BS Major Part II

8/8/2019 BS Major Part II

1/33

Business strategy Part-II

ContentsExecutive summary....................................................................................................................2

Introduction................................................................................................................................3

Market Size................................................................................................................................4

Market share...............................................................................................................................4

Product wise categorisation....................................................................................................5

Decorative Segment............................................................................................................5

Industrial Segment..............................................................................................................5

Competition Analysis.................................................................................................................6

Strategic direction (Ansoff Matrix)............................................................................................7

Market Penetration.................................................................................................................7

Product development..............................................................................................................7

Diversification........................................................................................................................8

Market development...............................................................................................................8

Value chain Analysis..................................................................................................................9

Primary activity......................................................................................................................9

Support Activity...................................................................................................................12

Bowmans Strategy Clock........................................................................................................14

Diversity of strategic positioning.............................................................................................16

Acquisitions and Collaborations..............................................................................................17

Functional strategy...................................................................................................................19

Strategic evaluation..................................................................................................................21

Suitability.............................................................................................................................21

Acceptability.........................................................................................................................23

Feasibility.............................................................................................................................27

Recommendation......................................................................................................................28

Conclusion................................................................................................................................30

Annexure: 1..............................................................................................................................31

Bibliography.............................................................................................................................33

Bibliography

Strategic Analysis of Asian Paints Page 1


2/33


Executive summaryAsian paint is the market leader with 49% of market share in Indian decorative segment and

maintains its position among the top ten players in the world. It is only Indian company

operating in India having supply chain management supported by i2 technology. The report

talks about the business level strategy of Asian paints, its identification, implementation and

evaluation. For studying Asian paints in details strategic models like strategic clock, value

chain and financial evaluation tools have been used. The report also talks about the market

share of Asian paint in decorative as well as industrial segment and its growth. The strategy

adopted by Asian paint is market penetration and growth (organic and inorganic). In

evaluation technique we have try to find out the feasibility, suitability and acceptability of

strategy by financial and resource deployment method and we found that strategy of Asian

paint full fill all the criteria of model used. The report also talk about the extent of

competition in the market and we find that the most closed competitor of Asian paint is

Nerolac having half the share in compression with Asian paint but leads the market in

industrial paint segment. It also talks about the suggested recommendation by us and mainly

we have suggested Asian paint is to follow market leader strategy.



3/33


IntroductionAsian Paints exist in the Indian paint industry for more than 50years. Presently Asian Paints

is market leader in the industry with 49% market share. By creating stable competitive

advantage in the business Asian paints become the most reputed public company in the paint

industry. The industry where Asian paints compete is 170 billion markets and with a growth

rate of 18% and the market is left with lot potential. Still the unorganized player in the

industry enjoys nearly 35% of the market. (, 2009).

Asian Paints is competing with a width of the product line is four with the categories

Ancillaries, Automotive, Decorative Paints and Industrial. Product diversification is the

major aspect of its competitive advantage in the industry. The company having strong

footprints in more than 65 countries and the product as well as the promotion of the product

is totally customized to the markets. The distribution network is a competitive hedge it

developed in the history of 68 years with an integrated system of its 2500 stock keeping

units(, 2009)

The current market position of Asian Paints is achieved by its competitive advantage in

continuous research and development which leads to more than 1000 shades and distribution

integrated system of its 2500 stock keeping units. (Asian paints,2009). Asian paints give

prime importance to supply chain management backed by information technology. We

identified Asian Paints for analysing various aspects of business level strategy because of the

competitive advantage which the company generated by the effective application of business

strategy. By studying Asian paints we can easily understand the story of becoming a market

leader and maintaining its position throughout the world.



4/33


Market SizeThe Indian Paint industry is estimated at 170 billion with a strong presence of both organized

and unorganized players at ratio of 65:35.The organise players making their hand stronger in

the market. Due to the revised excise duties of govt the unorganised players losing their

competitive edge. When we take the Indian paint industry the annual per capita consumption

of paint is .5 kg and the global average is 15kg. The global expansion of the Asian Paints

foresees the potential of the global market. The per capita paint consumption of developed

countries is estimated at 22kg and for south East Asian countries is 4kg. The Indian paint

marker records its highest growth during the festival seasons. The industrial paint and

decorative paint segment growing at a same proportion. All these data supports the immense

growth potential of Asian paint in the Indian as well as in the global market. The competition

in the global market will be high but as because of the sustainable competitive advantage of

Asian Paint expected to capture 59% of the Indian Paint industry by 2015 (, 2009)

Market shareIf we look into the Indian market share of Asian paints it can be recognised as the market

leader of the decorative paint industry. Due to the high cost high quality products of the

decorative paint market has giving Asian paints a high advantage against its competitors. But

when it comes to the low prised industrial segment market is ruled by GNPL. Asian Paints

hold only 14.5 % the industrial segment but by acquiring Bergers the Asian paints share

increases in both the sector. As Asian Paints is very successful with its business level

strategies the same can be applied to the Industrial segment more effectively. For this they

need to adopt some market penetration strategies as well as market development can make

the difference. (Mehta, 2009)



