Chapter 6: Industry Analysis

Chapter 6: Industry Analysis – NISM-Series-XV Research Analyst Exam Study Notes Download PDF Book 

Industry Analysis in Fundamental Analysis

Industry analysis is a key component of fundamental analysis, focusing on understanding the impact of current economic conditions on specific industries. It involves examining the potential reactions of market players within the industry and its future prospects, considering various factors such as economic trends, industry size, past performance, competition levels, secular trends, and regulatory influences.

Topic Pointers:

  1. Understanding the Industry: Identifying the specific industry in which a company operates to analyse its characteristics and dynamics.
  2. Impact of Economic Cycles: Evaluating how cyclical economic trends affect the industry, such as during periods of economic growth or recession.
  3. Industry Size Potential: Estimating the potential size of the industry, which helps in understanding its growth capacity and market opportunities.
  4. Historical Performance Analysis: Reviewing past industry performance and the factors driving it, to predict future trends and stability.
  5. Competition Level Assessment: Assessing the degree of competition within the industry and its effect on pricing power among the industry players.
  6. Secular Trends and Value Migration: Examining long-term secular trends that impact the industry and whether they lead to value migration – a shift in value creation from one part of the industry to another.
  7. Regulatory Influences: Understanding the impact of regulations, whether they are headwinds (challenges) or tailwinds (growth drivers), on the industry.

Defining the Industry in Industry Analysis

Defining the industry involves determining the specific industry category a company operates within. This is not straightforward due to the diversity within industries and the existence of various standard industry classification systems that may not fully capture the substance of the industry’s dynamics.

Topic Pointers:

  1. Classification Systems: Recognize standard systems like NIC in India, GICS globally, and NAICS in the US, which categorise industries in hierarchical structures.
  2. Single vs. Multiple Categories: Understand that some systems may place different segments within a single category, despite their distinct dynamics.
  3. Industry Dynamics Variation: Acknowledge that sub-segments within a broad industry category can vary significantly, like luxury vs. entry-level car manufacturers.
  4. Challenges of Multiple Industries: Be aware of the difficulty in classifying companies that operate across multiple industries.
  5. Competitive Landscape: Consider the broad range of competitors, which may come from different segments or industries.
  6. Narrow vs. Broad Definitions: Weigh the risks of overlooking competitors with a narrow definition against the challenge of comparability with a broader one.
  7. Common Driving Factors: Define the industry based on common factors that drive business rather than just the product or service offered.

Example: PVR Limited: If PVR’s business is driven by people’s propensity to spend time outside home, it could be classified in the out-of-home entertainment industry. If driven by the consumption of movie content, then it might be better placed in the entertainment media industry.

GICS Example: Referencing the GICS hierarchy for the Energy sector, which is structured into four tiers: Sectors, Industry Groups, Industries, and Sub-Industries, to illustrate the depth and detail involved in industry classification.

Understanding Industry Cyclicality

Industry cyclicality refers to how industries are affected differently by economic cycles, with some being more susceptible to fluctuations in the economy than others. Industries are classified into defensive, semi-cyclical, and deep cyclical categories based on their income elasticity and how they respond to economic expansions and recessions.

Topic Pointers:

  1. Defensive Industries:
    • Low income elasticity; demand is relatively stable regardless of income changes.
    • Impacted minimally by economic cycles and more by long-term secular trends.
    • Examples include food, agricultural inputs, and healthcare sectors.
  2. Semi-Cyclical Industries:
    • Sales grow during economic expansions and decline during recessions but to a lesser extent.
    • Maintain a base level demand even in recession, ensuring some stability.
    • Consumer durables are a typical example of this category.
  3. Deep Cyclical Industries:
    • High sensitivity to economic and commodity cycles, with extreme fluctuations in revenue.
    • Sales drop significantly during recessions due to postponed capacity expansion plans by companies.
    • Experience rapid growth at the first sign of economic recovery due to pent-up demand.
    • Industries such as capital goods and steel are representative of deep cyclical industries.

Market Sizing and Trend Analysis

Market sizing and trend analysis involve estimating the current and potential size of an industry’s market, while considering the maturity level of the industry, presence of unorganised or private players, and the reliability of available data. This analysis is crucial in determining the growth potential of industries that are either underpenetrated or mature.

