Financial Analysis of Asianpaints

7/28/2019 Financial Analysis of Asianpaints

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2012

FA Project on ASIAN PAINTS

Submitted by:

Varun jindal (211161)

Ravindra (211146)

mohan

Shreshtha (211136)

gupta

Pooja (211177)

Anurag gupta(211131)


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Chapter 1(Introduction on company/company profile: its name, line of business, board of directors,

shareholding pattern,)


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Company profile:

Company name Asian paints

Type Public LTD

Industry PAINT

Founded 1942

Head quarter MUMBAI

Asian Paints is India's largest paint company and Asia's third largest paint company, with a

turnover of Rs 96.32 billion. The group has an enviable reputation in the corporate world for

professionalism, fast track growth, and building shareholder equity. Asian Paints operates in

17 countries and has 24 paint manufacturing facilities in the world servicing consumers in

over 65 countries. Besides Asian Paints, the group operates around the world through its

subsidiaries Berger International Limited, Apco Coatings, SCIB Paints and Taubmans.

Forbes Global magazine USA ranked Asian Paints among the 200 Best Small Companies in

the World for 2002 and 2003 and presented the 'Best under a Billion' award, to the company.

Asian Paints is the only paint company in the world to receive this recognition. Forbes has

also ranked Asian Paints among the Best under a Billion companies in Asia In 2005, 06 and

07,

The company has come a long way since its small beginnings in 1942. Four friends who were

willing to take on the world's biggest, most famous paint companies operating in India at that

time set it up as a partnership firm. Over the course of 25 years Asian Paints became a

corporate force and India's leading paints company. Driven by its strong consumer-focus and

innovative spirit, the company has been the market leader in paints since 1968. Today it is

double the size of any other paint company in India. Asian Paints manufactures a wide range

of paints for Decorative and Industrial use.

In Decorative paints, Asian Paints is present in all the four segments v.i.z Interior Wall

Finishes, Exterior Wall Finishes, Enamels and Wood Finishes. It also introduced many

innovative concepts in the Indian paint industry like Colour Worlds (Dealer Tinting

Systems), Home Solutions (painting solutions Service), Kids World (painting solutions for


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kid's room), Colour Next (Prediction of Colour Trends through in-depth research) and Royale

Play Special Effect Paints, just to name a few.

Asian Paints has always been ahead when it comes to providing consumer experience. It has

set up a Signature Store in Mumbai & Delhi in India, where consumers are educated on

colours and how it can change their homes.

Vertical integration has seen it diversify into products such as Phthalic Anhydride and

Pentaerythritol, which are used in the paint manufacturing process. Asian Paints also operates

through APPG (50:50 JV between Asian Paints and PPG Inc, USA, one of the largest

automotive coatings manufacturer in the world) to service the increasing requirements of the

Indian automotive coatings market. Another 50:50 JV with PPG has been proposed which

will service the protective, industrial powder, industrial containers and light industrial

coatings market.

International Presence:

Today the Asian Paints group operates in 17 countries across the world. It has manufacturing

facilities in each of these countries and is the largest paint company in eleven countries. The

group operates in five regions across the world viz. South Asia, South East Asia, South

Pacific, Middle East and Caribbean region through the five corporate brands viz. Asian

Paints, Berger International, SCIB Paints, Apco Coatings and Taubmans. The Group operates

as:

Asian Paints in South Asia (India, Bangladesh, Nepal and Sri Lanka)

SCIB Paints in Egypt

Berger in South East Asia (Singapore), Middle East (UAE, Bahrain and Oman),

Caribbean (Jamaica, Barbados, Trinidad & Tobago)

Apco Coatings in South Pacific (Fiji, Tonga, Solomon Islands and Vanuatu)

Taubmans in South Pacific (Fiji and Samoa)


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The company has a dedicated Group R&D Centre in India and has been one of the pioneering

companies in India for effectively harnessing Information Technology solutions to maximize

efficiency in operations.