5/33


Product wise categorisation

Decorative Segment

Paint Category Percentage of the total market

Enamels 50%

Distemper 19%

Emulsions 17%

Exterior Coatings 12%

Wood Finishes 2%

Industrial Segment

Industry wise classification Percentage of the Total Market

Automotive Paints 50%

High Performance Coating 30%

Powder Coating 10%

Coil Coating 5%

Marine Paints 5%

(Source: paint industry report, 2009)



6/33


Competition AnalysisAsian Paints continuing as the market leader in India at a high competitive scenario. The key

success factor that helps the organisation to become the market leader is the sustainable

competitive advantage which the organisation generate in its distribution integrated system of

its 2500 stock keeping units. There are more than twelve players in the organized sector in

Indias paint and coatings market and over 2,000 in the unorganized sectorICI ,Goodlass

Nerolac, Berger, and Shalimar have a strong presence in the market. Recently, world leads

major players like Akzo Nobel, PPG, DuPont and BASF have set up India as their base with

product ranges such as, powder coatings auto refinishes and industrial coatings. Kansai Paints

of Japan, which entered into collaboration with Goodlass Nerolac in 1984, is now the holding

company for Goodlass Nerolac with 64.52% equity holding.

Here we are trying to identify the main competitor and their key strength.

Goodlass Nerolac: - A high level of customization by Provide paint shop management services to

sell solutions rather than product. And high concentration on the low cost industrial segment both

Asian Paints and Nerolac staying away form high commutation

ICI: - Increase capacities to strengthen presence in fast growing architectural segments. As the

major player in the global market they have a better advantage in the market. The Dulux brand

name is the key strength and recognized brand in India. And on more concentration on industry

holding nearly 13% of the market. (, 2009)

JNIL- Leverage on JV for growth in Industrial segments. The companies always try to find out

the better way to find out the competitive advantage through strategic alliance.

RPM international- leaders in specialty coatings and sealants serving both industrial and

consumer markets. Industrial products include corrosion control coatings, flooring coatings

and specialty chemicals

SPIL:- Consolidate position in architectural paints . (, 2009)



7/33


The competition in the market is moderate each companies are trying to find out there on

competitive advantage and create their own market share. And the most successful one is

Asian Paints by efficient distribution system and the wide variety of shades can be identified

as the core competency and staying out of dead competitive practices. ()

Strategic direction (Ansoff Matrix)

Market PenetrationAsian paints have recognized many strategic directions; one of the strategic directions

undertaken by Asian paints is market penetration. The purpose of market penetration is to

enlarge the share in market with the use of current products within the existing markets.

Asian paints have done this strategy by using wood finishes and metal paints. Earlier it wood

finishes and metal paints were used only for home use, but Asian paints have identified its

market for industrial purpose also, thus its penetration into the market has helped them in

achieving larger market share(, 2010)

Product developmentProduct expansion or development strategies mostly make it as centre of attention by

developing fresh products for the current and existing markets. The purpose of this strategic

way is to draw novel customers, maintain existing customers and also helps in adding up the

market share. Asian has made many product developments in order to satisfy the needs of the



8/33


existing customers; like in the category of wall paints it has developed emulsion paints which

are washable called Tractor and acrylic emulsion. Asian paints royal was also a product

development strategy which has helped them to gain(, 2010).

DiversificationIt can be viewed as a process of growth through introducing new products in fields of new market.

This strategy is suitable when the current market is in stage of saturation or when products reach its

highest position to the end of its life cycle. It helps in reducing the risk by spreading the risk to its

extended product line and by this it can make a synergy which creates a competitive advantage. Asian

paints have diversified its product line into Automotive paints (TVS Collaboration) and Marine

Paints (Heavy Duty). Asian paints way into its diversification for the field of automotive and

marine paints was remarkable which has helped them to grab market share of untapped

market share(, 2010).

Market developmentDeveloping into new market is one of the strategic option a company which is going to make market

development can be achieved by taking the existing product to new geographical market, it can also

be achieved by exporting the product to foreign countries. In Asian paints they have taken market

development as one of the main strategic option which has helped them to develop their market by

taking their products to foreign countries, they achieved this through joint ventures in foreign

countries like Tongo, Fiji, Solomon Island and in Queensland which is in Australia. They have also

made collaboration of technology with Japan Nippon Co Ltd(, 2010).



9/33


Value chain Analysis

The traditional value chain which is given by porters is still in use and considered as one of

the tool to measure value chain activity of the company which provide them an edge over the

competitors. There are some primary activities and other is known as secondary activities.

