Factors influencing Demand:<\/u><\/strong><\/p>The analyst must consider the following while forecasting the demand for a product.<\/p>
The product,<\/strong> its utility to the consumer, and the spending pattern of the consumers.<\/p>Substitutes:<\/strong><\/strong><\/p>Availability of many equivalent products\/ substitutes makes switchover from a product easy and impacts demand.<\/p>
End Users:<\/strong><\/strong><\/p>The demand for a product is also determined by the need from the end users. Therefore, the growth of the end users is an important factor, that impacts the demand.<\/p><\/li><\/ul>
- Life Cycle of a product<\/strong><\/li>
- also plays a role in demand forecasting \u2013 nascent, growth, mature or declining life cycle of the product<\/li>
- Product Usage<\/strong>: Whether a product has a single, or multiple applications also influences the demand.<\/li>
- Imports and Exports<\/strong>:<\/li>
- The position and dimensions of imports and exports, such as pricing, quality, lead time, minimum order quantity etc, need to be assessed while estimating. One also has to assess the impact of cheaper imports not only on the demand of the product but also on the profitability of the enterprise as cheaper imports are a perceptible threat to the industry\u2019s prospects.<\/li><\/ul>
Market<\/strong><\/h4>The key points to be considered are:<\/p>
- The number of players, competition, entry barriers, organized\/unorganized\/ fragmented players<\/li>
- Market entry barriers, Capital expenditure for creation of capacity, licensing,<\/li>
- Extent of competition<\/li><\/ul>
Regulatory Environment<\/strong><\/h4>The following have an impact on the demand and are to be taken into account.<\/p>
- Duty structure (ie, import, export, countervailing, anti-dumping etc)<\/li>
- Fiscal incentives to certain sectors (tax holidays, setting up of special economic zones, increasing credit flow through policy prescriptions)<\/li>
- Price controls<\/li>
- Distribution controls<\/li>
- Regulatory guidelines regarding establishment of certain industries, pollution control<\/li>
- Stability of regulations<\/li><\/ul>
Industry Profitability<\/strong><\/h4>While assessing the industry risk, it is also necessary to forecast the future profitability of the industry. Various factors and scenarios contribute to and influence the future profitability. Some of the critical aspects in this regard are<\/p>
- Whether the existing situation regarding demand \/supply gap will continue in the future and will improve or worsen?<\/li>
- Whether the current cost structure of production will continue\/improve\/worsen?<\/li>
- Are there any trend breakers?<\/li>
- Whether there has been any technological advancement in the production process and whether the company has undertaken any process\/technological improvements to economise the production cost?<\/li><\/ul>
Market Position<\/strong><\/h4>Market position analysis considers the revenue side risks. The following factors are analyzed in detail.<\/p>
- Product diversification and ability to withstand shocks.<\/li>
- Diversification of revenue streams by geography, customer and product.<\/li>
- Market penetration efforts and pricing power-ancillaries and tier 1 and tier 2 suppliers with assured offtake.<\/li><\/ol>