Topic Pointers:

  1. Growth Potential of Underpenetrated Industries: Recognize that industries with low current penetration have more room for growth.
  2. Maturity Affecting Growth Rates: Understand that as industries mature, growth opportunities diminish, and overall growth rates decline.
  3. Challenges in Measuring Current Market Size: Be aware of the difficulties in sizing the market due to the presence of unorganised sectors or private companies with undisclosed information.
  4. Assumptions in Potential Market Size: Acknowledge that estimating potential market size requires assumptions, which could be incorrect.
  5. Importance of Past Trends: Utilise historical growth trends to understand factors affecting growth and identify secular trends.
  6. Top-Down Approach: Start with macroeconomic factors and narrow down to the industry level to estimate market size.
  7. Bottom-Up Approach: Aggregate data from individual companies within the industry to estimate market size.

Example: Top-Down for Therapy Industry: (i) Identify the number of patients undergoing the therapy. (ii) Ascertain the average expenditure per patient. (iii) Multiply (i) and (ii) to estimate the industry revenue.

Bottom-Up for Therapy Industry: Calculate the revenue from all hospitals providing the therapy, determine the revenue share from this therapy, and aggregate this data to find the total industry size.

Secular Trends, Value Migration, and Business Life Cycle

Secular trends refer to long-term shifts in production or consumption of goods and services driven by various factors, which can lead to value migration across industries or market players and create inflection points in business life cycles.

Topic Pointers:

  1. Technological Advancements: Technology can disrupt industries by introducing new production methods, alternatives to existing products, or new consumption patterns.
  2. Income Level Changes: Growth in disposable income can shift consumption from basic to premium products as economic conditions improve.
  3. Demographic Shifts: Changes in a country’s age, gender, and ethnicity composition can alter consumption patterns.
  4. Cultural Shifts: Cultural evolution can lead to changes in preferences, impacting demand for certain goods and services.
  5. Regulatory Changes: New regulations or government policies can create industry trends by affecting operational efficiencies or market demands.


Technological Example: Horizontal drilling advances leading to a drop in hydrocarbon prices; digital and mobile cameras making film rolls and entry-level digital cameras obsolete; battery technology improvements promoting electric vehicle use over fossil fuel vehicles.

Income Example: Higher disposable incomes leading to a preference for premium products.

Demographic Example: Japan’s aging population reducing per capita beer consumption.

Cultural Example: Western culture influence in Asia increasing demand for western clothing.

Regulatory Example: GST implementation streamlining logistics and reducing demand for new commercial vehicles.

Value Migration and Inflection Point:

  • Value Migration: Introduction of electric vehicles shifting market value from traditional automotive manufacturers to new EV manufacturers.
  • Inflection Point: Implementation of GST marking a significant turn in the business cycle for the logistics and commercial vehicle industries.

Value Migration

Value migration is the transfer of market value from one entity to another due to long-term advantages created by various phenomena, affecting shareholder value positively for gaining entities and negatively for losing entities.

Topic Pointers:

  1. Concept of Value Migration: Refers to the shift of value from one company, industry, or geography to another, which can be driven by technological changes, competitive dynamics, or consumer behaviour shifts.
  2. Geographic Migration: When certain regions gain a competitive advantage due to factors like cost efficiency or resource availability, leading to a shift in economic value towards those regions.
  3. Cross-Industry Migration: Occurs when advancements or innovations in one industry lead to a decline or obsolescence in another.
  4. Migration Across the Value Chain: Phenomena that cause certain segments of a value chain to gain at the expense of other segments.
  5. Within-Industry Migration: When shifts within an industry favour some companies over others, often due to innovation or changes in consumer preferences.
  6. Investment Implications: Recognizing patterns of value migration can inform investment strategies, allowing investors to capitalise on emerging opportunities and avoid declining sectors or companies.


Geographic Example: Shale gas exploration technology giving a competitive edge to the US over other oil-producing countries.

Cross-Industry Example: Digital cameras’ rise causing the decline of the film roll industry and impacting companies like Kodak.

Value Chain Example: Indian telecom price wars reducing telecom companies’ value but increasing value for digital content providers.

Within-Industry Example: The shift from Blackberry to Apple due to the introduction of 2G technology and the emergence of new smartphone competitors.

Understanding Value Migration:

Analysts can utilise knowledge of value migration to predict shifts in market dynamics and make informed investment decisions, potentially gaining an advantage by entering growth areas and exiting declining ones.

Business Life Cycle

The business life cycle is a framework that outlines the progression of an industry or a company from its inception and growth, to maturity and eventual decline, and sometimes, reinvention.