This model varies from companies to companies, the above value chain model is for the

company Asian paint and it is based on the activities that they consider prime importance for

their competitive advantage. It is based on their current annual report where they have

highlighted the area where they are focusing more. By this analysis our aim to understand

how these activities are creating value for the company or customers and how they are linked

with reduction of production cost.

Primary activity

Procurement

Paint industry is a highly raw material based industry and it depends on petroleum

industry heavily. Price fluctuation in petroleum products can lead to price fluctuation in

paint. In order to overcome this barrier and in order to reduce suppliers power Asian



10/33


paint opted for backward integration and started producing some of the raw material by

itself which provided it an edge over competitors. It source raw material from both

domestic and foreign suppliers and it uses a highly sophisticated planning system for

material planning. It is continuously maintains its bill of material, its routing and

optimum level maintenance. It also plans for an alternative material scenario. It uses i2

factory planning software to manage inflow and use of material amid multiple possible

alternate across all the vendors and all production routs. I2 advanced scheduling software

used to measure weekly timing requirement of raw material unit wise and machine wise.

It helps in reducing the cost of production and more efficient procurement and use of raw

material increases the quality of the output. (i2.com, 2009)

Supply chain Activity

Supply chain management is in the culture of Asian paint. The state of art supply chain

system backed by technology provides Asian paint an edge over its competitors and in

india it is known as supply chain leaders. All manufacturing units owned by company or

contractual manufacturers are connected by the latest software which monitors and

controls all the activity at those places from raw material, production process, packing,

inventory, distribution and retail. It helps Asian paints in demand forecasting, managing

optimal plant, depot and SKU combination, streamlining relationship with vendors,

reduction in raw material cost and managing schedule at manufacturing units. It has

integrated 2 chemical plants, 350 paw material and goods suppliers, 18 processing

centres, 140 packing material suppliers, 6 distribution centres and 72 depots. (Asian

paints, 2010)

R & D

Company consider its R & D department as its backbone and this department has played

important role in growth of the company from its early days. All the paints or shared

available in Indian and foreign market are developed in-house by Asian paint R & D cell.



11/33


Their activities are not only intended towards development of new products but also

integrate with other department and improve their functioning. R & D activity helped

Asian paint in reducing process cycle time in manufacturing, it work towards

environmental issues and it has removed lead contain from the paints and all the Asian

paint product is lead free hence safe to use. Development of alternative raw materials

provides negotiating power to Asian paints. The new research and technology centre of

Asian paint is located in outskirts of Mumbai. (Asian Paint, 2010)

Information Technology

Adapting to changing business environment with changing technology is the art of

success according to Asian paints. It is only company operating in India having integrated

supply chain management solution from i2 and ERP from SAP which makes it ans

internally enabled enterprise. Their next aim is to integrate all stakeholders in order to

create a unique and extended enterprise. It is maintaining a portal which has automated

digital document exchange which makes the communication with vendors and suppliers

easy and smooth. In order to avail the 24x7 it Support Company is planning to start

disaster recovery system. CRM tool is used by Asian paint to provide home solution to

consumer. (Asian paints, 2010). By implementing IT to business they are increasing their

efficiency which helps in creating value in the mind of customer, so by using IT they are

reducing their unit coat and creating value for customers.

Marketing and Sales

In 2009 Asian paints invested Rs. 197.05 crore in advertisement and selling activities

which is highest than any other player in the market. It has started 2850 colour world in

India and also increases the dealers and distributors network to around 14000 which

shows its penetration in the market. (Asian paints, 2010). They are mainly focusing on

branding colour world out let as one stop shop for colouring solution. Their aim is to

enhance service to customers which help in creating value for the products.



12/33


Support Activity

Human Resource Management

Asian paints believe that it is people who do innovation and invent new products and

increases efficiency which help business to grow. Asian paint has 4700 employee in 23

countries brings an exceptional mindsets and skill. Asian paints provide an open and

interactive culture which motivates people to give its 100%. In the year 2009 company

included coaching in its HRD agenda, the aim is to develop managers as coaches and in

this they have tie up with Australian fir in imparting training. 35 managers of Asian paints

already completed the training and are certified as coaches. Company has re-launched

performance managing system last year and now it is fully functional. The company hires

people from premier institutes in India and they are developed by regular training and

assessment processes.

Firm Infrastructure

It includes top level of management and infrastructure of the organization. The company

is headed by Mr. Ashwin Choksi and P.M Murty is the MD and CEO of the company.