Board of Directors

ASHWIN CHOKSI (Chairman)

ASHWIN DANI (Vice Chairman)

ABHAY VAKIL, P.M. MURTY (Managing Director & CEO(up to 31st March,

2012))

K.B.S. ANAND (Managing Director & CEO(w.e.f. 1st April, 2012))

MAHENDRA CHOKSI

AMAR VAKIL

Mrs. INA DANI

Ms. TARJANI VAKIL

DIPANKAR BASU

MAHENDRA SHAH

DEEPAK SATWALEKAR

R.A. SHAH

DR. S. SIVARAM

S. RAMADORAI


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Distribution of shareholder holding:

NO. OF

SHARES

SHARES in

%

A) share holding promoter and promoter group

Individual undivided family 10635701 11.09

Bodies corporate 40000978 41.7

Total shareholding of promoters and promoters group 50636679 52.79

B) Public shareholding

Mutual funds 1612603 1.68

Fin inst /banks 5889 0.01

Insurance companies 6861288 7.15

FII 17143330 17.87

Bodies corporate 5424151 5.66Individual(1 lakh) 865091 0.9

Non-resident individual 1507370 1.57

TOTAL 95919779 100

SHARES in %

Individual undivided family

Bodies corporate

Mutual funds

Fin inst /banks

Insurance companies

FII

Bodies corporate


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Line of Business

Asian Paints manufactures and markets industrial and decorative coatings. The company's key

products and brands include the following:

Products:

Decorative paints

Interior wall paints Exterior wall paints Wood surface paints Metals surface paints

Industrial coatings:

Protective coatings Floor coatings Road markings

Automotive:

Body coatings Plastic coatings

Ancillaries

INVENTORY VALUATION PO LI CY

Raw materials, work in progress, finished goods, packing materials, stores, spares, traded

goods and consumables are carried at the lower of cost and net realizable value. Cost of

inventory comprises all costs of purchase, duties, taxes (other than those subsequently

recoverable from tax authorities) and all other costs incurred in bringing the inventory to their

present location and condition Cost of finished goods and work-in-process includes the cost

of raw materials, packing materials, an appropriate share of fixed and variable production

overheads, excise duty as applicable and other costs incurred in bringing the inventories totheir present location and condition.

We feel that the inventory valuation policy has more or less remained same over the last4

years. It has been consistent with the policies prescribed by the regulator (AS2).

REVENUE RECOGNITION POLICY

Revenue from sale of goods is recognized on transfer of all significant risks and rewards

of ownership to the buyer which is on dispatch of goods. Sales are stated gross of excise duty

as well as net of excise duty; excise duty being the amount included in the amount of gross

turnover. The excise duty related to the difference between the closing stock and opening

stock is recognized separately as part of Material Cost. Dividend income is recognized

when the right to receive payment is established. Interest income is recognized on the time

proportion basis


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DEPRECIATION POLICY

Asian Paints uses Written down Value / Straight Line Method depending on the type

of asset. Depreciation onfixed assets is provided at rates permissible under applicable locallaws or at such rates so as to write off the value of assets over their useful life. If the

managements estimate of the useful life of a fixed asset at the time of acquisition of the asset

or of the remaining useful life on a subsequent review is shorter than that envisaged in the

aforesaid schedule, depreciation is provided at a higher rate based on the managements

estimate of the useful life/remaining useful life.

Asian paints provide depreciation on following assets at rates which are higher than the

corresponding prescribed rates.

Information Technology Assets: 4 yearsScientific Research Equipment: 8 yearsFurniture and Fixtures: 8 yearsOffice Equipment and Vehicles: 5 years

The depreciation policy used by Asian Paints remained consistent for the last four years. The

policy appears to be more conservative as they estimate the life of their assets to be lesserthan that is prescribed in companies act. This on the other hand gives the company to show

more expenses and decrease the tax amount paid by the company. On the whole, though the

company appears to have chosen a more conservative approach, there may be an advantage

of reduced taxes on account of this policy.


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Chapter 2(Operating performance: analysis of sales mix, pee comparison, whether company is having

export sales, importing raw material)


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Peer comparisons

W e have compared Asian Paints with its closest peer in the same industry. Kansai Nerolac

Paints Limited (KNPL) is Indias second largest paints company anda leader in the Industrial

Coating segment. The company is the Indian subsidiary of Japan's Kansai Paint Company

Ltd. KNPL with a total capacity of 2 lakhs tones is present in the decorative and the industrialsegment. Established as Gahagan Paints and Varnish Co. Ltd. in 1920, it became a public

limited company as Goodlass Nerolac Paints in 1968.

Name Share Price Market Cap. Sales

Turnover

Net Profit Total Assets

Asian Paints 3,758.00 36,046.65 7,964.16 958.39 2,656.00

Kansai Nerolac 897.70 4,837.88 2,600.60 215.90 1,132.15

Decorative paints segment: KNPL has a market share of 13 per cent to 14 per cent in the

decorative paints segment of the country. Asian Paints is a leader in this segment with market

ratio of 65 percent.