Topic Pointers:

  1. Pioneering Stage: Industry is emerging, concepts are being proven, and adoption is limited.
  2. Growth Stage: Viability of the concept is established, leading to rapid customer adoption and steep industry growth.
  3. Matured Stage: Industry is well-established, most potential customers are reached, and the inflow of new customers slows down.
  4. Declining Stage: Industry products become less preferred due to changes in technology or customer tastes, leading to a shift towards alternatives.
  5. Reinvention and Revival: On rare occasions, an industry may find new applications for its offerings, leading to a renewal of the growth cycle.


Call Taxis in India: The call taxi industry in India emerged in the late 20th and early 21st centuries, grew rapidly with increased telephone use and consumer income, then declined with the advent of app-based taxi services.

Workforce and Capacity Implications:

  • The labour force may need to reskill and transition to new industries or risk unemployment.
  • Industry capacity may need to be repurposed for different applications.

Secular Trends vs. Disruptors:

  • While secular trends often correlate with business life cycles, disruptive technologies or innovations can independently affect these trends, such as horizontal drilling technology’s impact on crude oil prices.

Analytical Focus:

  • Understanding secular trends is crucial for long-term industry trajectory analysis.
  • For medium and short-term trends, analysts should focus on cyclical trends.

Understanding the Industry Landscape

Industry landscaping is an analytical process that examines the various entities within an industry, including competitors, customers, suppliers, regulators, and emerging technologies, as well as the interactions and differentiators among them.

Topic Pointers:

  1. Competitive Analysis: Assess the nature of competition, which affects pricing power and profit margins.
  2. Customer Preferences: Understand customer preferences and factors that influence their purchasing decisions.
  3. Supplier Influence: Evaluate the role and power of suppliers in the industry.
  4. Regulatory Impact: Consider the effect of current and potential regulations on the industry.
  5. Emerging Technologies: Identify technologies that may disrupt or change the competitive dynamics of the industry.
  6. Differentiating Factors: Study what sets competitors apart in terms of products, services, and business models.
  7. Reaction to Market Events: Analyse how the industry might respond to external changes, such as input cost variations.

Established Frameworks for Analysis:

  • Michael Porter’s Five Forces: Analyses competitive forces to determine industry attractiveness and profitability potential.
  • PESTLE Analysis: Assesses the macro-environmental factors affecting an industry, including political, economic, social, technological, legal, and environmental aspects.
  • BCG Matrix: Helps in portfolio analysis by categorising products or business units into four quadrants based on market growth and market share.
  • SCP Analysis: Examines the structure-conduct-performance paradigm, considering how the structure of an industry affects a firm’s behaviour and its performance.

Michael Porter’s Five Forces Model for Industry Analysis

Porter’s Five Forces model is a framework for analysing an industry’s competitive forces to assess its attractiveness and profitability potential. Developed by Michael E. Porter in 1979, the model uses five forces to understand the competitive intensity and attractiveness of a market.

Topic Pointers:

  1. Threat of Substitutes: Assess how easy it is for customers to switch to a competing product or service.
  2. Threat of New Entrants: Determine how easily new competitors can enter the market and compete.
  3. Industry Rivalry: Evaluate the intensity of competition between existing players in the industry.
  4. Bargaining Power of Suppliers: Understand the power of suppliers to drive up the prices of inputs.
  5. Bargaining Power of Customers: Consider the power of customers to drive down prices.

Industry Attractiveness:

  • Industries with high profits are considered attractive when these forces are weak.
  • Industries with low profits are unattractive when these forces are strong, often resulting in difficult conditions for earning significant profits.

Warren Buffet’s Quotes on Industry Structure:

  • A brilliant management team is unlikely to overcome the fundamental challenges of a business with inherently poor economics.
  • It may be more beneficial to invest in a different industry rather than trying to fix an inherently problematic one.

Example: Not required as the information provided details the model itself rather than its application to a specific industry.

Industry Rivalry

Industry rivalry refers to the level of competition among firms within an industry. High rivalry often leads to aggressive pricing strategies, lower profits, and the need for continuous innovation in products and services.

Topic Pointers:

  1. High Rivalry Indicators:
    • Presence of numerous companies within a segment.
    • Homogeneity of products/services with little differentiation.
    • Similar competitive strategies among firms, such as price wars.
    • Low switching costs for customers, making it easy to change providers.
  2. Effects of Strong Rivalry:
    • Frequent periods of reduced revenue and profit margins.
    • Need for businesses to adopt strategies that set them apart from competitors.
  3. Strategies to Combat High Rivalry:
    • Aggressive internal innovation to reduce costs and improve operations.
    • Development of differentiating products and strong brand recognition.
    • Unique positioning of products/services to stand out in the market.