Most of the stake in the company is owned by Choksi and Dhani family so they directly

control the business and the board of directors are appointed by share holder by close

voting process. The company has 26 manufacturing units and its presence in 22 countries

also highlights the firmness of its infrastructure. Company is holding the position among

the top 10 paint companies in the world. Company is strengthening its position by

reducing debt equity ratio which is just 0.06%, it shows that company is self sufficient

and it has above Rs. 2000 crore as reserve and surplus fund. Its infrastructure and

manufacturing facilities help in producing in bulk and achieving economies of scale,

which help in cost reduction. (Annual report, 2009)

Operations



13/33


Asian paint manages operation across its entire department like procurement, R&D,

production, IT infrastructure and supply chain management. The main aim of the

company is to integrate the functioning of the entire department to bring synergy to

operations. It is focusing on waste minimization and conservation of resources across all

its plants and got the CII national conservation award in the year 2006. It is also

maintaining a policy of total water management at all the plants. The R&D department

work in association with IT, manufacturing and Supply chain and their main aim is to

improve processes in order to come up with new product and reduce production time and

cost.

Services

Company has started new services for the clients like expert help, home solution, and

project solution. They have also started a service known as colour speaks where a

specialist helps customers in choosing the right colour for you. They have designed a

colour calculator which estimates the total cost of colour that you require. These services

help Asian paint in differentiating itself from competitors. The main aim of these services

is to guide customers in choosing paints for their homes and Asian paint feel that there is

an emotional attachment with painting of house. All these services are free of cost.

All the customers values quality at reasonable price and it must be available nearby.

Asian paint provided everything to customer as far as choosing paint is concern. The

paints are of best quality due to superior manufacturing units and are available in small

packets which is designed for Indian customers who love to buy is small packets and

finding Asian paint outlet is not a big deal it has a vast reach in all the cities.

Bowmans Strategy Clock

Cliff Bowman has developed this strategic clock for to arrive at the organisations competitiveposition in comparison to the offerings of competitors. Comparing with Porters Generic



14/33


Strategies here Bowman describes about the competitive advantage comparing with the cost

or differentiation advantage. He brings out six core strategic options that where the

companies could fall into. (Johnson, 2007)

Here Asian Paints Limited (APL) follows the Hybrid Strategy (route 3). An organisation is

said to be following hybrid strategy (which has greater perceived value than a low priced but

less than that of a differentiated product) if it seeks to simultaneously achieve both the

differentiation and low price comparatively with the competitors. These companies take the

advantage of Economies of Scale (EOC), cost reduction though come up with differentiation.

The below shown is the position of Asian Paints Limited (APL) on the Bowmans Strategy

Clock which is plotted between the perceived value of product/service and price of the

product.

To describe how APL falls under the hybrid strategy we will consider one of its competitors

ICI (Imperial Chemical Industries) with a market share of 17%. Catering to different

segments by APL and ICI is shown in below. We can observe that in the categories

Emulsions and Exteriors APL differentiates its product from ICI by providing an economic

product which could be afford by any customer. Whereas under Distemper ICI provides only

economic products but Asian Paints again differentiates itself by providing both the economic

and premium brands. On the other hand coming to Enamels while both the companies caters

to premium segment but only APL could be able to come up with first and second quality



15/33


Enamels. Not only within the categories but even in the product line also APL follows the

differentiation strategy with additional products like Powder Coatings and Wood Finishers.

With a huge market share of 55% which is more than double of its nearest competitor

(Nerolac with 20% of the market share) Asian paints has the advantage of utilizing its

economies of scale for coming up with low priced and differentiated products which is

termed asHybrid Strategy according toBowmans Strategic Clock.

Source: Mehta, 2009)



16/33


Diversity of strategic positioningIn Indian paint industry, which is of highly fragmented Asian paints stands as market leader.

The brand name Asian paints have chosen randomly from a dictionary. This brand name has

become a premium segmented brand in the paint industry. Paints are one of the products

which are considered to be having low involvement in purchasing time of the consumer.

Earlier in the decorative paint industry decision on purchasing the paints were made by

builders/ contractors, house owners involvement were little. In sixties it self they started to

make a brand image, during that period they had a mascot called gattu which has helped them

in becoming a brand leader(, 2007).

The time when Asian paints got a leadership position they tried to win the hearts of

customers, many promotional campaigns happened during these time and during 1983 they

tried to reposition their product as premium product. With this aim of positioning Asian

paints came up with advertisement campaign ofspectrum of excellence, which didnt have

expected reach. At this time industry was moving to be as a commodity market with price

sensitive market. After this Asian paints conducted a market survey, to study the perception

of the consumers, it revealed that customers feel that paints can turn up a dull space with

brightness that can make a life color full and they also felt it as festival mood. From the

research they identified news ways of reaching customers and to strategically position their

product they cam e up with the caption of celebrate with Asian paints. This has helped

them in increasing brand equity and was able to make an emotional content with low

involvement group(, 2007).

In nineties they identified a change of low involvement customers to high involvement

customers, with the changing perception about decorating homes and its interiors. They also

identified that festival is no longer given importance to ones life and it is more of seasonal.



