NBFC Industry

13.1 BCG matrix

BCG matrix is a framework created by Boston Consulting Group to evaluate the strategic
position of the business brand portfolio and its potential. It classifies business portfolio into
four categories based on industry attractiveness (growth rate of that industry) and competitive
position (relative market share). These two dimensions reveal likely profitability of the
business portfolio in terms of cash needed to support that unit and cash generated by it.
The general purpose of the analysis is to help understand, which brands the firm should invest
in and which ones should be divested.1

Cash cows:

Cash Cows are where company has high market share in a slow-growing industry. These
units typically generate cash in excess of the amount of cash needed to maintain the business.
They are regarded as staid and boring, in a "mature" market, and every corporation would be
thrilled to own as many as possible. They are to be "milked" continuously with as little
investment as possible, since such investment would be wasted in an industry with low
growth.

Dogs

Dogs, more charitably called pets, are units with low market share in a mature, slow-growing
industry. These units typically "break even", generating barely enough cash to maintain the
business's market share. Though owning a break-even unit provides the social benefit of
providing jobs and possible synergies that assist other business units, from an accounting
point of view such a unit is worthless, not generating cash for the company. They depress a
profitable company's return on assets ratio, used by many investors to judge how well a
company is being managed. Dogs, it is thought, should be sold off.

Question marks

Question marks (also known as problem children) are business operating in a high market
growth, but having a low market share. They are a starting point for most businesses.
Question marks have a potential to gain market share and become stars, and eventually cash
cows when market growth slows. If question marks do not succeed in becoming a market
1

http://www.strategicmanagementinsight.com/tools/bcg-matrix-growth-share.html

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leader, then after perhaps years of cash consumption, they will degenerate into dogs when
market growth declines. Question marks must be analysed carefully in order to determine
whether they are worth the investment required to grow market share.

Stars

Stars are units with a high market share in a fast-growing industry. They are successful
question marks and become a market leader in a high growth sector. The hope is
that stars become next cash cows. Stars require high funding to fight competitions and
maintain a growth rate. When growth slows, if they have been able to maintain their category
leadership stars become cash cows, else they become dogs due to low relative market share.2

Company Name

Sales Turnover
(2013) (Rs. Crore)

Relative Market
Share

HDFC

21112.50

1.00

Power Finance Corp.

17260.27

0.82

Rural Electricity Corp.

10337.59

0.49

6558.13

0.31

3828

0.18

Indiabulls Financial Services

2929.26

0.14

M&M Financial

2767.70

0.13

Bajaj Holdings

743.68

0.04

Bajaj Finserv

141.47

0.01

Religare Enterprises

120.97

0.01

Shriram Transport Finance

Reliance Capital

As on March 31, 2013, the total managed retail credit on NBFCs stood at Rs. 3.25 trillion and
registered a sharp fall in growth to 10% in FY2013. However, after adjusting the reclassification of one NBFC the overall NBFC managed growth in FY2013 would have been
19%.3

2
3

http://en.wikipedia.org/wiki/Growth%E2%80%93share_matrix
http://icra.in/Files/ticker/SH-2013-Q3-1-ICRA-NBFC-Retail Comm Fin.pdf

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NBFC Industry

Symbols

Name of Companies
HDFC
Power Finance Corp.
Rural Electricity Corp.
Shriram Transport Finance
Reliance Capital
Indiabulls Financial Services
M&M Financial
Bajaj Holdings
Bajaj Finserv
Religare Enterprises

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NBFC Industry

INTERPRETATION:

The growth rate of NBFC industry in 2013 is 19%. The HDFC is Leader Company
with the highest market share of the total market share so it falls in the star category.

The Power Finance Corp. has 0.82 percent relative market growth rate which also fall
in star category. It is a challenger of the NBFC industry.

Rural Electricity Corp. has 0.49, Shriram Transport Finance has 0.31, Reliance
Capital has 0.18, Indiabulls Financial Services has 0.14, M&M Financial has 0.13,
Bajaj Holdings has 0.04, Bajaj Finserv and Religare Enterprises have 0.01 relative
market shares in the market.

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