Industry Analysis (Definition, Example) How to Do PDF

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Industry Analysis (Definition, Example) How to DoIndustry Analysis (Definition, Example) How to DoIndustry Analysis (Definition, Example) How to DoIndustry Analysis (Definition, Example) How to DoIndustry Analysis (Definition, Example) How to Do...

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2021/8/8

Industry Analysis (Definition, Example) | How to Do?

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Home » Investment Banking Resources » Equity Research Resources » Industry Analysis

Industry Analysis Article by

Reviewed by

Sayantan Mukhopadhyay

Dheeraj Vaidya, CFA, FRM

What is Industry Analysis? Industry analysis refers to the analysis of industry’s environment that guides the industry to grow and survive in a competitive environment and gain a competitive edge in the industry as it predicts the future and changes in the market and analyze the threats and opportunities in the way ahead and making decisions and planning according to it. Itis one of the primary tasks of equity research analysts. In some companies, there’re dedicated teams who primarily do industry analyses and write reports on the same. In simple terms, industry analysis reveals the dynamics of the industry to the stakeholders. So it’s an essential part of creating a competitive advantage for a company in the competitive market.

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How to do an industry analysis? There’re many frameworks we can use to do industry analysis. But what’s more important is to follow a few steps and get to the point where one can use the frameworks to assess the correct picture of the industry. First, we will have a look at the steps you can follow, and then we will talk about the frameworks economists/equity research analysts can use to analyze the market/ industry. Review the available information: If you dive in, you would be able to find many available reports, white papers, analysis, research reports, and presentations. If you don’t have any idea about the industry you’re trying to analyze, first use these materials to get to know the industry. Read everything you need to know and identify the key factors that can help you write the report after analysis. These reports and information can’t fully help you, but they will give you some idea about what to look for while analyzing the industry. Get an idea about the right industry: It may happen that you’re searching for the real estate industry. But real estate is a huge industry, Cookies help us provide, protect and improve our products and services. By using our website, you agree to our use of cookies (Privacy Policy) h

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Industry Analysis (Definition, Example) | How to Do?

 searching for, you’ll lose focus, and the analysis will not be able to pinpoint accurate data. Are you able to forecast future demand and supply? This is the key thing in any industry. Why? Because everything depends on the demand and supply of the industry. Here’s what you should do. Make a list of the competitors in the industry. Find out the financial health of each competitor. Take account of the growth rate and the products they’re selling in the last 5 years. Then do a comparative analysis with your business. You’ll get an idea of what to work upon and what to leave alone. In simple terms, you’ll be able to recognize the key factors that are responsible for future demand and supply in the market. Competition: This is the most important thing to consider. There’re three common frameworks a business can use to understand the micro and macro factors of a business.

Examples Let us apply some of the learning from the above step to industry analysis of the Automobile Sector, IT Services Sector, and Steel Sector, respectively. IndustryParamete rs

Automobile Sector

IT Services

Steel Sector

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Industry Analysis (Definition, Example) | How to Do?

 Demand supply mismatch due

The income of Individuals affect the sale of Cars Demand: Why would there be a continued demand for the product/service

Industrial activities affect sales of Commercial vehicle Easy Loans and interest rate regime should help

Steel prices

Key supply drivers

Metal prices such as Aluminium, rubber, etc

to excess supply can put pressure on margin IT Services thrive by providing Low-cost proposition for the same services

Infrastructure growth / Housing Construction demand, especially in higher urbanization areas

Labor/skill shortage in the long run

Performance of downstream companies such as Cars, White goods, etc

Educated manpower at a reasonable cost

Price of iron ore

Continuous skill enhancement of employees

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Industry Analysis (Definition, Example) | How to Do?

 Low. Moderate.

Degree/nature of change

The smaller life cycle of a product. Changes in technology

High.

Predictability of business

Due to car buying by consumer and Commercial vehicle for Goods movement

Moderate for cars. Cyclicality?

High for commercial vehicle

A high degree of change – due to technology changes / high competition

Strongly dependent on the business cycle and demandsupply gaps

Predictability is low due to fast technology changes. The clock speed for the Business is high.

Medium

Changes in the environment every 2-3 years

Not yet as the model is moving to offshore

High

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Industry Analysis (Definition, Example) | How to Do?

 Very moderate.

Ability to increase price ahead of inflation (Pricing

Poor

More demandsupply gap driven. Commoditizat ion at the lower end and moving up the value chain

power)

Only if there is supply shortfall, else poor

Low in India. Some sort of monopoly or Oligopoly

Does the company have a recurring revenue stream

Does the business have franchise/brands, or is it a commodity

None at all – close to

High competitive intensity, especially in mid-segment

perfect competition ;

None

Yes. Highvalue purchase with long cycle

Yes

Yes.

Franchise/bra nding is strong in India.

Weak to the moderate brand. No franchise. Lock in due to Switching costs

Commodity with poor brand/franchi se value

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Does the industry enjoy high growth rates? For how long

Commercial vehicles are cyclical. Cars / personal vehicle have a much steadier trend

High growth currently due to model shifts. Looks likely for the next few years

Cyclical industry

How to write a report on Industry Analysis? The simple way to write a report is to follow the steps you used in the previous section. Here’s how you can write a report on Industry Analysis effectively – Write an overview of the whole industry analysis – The purpose of writing the overview is to give a big picture to the readers (CEO/ top management professionals) quickly about your analysis. It’s important that you summarize important points and also your findings in a brief manner. Analytical Presentation: This is the most important part of the report. You need to use all your findings and analytical judgments to make this part effective. Use graphs, charts, images, pointers to emphasize your points. Talk about the micro and macro factors of the business. Also include the competitors, their products and services, customer satisfaction, how much value the competitors are providing, and what they’re missing out on, etc. Analyze the controllable and uncontrollable factors and also mention if there’re any recent developments in the industry. Forecast: In the next section, give your suggestions and forecast the possible future of the industry. Also, mention the long term and short

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Industry Analysis (Definition, Example) | How to Do?

 Finally: Write a summary of the entire report in one-two paragraphs. Include the key-factors of the report and your suggestions in brief. While writing the report, it’s better if you use lucid language. If you would like to use any jargon, mention the meaning so that the readers don’t get stuck in between.

Conclusion This is a comprehensive guide of how you can conduct an industry analysis. If you learn these skills along with preparing yourself for equity research analysts profile (conducting industry analysis plus writing the report), you’ll certainly have better prospects than your peers. The best way to learn is to do it in action. Just select an industry and follow the above steps to do the analysis in reality and write a report on the same. If you happen to sit for an interview for an organization that is of the same industry, present the report along with your resume. You’ll see how much value addition it would be for you during the interview and how it will help you uplift your candidature in front of the interviewers.

Recommended Articles Cyclical Industry Meaning Break-Even Analysis in Excel What is PEST Analysis? Balance Sheet Analysis

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Comments 1.

Roberto Clinton says Thanks for making me understand the concept of Industry Analysis. This has also helped me to create a report writing after doing industry analysis. If you can tell me some benefits of doing Industry analysis?

Dheeraj Vaidya says The benefits of doing an industry analysis are that a company manager’s gain better understanding of their business and industry, this also allows many industries to rank themselves in their industry. This even helps many companies to better to any changes that are made in industry.

2.

Bryson Russa says Thanks for this blog. Very briefly explained but I guess you didn’t mention any major elements of Industry Analysis. Can you please tell me some major elements of industry analysis?

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 and taste, technological innovations, globalization. 2. Understanding the attractiveness of the industry, whether it is feasible to enter or invest in that industry. 3. Understanding the critical industry analysis factors that determine success within the industry.

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