17/33


With this they tried for most appealing kind of positioning strategy by connecting, people,

their life and homes, Every homes has a story to tell brand has successfully connected

peoples mind and their home and it has able to impress customers as a premium emotional

brand. As parallel advertisement strategy they are running advertisement with Saif Ali khan

for royal emulsion which is a premium segmented product. And for Apex Ultima they made

campaign as localized and shown as different in different market(, 2007).

With the success in the advertisement campaign they identified the magic of the colors that

has done to customers to make them a high involvement product, this insight has made them

to make some changes in the caption to Every color has a story to tell showing that brand is

so serious about colors and it is ones mind that is going to speak(, 2007).

With this we could understand that Asian paints have gone through many strategic

positioning all these were made in according to the change in the customer perception and

relating to their needs.

Acquisitions and Collaborations

APL followed both organic and inorganic path for its growth strategy. It has acquired, came

up with different corporate brands, subsidiaries (which are 100% self owned) and jointly

ventured for achieving its market leader position in more than eight countries.

Berger

It is started by a German chemist, grew big with many wings across various countries and

then later in the year 1994 all the units were grouped under BIL (Berger International

Limited). Now it became the part of Asian Paints with 100% being under the control of APL.

APL operates in eight global markets through Berger. (Mehta,2008)

Apco Coatings



18/33


This is also another subsidiary 100% owned by Asian Paints catering to the South Pacific

Islands like Australia, Fiji and others. (Annual report, 2009)

Taubmans

This became part of APL in 2003 for selling its products to Samoa islands.

SCIB (Study Construction and Industrial Buildings)

It is an Egypt based company which is founded in the year 1979 and first to introduce water

based Enamel. It became United Paints and Chemicals (UPC) when it joined hands with OCI

(Orascom Construction Industries). In 2002 SCIB partnered with APL and runs under its

control in Egypt. (Annual report,2009)

Asian PPG

This is a pure 50:50 joint venture between Asian Paints Limited (India) and PPG Industries

which is US based company catering to automobile industry in India. These two came

together to make stronger with efficient technology, understanding of customer needs and

manufacturing. (Annual report. 2009)



19/33


Functional strategy

Human Resources (HR)

Human Resources (HR) which is a thrust area for Asian Paints promotes coaching within

the organisation and integrates it in the overall development of human resources.

Asian Paints has partnered with Australian Results Coaching Systems for developing the

managers as coaches.

A set of activities were conducted at various levels in technology department for

improving the nature of work towards innovation.

The company follows a Performance Management System to encourage the employees.

It takes the effort to reach all of its employees every year. (Asian paints,2009)

Organisational Structure

Asian Paints has a great presence throughout the country enabling them to reach the

maximum dealers (19000) and thereby increase its penetration in to the market. It also

helps APL to manage its inventory effectively which is vital factor in paint industry.

The organisation follows a simple and efficient supply chain for its distribution right from

procuring the raw materials to end consumers. (Mehta,2008)

It is the first paint company to provide home painting solutions worldwide. The workflow

of this home solution is shown below. This service helps the company to get in touch with



20/33


its customers and get the primary information about their changing tastes before the

competitors could know.

A continuous research and development is a primary as discussed in the value chain

process. It has two divisions under its R&D namely Customer oriented and Company

oriented. (Mehta,2008)

Marketing Strategy

Asian Paints had built a great brand in the paint industry and the credit should go to well

known the global advertising agency Ogilvy and Mather.

APL changed the perception of paint totally form low involvement to a high involvement

product by changing its earlier strategy of targeting mass and building up the network.

Though it failed initially later it changed its perception to premium brand by discovering

and positioning as a happy moment during festivals.

Then this campaign was fragmented as other players started using the similar type of

positioning. Through continuous innovation of products and campaigns as well, APL has

developed a huge brand image. (marketing practice,2009)



21/33


Strategic evaluationStrategic evaluation can be done by qualitative and quantitative analysis. In quantities

analysis we mainly concern with the financial ratios like profit margins, return on

investments, earning per share, and return on equity and other financial ratios. As Asian Paint

Ltd is a listed company and financials are available so we are following quantities method of

evaluation.

Asian paint is the market leader by far in decorative segment of paint industry with a total

market share of 49% out of which 19% come from the acquisition of Berger paints. Its

market share is double than its nearest competitor Nerolac which controls 20% of market

share and it is the 10th largest manufactures of decorative paint worldwide. Currently the

company is operating in 17 countries with 22 manufacturing units and the revenue for 2008-

09 is Rs. 5463 crores.