Example: Micromax in India: Achieved a 10% market share within three years by offering devices with special features at competitive prices, illustrating successful differentiation in a highly competitive industry.

Threat of Substitutes

The threat of substitutes refers to the risk that an industry’s products or services may become obsolete or less desirable due to the emergence of new and better alternatives. This phenomenon can lead to significant changes in industries, as existing products become irrelevant in the face of innovative substitutes.

Topic Pointers:

  1. Industry Changes: Industries experience substantial changes when cheaper, more accessible, or superior alternatives emerge.
  2. Substitutes in Action: Examples include SMS replacing telegrams, steel and plastic pipes substituting cement pipes, computers overtaking typewriters, and digital photography replacing film-based cameras.
  3. Kodak’s Example: Kodak, despite inventing the first digital camera, did not transition to digital photography to protect its existing film business, eventually leading to bankruptcy.
  4. Adaptation and Success: Industries and companies that foresee changes and adapt early are more likely to succeed.
  5. Varying Impact: Some industries cannot withstand the threat of substitutes and fail, while others reinvent themselves to stay relevant. Certain sectors like power, healthcare, and education have a minimal threat of substitutes.
  6. Characteristics of High Threat: The threat is high if substitutes offer equal or better customer experience (in terms of quality, price, ease, etc.) and if the switching cost for customers is low or nil.
  7. Delayed Substitution Effect: Sometimes, substitutes take a long time to replace existing businesses, as seen with solar products and LED lights, where initial costs can be a deterrent.

Example: Digital Photography vs. Film-Based Cameras: The most notable example of the threat of substitutes is how digital photography completely overshadowed film-based cameras, leading to the downfall of industry giants like Kodak. Despite Kodak engineers inventing the first digital camera, the company’s reluctance to shift from film to digital led to its bankruptcy. This case illustrates the crucial need for industries to adapt to technological advancements and changing consumer preferences.

Bargaining Power of Buyers

The bargaining power of buyers refers to the ability of buyers to influence the price and terms in transactions, especially in contexts where there are many sellers or when products and services are undifferentiated. This power varies based on the number of buyers and sellers, the uniqueness of their products/services, and the size and profile of the buyers.

Topic Pointers:

  1. Influence of Buyer-Seller Ratio: When there are many sellers with similar products/services, buyers can exert significant pressure and dictate prices. Conversely, buyers have less influence when few sellers are present.
  2. Product Differentiation: The level of product/service differentiation impacts buyers’ bargaining power. Less differentiation increases buyer power.
  3. Government as a Buyer: The size and profile of the buyer, such as the government, can significantly influence bargaining power.
  4. Industry Characteristics Influencing Power:
    • Competitive Intensity: High competition in the industry leads to continuous pricing pressure, increasing buyers’ bargaining power.
    • Standardisation: Products/services that are standardised and have little or no differentiation boost the bargaining power of buyers.
    • Substitutes and Switching Costs: The existence of close substitutes and low or nil switching costs for customers further empowers buyers.

Example: Standardised Consumer Electronics: In industries like consumer electronics, where products are often standardised (e.g., USB cables, phone chargers), buyers have significant bargaining power. They can easily switch between brands, leading to continuous pricing competition among sellers. This situation forces manufacturers to keep prices competitive and often leads to innovations in product differentiation to gain an edge in the market.

Bargaining Power of Suppliers

The bargaining power of suppliers refers to the ability of suppliers to influence the prices and terms of supply in a market. This power varies based on the number of suppliers, the importance of their products or services, the presence of substitutes, and the cost to buyers of changing suppliers.

Topic Pointers:

  1. Influence on Pricing: Suppliers can have significant influence over prices, especially when they are limited in number and the buyers are many.
  2. Critical Inputs: When suppliers provide critical inputs that buyers heavily rely on, their bargaining power increases.
  3. Competitive Intensity and Differentiation: Low competitive intensity in an industry, along with differentiation in products and services, enhances suppliers’ power.
  4. Lack of Substitutes: Suppliers’ power is higher when their products/services have no close substitutes.
  5. High Switching Costs: When it is costly or difficult for customers to switch to different suppliers, the existing suppliers’ bargaining power is bolstered.

Example: OPEC and Crude Oil Supply: The Organization of the Petroleum Exporting Countries (OPEC) effectively controls the supply of crude oil, a critical input for many industries worldwide. By adjusting output to maintain desired price levels, OPEC demonstrates strong bargaining power. This situation reflects how limited suppliers with control over a vital resource can dictate terms in a market.

