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.
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 and there’re many sub-industries like household complexes, commercial properties, hotels, amusement industry, etc. You need to get an idea about the right industry. If there’s no relevance in the industry you’re 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 Parameters | Automobile Sector | IT Services | Steel Sector |
| Demand: Why would there be a continued demand for the product/service |
|
|
|
| Key supply drivers |
|
|
|
| Degree/nature of change |
|
|
|
| Predictability of business |
|
|
|
| Cyclicality? |
|
|
|
| Ability to increase price ahead of inflation (Pricing power) |
|
|
|
| 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 |
|
|
|
| Does the industry enjoy high growth rates? For how long |
|
|
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 term valuation of the industry and what could be the challenging issues in the future.
- 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.