Suitability

Market Penetration

Asian paint started following market penetration strategy by increasing its distribution

network throughout India, for this it has started 2850 colour world outlet and also distributed

products to other local dealers by doing this company has increases its consumer base and it

is evident from the fact that its sales increases by 27% in 2008-09. Indian decorative paint

market is growing by 30% per year in India and there is good growth in industrial paint

segment. Asian paint has a market share of 49% in Indian paint industry and by far it is

market leader. Asian paint has planned to even reach to Indian villages. And company is

doing this by using its superior resources. (Asian paints, 2009)



22/33


(Source: Asian paint,2009)

As a market leader Asian paint is also trying to increases over all paint market because by

increasing the market he will the biggest part of the cake and it will beneficial for the

induatry.

Growth (Inorganic and organic)

Company is giving prime importance to organic growth by means or market expansion and

market share gains. In market expansion company is looking for capturing the market of

exterior paint segment and for this it has introduces products like apex ultima and other in

this category. The exterior market is growing at a rate of 25%, but about 26% of the exterior

paint industry is cater by cement paint and people also use white lime for it, so it is a good

market for Asian paint because it has manufacturing capacity and all other resources to

capture this market.(Allbusiness, 2010). Asian paint is also moving to other market and it has

operation in 17 countries with top 3 positions in all the market except south East Asia.

Asian paint is also growing inorganically and it has acquire all the operation of Berger paint

and by doing this it has increases its market by 19%. Acquisition of Bergers help Asian paint

to explore institutional paint market as Berger was the market leader in institutional paint

segment.



23/33


Both the strategies by Asian paint is suitable because of environmental factors are also

favourable for Asian paint and also it has the resources and capabilities in place for it.

AcceptabilityAcceptability is the performance outcome of the strategy these things can be easily

understand by return risk and share holders reaction about the company.

Return

Profitability: As we have discussed above that Asian paint is market leader with about 50%

market share, to measure its profitability we have tried to analysis financial return on

investment. The company return on capital employed (ROCE) is 49.35% in 2009 which was

57. 32% in 2008 so the company shows a dip of about 8% in 2009 as compare to 2008, it was

because of the market slow down and other related environmental factors. There is a steady

growth in ROCE of Asian paint from year 2005 to 2007 and the net profit margin curve also

follow the growth trend in those years, so we can say that the strategy adopted by the

company has a positive impact on profitability.

(Source: money control, 2009)

We will also look at the shareholders value, because the company adopted the growth

strategy by organic or inorganic ways and for this it has acquire 100% stake in Bergers

paints not in India but throughout the world. Increases its stake in SCIB chemicals in Egypt

to 60% and acquired universal paint company in England with 100% stake, which shows that

the company plan of growth is at place and now it is operating in 17 countries. In the last five

years share holders value has constantly increases and the earning per share is Rs.38.39

which is good sign for commodity segment. The graph indicates EPS (earning per share) for

last five years. (Asian paints, 2009)



24/33


Source: Annual report, 2009)



25/33


Net Cash flow Analysis

(Source: income portfolio, 2009)

From year 2000 to 2005 the company faces zigzag movement and the cash flow was not

constant, but after 2005 when company adopted for growth strategy the cash flow from

operation also improved and it grow a faster pace and reaches Rs. 470 crore. So the company

is generating constant high cash flow from its operation which highlights the profitability of

the company.

Risk Analysis

Risk analysis is mainly done by using financial ratios mainly liquidity ratios, which help us to

understand short term and long term solvency of the company. For risk analysis we have

done ratio analysis.



26/33


2005 2006 2007 2008 2009

Debt/equity ratio 0.11 0.12 0.13 0.14 0.06Current ratio 1.03 1.08 1.09 0.99 1.13

Interest cover ratio100.3

4 90.22 41.16 69.73 55.04Inventory turnoverratio 6.27 7.09 6.88 8.03 9.8Debtors turnoverratio 14.31 14.65 14.03 14.74 16.02

(Source: Mymoneycontrol, 2010)

See Annexure 1 for detailed ratio analysis

Debt/ Equity Ratio: this is the measure of financial leverage and also measure of capital

gearing. From the above table we can company is working towards reducing debt to equity

ratio and it is merely 0.06%. It shows that the company does not want to depend on debt and

it has enough cash reserve to manage its own affairs. By doing company is reducing its

financial risk.

Current ratio: It shows the short term solvency of the company. It also highlights assets in

relation with company liability. Table shows that company constantly maintains a ration

which is above 1 except in the year 2008 and in 2009 the ratio is 1.13% which shows that

company current assets are more than its liabilities. This is healthy for the company and its

investors but still Asian paint has to work in this area as it is very close to one.

Interest cover ratio: As we have seen that company is focused on decreasing its debt and

focusing on organic growth with its own funds, interest cover ratio is also decreasing which

shows that the company has to pay less interest with compare to previous years. So this

company is almost risk free.