Barriers to Entry (Threat of New Entrants)

Barriers to entry are obstacles that make it difficult for new competitors to enter a market. These barriers create a protective ‘moat’ around an industry, making it more attractive to investors and owners due to reduced threat from new entrants. High entry barriers allow existing businesses to maintain pricing power and profit margins.

Topic Pointers:

  1. Industry Attractiveness and Entry Barriers: An industry without the threat of new entrants is more attractive for investment. High barriers to entry protect existing businesses.
  2. Types of Barriers:
    • Licensing Requirements: Industries requiring extensive licensing deter new entrants.
    • Intellectual Property Rights: Patents and copyrights protect products/services, restricting competition.
    • Capital Intensity: High investment requirements in assets, typical in industries like oil and gas, act as a barrier.
    • Brand Loyalty and Distribution Networks: Strong brand loyalty and established distribution networks create challenges for new entrants.
    • Specialised Capabilities: Industries needing specific skills or execution capabilities deter new entrants.
  3. Characteristics of an Attractive Industry for Shareholders:
    • Low competition.
    • High barriers to entry.
    • Weak suppliers’ bargaining power.
    • Weak buyers’ bargaining power.
    • Few substitutes.
  4. Results of High Barriers: Industries with these features usually have strong pricing power and high profit margins, attracting investors.

Example: Education Industry in India: This industry showcases high entry barriers due to required permissions and limited competition. There’s a continuous demand for education with little bargaining power on the part of students (buyers). Teaching staff are employed at management-determined salaries, indicating weak suppliers’ bargaining power. Although competing courses exist, they often lack credibility, signifying few substitutes. These factors collectively make the education industry in India an attractive investment opportunity with strong pricing power.

PESTLE Analysis

PESTLE Analysis is a framework used to evaluate the external environmental factors impacting a business, particularly in an international context. It stands for Political, Economic, Socio-cultural, Technological, Legal, and Environmental Analysis. Sometimes extended to STEEPLED, including Ethics and Demographics, it helps businesses assess various countries for setting up operations.

Topic Pointers:

  1. Political Factors: Includes a country’s political structure, stability in legislation and policy, levels of corruption, bureaucracy, communal tensions, freedom of the press, ease of doing business, and public finances. Investors seek countries with stable and business-friendly political environments.
  2. Economic Factors: Encompass GDP growth, inflation, interest rates, import-export composition, balance of payments, exchange rate stability, financial market development, taxation, and reliance on foreign resources. Investors assess these to gauge a country’s economic stability and potential for growth.
  3. Socio-Cultural Factors: Relates to the demographic profile, education, health, social values, lifestyles, and cultural aspects influencing consumer behaviour. Shifts in societal trends can create new business opportunities and challenges.
  4. Technological Factors: Involves the role of technology in society and business, R&D activities, technological infrastructure, and the population’s tech-savviness. Countries leading in technology attract more investors.
  5. Legal Factors: Concerns the legal framework’s consistency, transparency, and support for businesses. Arbitrary legal changes or lack of enforcement can deter investors, as seen in certain high-profile cases in India.
  6. Environmental Factors: Focuses on a country’s environmental policies, pollution control, waste disposal, and natural resource protection. Clear and robust environmental policies are preferred by investors.

Example: Indian Education Sector: In India, the education sector is influenced by socio-cultural factors like a young population, demanding new educational services and facilities. Economic factors such as rising incomes also play a role. Technological factors, including the increasing use of digital platforms for education, are reshaping this sector. Legal and environmental aspects, like regulations on educational institutions and their environmental impacts, also play a crucial role in shaping the sector.

Boston Consulting Group (BCG) Analysis

BCG Analysis, developed by the Boston Consulting Group, is a strategic tool for evaluating different segments of a business unit based on market growth and cash generation. It uses a matrix framework to classify business segments into four categories: Stars, Cash Cows, Question Marks, and Dogs, based on their market growth rate and relative market share.

Topic Pointers:

  1. Stars:
    • Characteristics: High market growth and a large market share.
    • Financial Implication: Generates increasing cash over time.
    • Strategy: Invest for growth and maintain market leadership.
  2. Cash Cows:
    • Characteristics: Low market growth but high market share.
    • Financial Implication: Require little investment and generate steady cash flows.
    • Strategy: Maximise profit, invest minimally, and maintain position.
  3. Question Marks:
    • Characteristics: High market growth but low market share.
    • Financial Implication: Potential to grow but could consume cash in the process.
    • Strategy: Either invest significantly to increase market share or divest.
  4. Dogs:
    • Characteristics: Low market growth and low market share.
    • Financial Implication: Generate low profits or potentially losses.
    • Strategy: Divest or reposition.


