative to earnings underpriced share relative to earnings crowd behaviour

6. Industry Life Cycle PIONEERINGEXPANSIONSTABILISATIONDECLINING

7. Industry Life Cycle StageFeatures Pioneering high sales high competitive pressure huge entry to the market high risk and return Expansion less number of companies; moderate growth; considerable investment; moderate dividend payments Stabilisation standardised products slower growth of sales high dividend payments Declining declining sales lower growth prospects negative return

8. Business Cycle Analysis Growth industry (Companies with earnings higher than that of industry average) Defensive (not affected in recession; e.g. Food, public utilities) Cyclical (highly volatile; e.g. Consumer durables) Interest-sensitive (e.g. Banks, financial services)

9. Structural Analysis Threat to entry Cost disadvantage independent of sales Government policy Expected retaliation Intensity of rivalry among existing competitors Pressure from substitute products Bargaining power of buyers Bargaining power of suppliers Government as a force in industry competition

10. A. Threat to Entry SourcesFeatures Economies of Scale cost advantage due to high production; may stem from a part of a functional area beneficial in case of multi-business model (motor manufacturing); joint products (airlines, technical know-how); vertical integration. Product differentiation advertising customer service brands loyalty Capital requirements high capital requirements for advertising, R&D, covering start-up loss, etc. Switching costs cost of switching supplier (employee retraining cost; ancillary equipments; qualifying a new source; etc.) Access to distribution channels old relationships between producer and retailer need for creation of new distribution channel

11. B. Cost disadvantage independent of scales Proprietary product technology Favourable access to raw materials Favourable locations Government subsidies Learning or experience curve

12. C. Government Policy Licensing requirements Limits on access to raw materials Pollution standards Product safety norms

13. D. Expected Retaliation History of retaliation High financial power of existing players Unused borrowing capacity of existing players Illiquid assets of existing players Slow industry growth

14. E. Intensity of Rivalry among Existing Competitors Numerous or equally balanced competitors Diverse competitors

15. E.1 Numerous or equally balanced competitors FeaturesDiscussion Slow industry growthApplying strategies to improve market share High fixed or storage costsIt may lead to price cutting Lack of differentiation of switching cost Single product -> competition on price and customer service Capacity augment in large increments Economies of scale -> capacity enhancement -> influence demand supply position in the industry.

16. E.2 Diverse Competitors FeaturesDiscussion High Strategic StakesIncreasing stakes to achieve overall corporate strategy or building global prestige even at the cost of profitability Shifting Rivalry market growth technical innovation marketing support increasing sales efforts in areas with lower fixed costs Exist Barriers specialised assets fixed cost of exist strategic interrelationships emotional barriers government and social restrictions

17. F. Pressure from Substitute Products Price competition (leading lower growth of the industry) Substantive advertisement Quality improvement Marketing efforts

18. G. Bargaining power of buyers Full information Availability of substitutes Buyers’ integration Quantity of purchase Proportion of buyer’s expense spend in the industry Influence of industry’s product on buyer’s well being Lower switching cost Low profits earned by the companies Nature of buyer (industrial or consumer)

19. H. Bargaining power of suppliers Strong supplier groups Lack of substitutes of suppliers product Importance of the company Important input to the company’s product High switching cost Forward integration

20. I. Government as a force to industry competition Government as buyer and supplier Government regulation Government policies

21. Thank you !!