Inventory turnover ratio: this shows the efficiency in inventory management. It measures

the number of times the inventory turn into sale. The inventory turnover ratio for the paint



27/33


industry is 7.5 where as for Asian paints it is 9.8 which are higher than the industry and its

competitors. This is the one area which provides edge to Asian paint in the industry. In the

last five years company maintains a constant ratio which makes the company more profitable

and risk free.(moneycontrol,2009)

Debtors turnover ratio: The ratio shows the number of time each year debtors turns into

cash. Higher the debtors turnover ratio more efficient management of credit, debtors

turnover ratio of Asian paint is 16.2 and it is higher than the industry average of 10.1. So

company is efficient in management of debt. (moneycontrol, 2009).

So the recent business strategy of growth and market penetration adopted by Asian paint is

risk free for the company and also for the investors. The company is highly efficient in

mitigating the financial risk.

FeasibilityFeasibility deals with whether an organization has the resources and competency to deliver a

strategy. (Johnson, 2005). There are many approaches to study feasibility but we will

consider resource deployment approach because it will give a better view of organization

resources and capability.

Resource deployment

Market penetration and market expansion strategy of Asian paints required market and

distribution expertise and Asian paint has this entire component. It has 2850 colour world out

lets in India and it has develop products in smaller containers because people in India dont

buy products in bulk. Every year company invests Rs. 863 crore in selling and marketing

activity and the main aim is to reach to the people. (Asian Paints, 2010). According to Asian

paint report it has the biggest distributor network in India as compare to its competitors and it

has the best human resources possible for marketing and distribution work. This year

company has transfer Rs. 171 crore to general reserve after distributing Rs. 105 crore as



28/33


dividend to equity share holders, the total amount in reserve and surplus of the company in

2008-09 is Rs. 1107.25 crore which shows the financial strength of this company.

Company has developed a new technique of mixing colours and creating different blends and

shades. Currently it has above 1000 shades, which are available in market and all these

shades are mixed when it is required in the market. The three basic colours are stored in the

depot and also transfer to dealers, these basic colours and put into different dispensing

machines and mixed when there is demand in the market which provided an edge to Asian

paint and also reduces inventory cost and wastage of paints. Company is using latest

technology and latest platform like ERP, supply chain planning and CRM services.

Company is following an integrated strategy for technology development and deployment.

Technology function is supporting the overall strategy of the company in four missions:

technology development, development of new products, productivity improvement and cost

reduction. Asian paint has started a new state of art R&D centre in Navi Mumbai.

So the strategy adopted by Asian paint is suitable, acceptable and feasible on most of the

parameter that we have used. The company is less risky or risk free as compare to its

competitors. Asian paint is financially very strong and it is not under heavy debt. It has

required resources and capabilities for growth and development and the company is equipped

with latest technology and give prime importance to R&D.

RecommendationAsian paint is market leader in Indian paint industry with about 50% market share and it is

enjoying the market leader position. The core competency of Asian paint is its continuous

innovation, currently it has about 1000 shades of paint in decorative segment and the other

thing which provides strength to Asian paint is its presence in the market. It has started 2850

colour world out lets and also having a distributors network of 14500 dealers and 75 depots

throughout India which provide an edge to Asian paint. By far Asian paint is market leader



29/33


and closed competitor is Nerolac which has half the market share as compare with Asian

paint, so in our view Asian paint must look at following the market leader strategy. A market

leader has multiple strategic tasks because it is challenged by market challengers, imitated by

followers and avoided by market niches. So the suggested strategy for Asian paint is:

Expanding Total Market:

A company having giant market share like Asian paint must think about expanding the total

market. By focusing on the market expanding Asian paint will gain more if the total paint

market increases. Still Asian paint is trying to increase its market share by acquisition and

self development but it is not working towards the total growth of paint market.

Expanding into Indian village:

Asian paint presence in tire-1 and tier-2 cities is clearly visible and company is doing very

well, but it has neglected the biggest market that is Indian villages where cement paint

business is doing well. With its vast distribution channel company must look at the market

which is known as BOP ( Bottom of the pyramid) (prahlad, 1998). Many people may argue

that this is not the profitable market but we have example of the companies which has done

miracle in selling to BOP these are ITC Ltd (e-Chaupal), Cargil Inc (sunflower oil) and HUL

are prime example for this. So we suggests Asian paint to look at this market, which is

biggest and if used properly will be profitable

Focus on institutional paints:

Asian paint is market leader in decorative segment and it has increases its strength by

acquiring Bergers but still it is not leading the market in industrial paint segment. Nerolac is

the biggest suppliers to the industries with TCI holding the second position and Asian paint is

at third position. World automobile industry is growing and new care are introduced quite

frequently and Asian paint has realized that is the area where they can grow in their annual



30/33


report 2007, they are trying to work in area but still not leading the way. It can use its

superior resources of blending of colours and supply chain to gain control of this market.