  • Cera Sanitaryware (Star): Exhibits high market growth and significant market share, generating substantial cash.
  • Navneet Publications (Cash Cow): Operates in a low-growth industry but has a strong market share, resulting in steady cash flows.
  • Tata Nano (Question Mark): Represented a high growth potential market but struggled to increase market share, leading to insufficient cash generation.

Structure Conduct Performance (SCP) Analysis

Structure Conduct Performance (SCP) Analysis is a method of analysing industries by examining their structure (such as monopoly or oligopoly), conduct (including product specialisation and market cycles), and performance (indicated by financial metrics like RoE, RoIC, WACC). It is an extension of Porter’s model with an added focus on the financial dimension of industry analysis.

Topic Pointers:

  1. Structure Analysis:
    • **Focuses on the competitive intensity (number of players) and market concentration.
    • Examines the relationship among players, market size and growth rate.
    • Considers the presence of substitutes, supplier-buyer dynamics, and potential for integration.
    • Overlaps with Porter’s 5 Forces model and SWOT Analysis.
  2. Conduct Analysis:
    • **Assesses how industry structure influences business behaviour, pricing, and innovation.
    • Factors in whether the business is cyclical or non-cyclical, specialised or commoditized.
    • Considers impacts of external factors like interest rates, commodity prices, and government policies.
    • Evaluates the role of technology and skill requirements in the industry.
  3. Performance Analysis:
    • **Measures financial outcomes like Return on Equity (RoE) and Return on Invested Capital (RoIC).
    • Analyses various numerical ratios to assess industry health and profitability.
    • Determines how structure and conduct translate into value creation for shareholders.

Example: The text does not provide a specific industry example for SCP analysis. However, an example could involve applying SCP to assess an industry like pharmaceuticals, evaluating its competitive landscape (structure), innovation and regulation impact (conduct), and financial health through key metrics (performance).

Key Industry Drivers and Industry KPIs

Key Industry Drivers are the primary factors that influence the performance and direction of a particular industry. Industry Key Performance Indicators (KPIs) are specific metrics used to evaluate and measure the success and health of an industry, varying significantly across different sectors.

Topic Pointers:

  1. Industry-Specific KPIs:
    • KPIs differ greatly from one industry to another, depending on the nature and demands of each sector.
    • For service-oriented industries like BPOs, labour-driven metrics such as ‘revenue per employee’ are crucial.
    • In contrast, for capital-intensive industries like manufacturing, other metrics are more relevant.
  2. Guidance from Industry Players:
    • Annual reports and management discussions from companies within an industry can provide insights into the KPIs considered vital by industry players.
    • These documents are key resources for analysts to understand industry-specific KPIs.
  3. Additional Factors Influencing KPI Selection:
    • The unit of pricing in the industry can guide the selection of appropriate KPIs.
    • Key constraining factors within the industry also play a crucial role in determining relevant KPIs.


  • BPO Industry: In a labour-intensive industry like BPOs, ‘revenue per employee’ is a significant KPI as the business model revolves around the workforce efficiency and productivity. This metric helps in understanding how effectively human resources are being utilised to generate revenue.

Unit of Pricing

The unit of pricing is the basis on which a company sets the price for its products or services. It varies depending on the nature of the industry, being relatively straightforward in manufacturing industries and more complex in the service sector.

Topic Pointers:

  1. Manufacturing Industries:
    • The unit of pricing is typically the number of goods sold.
    • Pricing is directly tied to each unit of product manufactured and sold.
  2. Service Sector:
    • The concept becomes more challenging.
    • Pricing may not be based solely on the tangible aspects of the service (e.g., quantity of beverage).
    • Factors include customer experience, perceived value, duration of service, or other intangibles.
  3. Example of Café Pricing:
    • In a café like Starbucks, while it appears that pricing is based on the quantity of beverage, it is more likely influenced by the expected earnings from one patron.
    • The focus is on overall customer spend, including food, beverages, and potentially the duration of stay or frequency of visits.

Key Constraining Factors

Key constraining factors in an industry are the main limitations or challenges that can affect a company’s performance. These factors vary within industries and over time as industries evolve. They are typically categorised into demand side constraints, supply side constraints, and regulatory constraints.

Topic Pointers:

  1. Demand Side Constraints:
    • Involve limitations related to the market size or target customer base.
    • KPIs to track might include industry penetration rates or customer growth rates.
  2. Supply Side Constraints:
    • Relate to limitations in production capacity or resources.
    • Important metrics include capacity utilisation rates and efficiency of resource use.
  3. Regulatory Constraints:
    • Involve legal and regulatory limitations that impact industry operations.
    • Metrics to monitor could be compliance rates or adherence to specific regulations set by governing bodies.