ConclusionAsian paint is the market leader in decorative paint segment of India and company is

following market penetration and growth strategy and when we put it on strategy we found

that it is also flowing hybrid strategy. The company is successful because of its continuous

research and development which help the company in increasing its product line and

provided it with 1000 shades of colours which are developed in- house. The second biggest

strength of this company is supply chain management which is backed by information

technology and latest softwares. The strategy adopted by the company is helping in its

growth and now the company is operating in 17 countries and is among the top 10 paint

manufacturer in the world.



31/33


Annexure: 1

Financial Ratio Mar '05 Mar '06 Mar '07 Mar '08 Mar '09

Investment Valuation Ratios

Face Value 10 10 10 10 10

Dividend Per Share 9.5 12.5 13 17 17.5

Operating Profit Per Share (Rs) 31.77 38.16 45.48 59.37 61.92

Net Operating Profit Per Share

(Rs) 213.96 255.19 307.9 374.85 470.2Free Reserves Per Share (Rs) 49.6 52.29 67.52 86.75 104.05

Bonus in Equity Capital 97.98 97.98 97.98 97.98 97.98

Profitability Ratios

Operating Profit Margin(%) 14.84 14.95 14.77 15.83 13.16

Profit Before Interest And TaxMargin(%) 12.39 12.96 13.09 14.41 11.8

Gross Profit Margin(%) 15.59 15.66 15.35 14.62 11.9

Cash Profit Margin(%) 10.66 9.43 10.63 11.52 9.4

Adjusted Cash Margin(%) 10.73 10.75 10.49 11.52 9.4

Net Profit Margin(%) 8.36 7.59 9.11 10.28 7.97Adjusted Net Profit Margin(%) 8.33 8.91 8.97 10.28 7.97

Return On Capital Employed(%) 43.36 49.74 49.68 57.32 49.35

Return On Net Worth(%) 30.32 30.18 36.56 40.4 33.1

Adjusted Return on NetWorth(%) 30.19 36.85 35.99 40.55 33.85

Return on Assets ExcludingRevaluations 14.71 14.54 17.5 18.55 16.51

Return on Assets IncludingRevaluations 14.71 14.54 17.5 18.55 16.51

Return on Long Term Funds(%) 44.6 51.08 52.7 58.11 49.35

Liquidity And Solvency Ratios

Current Ratio 1.03 1.08 1.09 0.99 1.13

Quick Ratio 0.47 0.55 0.6 0.47 0.59

Debt Equity Ratio 0.11 0.12 0.14 0.08 0.06

Long Term Debt Equity Ratio 0.08 0.09 0.08 0.07 0.06

Debt Coverage Ratios

Interest Cover 100.34 90.22 41.16 69.73 55.04

Total Debt to Owners Fund 0.11 0.12 0.14 0.08 0.06



32/33


Financial Charges CoverageRatio 49.6 47.92 30.56 46.09 39.57

Financial Charges CoverageRatio Post Tax 34.96 29.59 21.7 32.13 27.37

Management Efficiency Ratios

Inventory Turnover Ratio 6.27 7.09 6.88 8.03 9.8

Debtors Turnover Ratio 14.31 14.65 14.03 14.74 16.02

Investments Turnover Ratio 8 8.8 8.27 8.03 9.8

Fixed Assets Turnover Ratio 6.6 8.51 9.87 3.97 4.18

Total Assets Turnover Ratio 3.36 3.67 3.6 3.7 4.02

Asset Turnover Ratio 2.99 3.46 3.81 3.97 4.18

Average Raw Material Holding 31.76 36.49 32.72 43.11 33.13

Average Finished Goods Held 47.74 40.35 45.08 42.67 31.72

Number of Days In WorkingCapital 9.66 13.2 20.24 1.8 10.97

Profit & Loss Account Ratios

Material Cost Composition 58.48 55.71 58.68 55.71 58.55

Imported Composition of RawMaterials Consumed 18.41 20.81 17.96 21.04 19.49

Selling Distribution CostComposition 17.19 17.31 17.23 17.98 17.27

Expenses as Composition ofTotal Sales 0.66 0.83 0.81 0.67 0.64

Cash Flow Indicator Ratios

Dividend Payout Ratio Net Profit 59.75 72.79 52.36 50.84 54.19

Dividend Payout Ratio CashProfit 46.4 58.59 44.87 45.53 46.81

Earning Retention Ratio 40.01 37.97 46.82 49.34 47

Cash Earning Retention Ratio 53.45 48.59 54.53 54.61 54.09

AdjustedCash Flow Times 0.29 0.27 0.34 0.18 0.15

Mar '05 Mar '06 Mar '07 Mar '08 Mar '09

Earnings Per Share 18.09 19.58 28.36 39.12 37.78

(Source: Mymoneycontrol, 2009)



33/33

BS Major Part II

Documents

Transcript of BS Major Part II