KPIs for Select Industries

Key Performance Indicators (KPIs) for select industries refer to specific metrics used to measure and evaluate the performance and success of businesses within different sectors. These KPIs vary based on the unique characteristics and constraints of each industry.

Topic Pointers:

  1. Airlines and Transportation/Logistics:
    • Metrics: Passenger/cargo kilometre, price per passenger/cargo km, capacity and utilisation rate/occupancy rate.
    • Constraints: Capacity limitations.
  2. Automobiles and Capital Goods:
    • Metrics: Volume and volume growth, average realisations and their growth, capacity and capacity utilisation rate.
    • Constraints: Production capacity.
  3. Commercial Banks and NBFCs:
    • Metrics: Net interest margin, capital adequacy ratios, NPA ratio, growth rates in deposits and loans, cash reserve ratio, statutory liquidity reserve ratio, CASA ratio.
    • Constraints: Regulatory capital, deposits, liquidity in the market.
  4. Consumer Goods:
    • Metrics: Volume and its growth, average price and its growth, capacity and utilisation rate (in durables).
    • Constraints: Capacity constraints in durables.
  5. IT Services/BPO/KPO:
    • Metrics: Average number of FTEs billed, average revenue per FTE, bench strength and attrition rates, constant currency growth rates, customer concentration ratio, number of “million dollar” customers.
    • Constraints: Workforce availability, currency fluctuations, customer concentration.
  6. Media Industry:
    • Metrics: Readership/viewership (TRPs)/number of site visitors, average ad realisation per unit, content acquisition cost.
    • Constraints: Limited ad space or airtime, content quality and cost.
  7. Retail:
    • Metrics: Number of stores, same store sales growth.
    • Constraints: Store network expansion in profitable locations.
  8. Telecommunication/Internet Service Providers:
    • Metrics: Average revenue per user (ARPU), subscriber churn rate, cost of subscriber acquisition, market share.
    • Constraints: Market size limited by population, competition for customer acquisition and retention.

Regulatory Environment/Framework

The regulatory environment or framework refers to the set of laws, regulations, and rules that govern how businesses operate within an industry. Understanding the regulatory environment is crucial for industry analysis, as changes in regulations can significantly impact business operations and strategies.

Topic Pointers:

  • Impact of Regulation Changes: Even minor alterations in the regulatory framework can have substantial effects on businesses.
  • Influence on Business Decisions: Regulations influence key business decisions, including investment, operations, and strategic planning.
  • Examples of Regulatory Impact:
    • FDI in Multi-Brand Retail in India: Discussions around the extent of required investment in backend infrastructure, definitions of backend, possibilities of acquiring existing setups, and mandates on purchasing from Indian vendors.
    • Environmental Policies: Changes can lead to the closure of mines, affecting related businesses.
    • Telecommunication Licenses: Cancellation of licenses has significantly impacted the telecom industry.
    • Amendments to the Companies Act: Resulted in changes to the business landscape in India.
  • Necessity for Analysts: It’s essential for analysts to thoroughly understand and monitor the regulatory aspects of industries to accurately assess risks and opportunities.

Example: Specific regulatory changes and their direct impacts on businesses are not detailed in the text. However, an example could be how environmental regulation changes can affect industries like mining, requiring companies to adapt their operational strategies.


Taxation refers to the system through which a government collects money from individuals and businesses to fund public expenses. Taxes are not only a source of revenue but are also used as a policy tool to influence economic behaviour, encourage or discourage certain industries, and manage economic equality.

Topic Pointers:

  • Government Revenue and Policy Tool: Taxes serve as a primary means for governments to generate income and implement policy objectives.
  • Encouraging or Discouraging Businesses:
    • Governments may use taxation to either support or deter specific industries.
    • Higher taxes can be levied on industries or products that are deemed undesirable, like junk food.
  • Types of Taxes:
    • Direct Taxes: Levied directly on individuals or organisations, like income tax.
    • Indirect Taxes: Applied to goods and services, like sales tax or GST.
  • Examples of Taxation as a Policy Tool:
    • Kerala’s Fat Tax: In 2017, Kerala introduced a 14.5% additional tax on junk foods to discourage unhealthy eating habits.
    • Goods and Service Tax (GST) in India: GST rates vary, with essential products often taxed lower or not at all, while luxury items attract higher rates.

Example: No specific numerical examples or data provided in the text. However, an example could be how a higher GST rate on luxury cars in India might aim to regulate the luxury car market while generating more revenue.

Direct Taxes

Direct taxes are taxes where the burden of the tax falls on the same entity that is responsible for paying it to the government. This means the entity that incurs the tax is also the one that pays it directly to the tax authority.

Topic Pointers:

  • Incidence and Liability: In direct taxes, the tax incidence and liability are on the same person or business.
  • Common Forms:
    • Income Tax: Paid on the profits earned by individuals and businesses.
  • Tax Laws and Business Practices:
    • Tax laws often align with government objectives to encourage or discourage certain business practices.
    • Examples include additional deductions for research and development or disallowing deductions for delayed interest payments to banks.
  • Adjustments and Reporting:
    • Often leads to differences between profits for external reporting and tax purposes.
  • Components of Corporate Income Tax in India:
    • Income Tax: Standard rate is 30%, reduced to 25% for companies with turnover below Rs 400 crores. Alternative schemes offer reduced rates of 15% to 25%.
    • Minimum Alternate Tax (MAT): Companies pay 18.5% of book profits if regular income tax is less, with provisions for MAT credit.
    • Surcharge: An additional levy on income tax/MAT, not shared with state governments. Rates vary based on profit amounts.
    • Cess: An extra charge on taxes plus surcharge, earmarked for specific purposes like education or health.

Example: No specific numerical examples are provided in the text. However, an example could be a company calculating its income tax liability based on taxable profits and then adjusting for MAT, surcharge, and cess as per the prevailing rates and rules.

Indirect Taxes

Indirect taxes are those where the tax burden is passed from the entity responsible for paying the tax to another party, typically the consumer. In these cases, the seller collects the tax from the consumer and then remits it to the government.

Topic Pointers:

  • Burden Transfer: The tax is initially levied on the seller, who then transfers the burden to the consumer.
  • Goods and Service Tax (GST):
    • GST is charged at the time of sale of goods or services.
    • Calculated as a percentage of the invoice value.
    • Sellers remit this amount to the government after deducting the GST paid to their suppliers (Input Tax Credit).
    • GST rates vary, typically from 0% to 28%.
  • Excise Duty:
    • Tax on production, mostly subsumed by GST.
    • Still applicable on products like liquor, petrol, and diesel.
  • Value Added Tax (VAT):
    • Levied on the sale of products by state governments.
    • Currently applicable to liquor, petrol, and diesel.
  • Customs Duty:
    • Tax levied on imported products.
    • Rates vary based on the product imported.

Example: No specific numerical examples are provided in the text. However, a common example could be a retailer charging GST on a consumer product, where the GST is included in the price paid by the consumer and later remitted to the government by the retailer.

Other Taxes

Other taxes refer to specific taxes that do not fall under the common categories of direct or indirect taxes. These include taxes like road tax, stamp duty, and security transaction tax, each affecting different sectors of the economy.

Topic Pointers:

  • Road Tax:
    • Paid by purchasers of new automobiles.
    • A lifetime tax paid upfront, increasing the acquisition cost of automobiles.
    • Impacts automobile sales and related industries like auto-ancillaries and insurance firms.
  • Stamp Duty:
    • Required for the registration of documents, particularly in property transactions.
    • Affects the cost of asset acquisition for buyers and the realisable value for sellers.
    • Changes in stamp duty rates significantly impact the real estate industry and investment management firms.
  • Security Transaction Tax (STT):
    • Levied at the time of sale of securities.
    • Reduces the realisable value of security sales, thereby impacting short-term trading.
    • Affects stock traders and brokerage firms.

Sources of Information for Industry Analysis

Sources of information for industry analysis are various channels and publications that provide data, insights, and expert opinions about different industries. These sources are essential for conducting comprehensive and accurate industry analyses.

Topic Pointers:

  • Industry Reports:
    • From diverse sources like industry journals and media reports.
    • Offer in-depth analyses, trends, and forecasts relevant to specific industries
  • Annual Reports of Companies:
    • The ‘Management Discussion and Analysis’ section provides valuable insights.
    • Covers company-specific information and often industry outlooks.
  • Associations/Trade Bodies Publications:
    • Release reports and publications containing industry data, trends, and regulatory changes.
    • Useful for understanding industry-wide challenges and opportunities.
  • Relevant Ministry Website/Publications:
    • Governmental websites and publications offer official data, policy updates, and regulatory information.
    • Essential for understanding the legal and regulatory environment of the industry.
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