Industrial paints segment: KNPL is a leader in this segment in India with an overall market

share of around 45 per cent. It has a market share of over 60 per cent in the automotive

coating segment and around 27 per cent market share in the powder coating segment

Competitor Analysis

Asian Paints is a market leader with market capital almost 9 times its nearest competitor and

3 times the sales turn over. Asian paints constitute 55 percent of the market with a profit of

958.39 crore that is 4.44 times Nerolac.

Asian paints

Nerolac0.00

5,000.00

10,000.00

15,000.00

20,000.00

25,000.00

30,000.00

35,000.00

40,000.00

Share

priceMarket

capSales

turnoverNet

profitNet

asset

Asian paints

Nerolac
http://www.moneycontrol.com/india/stockpricequote/paintsvarnishes/asianpaints/AP31http://www.moneycontrol.com/india/stockpricequote/paintsvarnishes/kansainerolacpaints/KNPhttp://www.moneycontrol.com/india/stockpricequote/paintsvarnishes/kansainerolacpaints/KNPhttp://www.moneycontrol.com/india/stockpricequote/paintsvarnishes/asianpaints/AP31


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Asian paints have almost 8 times the market cap in comparison with Kansai Nerolac. Sales

turnover is also three times. Net profit of Asian Paints is almost 4 times than compared with

Kansai. Hence from the above data we can see that Asian Paints is the market leader in all the

segments apart from industrial paints.


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Export and import

Import values as on 31th march 2012

CIF value of imports Value in crore Rs.

Raw materials 957.94

Stores and spares 6.22

capital goods 143.45

import

Raw materials

Stores and spares

capital goods


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Export:

Your Company also exports items to its overseas units and licensees. Specific products or

special products which are of low volume for domestic manufacture by the overseas units are

also produced and exported to the units from India. Support is extended to overseas units

through export of marketing materials and machinery parts. An export query received in India

from countries where your Company has operations is routed through respective overseas

units.

Sale of product (export) = 156.07 cr

Total sale of product =10377.86 cr

Sales (in crores)

Export

Home market


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Chapter 3(Financial statement analysis: ratio analysis, trends, profit and loss and balance sheet)


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RATIO ANALYSIS

1. Liquidity ratios

a) Current ratios :

Column1 Current Ratio

2007-08 0.99

2008-09 1.13

2009-10 0.89

2010-11 0.93

2011-12 1.07

In the varnishes sector, this ratio varies from 1.07 to 2.14.

The company has maintained 1:1 ratio.

There is a dip in the ratio as observed from above; this is due to the increase in

amounts due to creditors.

0

0.2

0.4

0.6

0.8

1

1.2

2007-08 2008-09 2009-10 2010-11 2011-12

Current Ratio

Current Ratio


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b) Quick ratio:

Quick Ratio

2007-08 0.47

2008-09 0.59

2009-10 0.38

2010-11 0.34

2011-12 0.57

The quick ratio is very low due to which the company may find it difficult to

cover its liabilities.

There is a significant change in quick ratio as compared to current ratio. This

signifies that majority of the pie of the current assets is given to inventories.

But inventories holding major amount of funds in current assets is quite

normal across this sector.

0

0.2

0.4

0.6

0.8

2007-08 2008-09 2009-10 2010-11 2011-12

Quick Ratio

Quick Ratio


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c) Inventory turnover ratio:

Inventory turnover ratio

2007-08 8.03

2008-09 9.8

2009-10 7.95

2010-11 7.08

2011-12 7.56

Inventory turnover ratio is varying from 7 to 10 times, which is moderate inany industry.

This gives the average inventory holding period around 36-45 days, which is

not so high so inventory costs are not very high.

Liquidity Position

Though the company is maintaining a current ratio 1:1, quick ratio 0.5, and inventory holding

period is 35-45 days. The net cash from operations is positive and good, so the liquidity

position of the Asian paints is stable.

0

2

4

6

8

10

12

2007-08 2008-09 2009-10 2010-11 2011-12

Inventory turnover ratio

Inventory

turnover ratio


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2. Solvency ratios:

a) Debt equity ratio

Debt equity Ratio

2007-08 0.08

2008-09 0.06

2009-10 0.04

2010-11 0.03

2011-12 0.07

Debt equity ratio is low and compared to peers, it is very low. The standard ratio across the varnishes companies varies from 0.5 to 1.15.

This tells the debt raised is very low compared to capital raised by equity

in this sector.

0

0.02

0.04

0.06

0.08

0.1

Debt equity Ratio

Debt equity

Ratio


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b) Interest coverage ratio:

Interest coverage ratio(times)

2007-08 69.73

2008-09 55.04

2009-10 74.27

2010-11 74.05

2011-12 50.66

The interest coverage ratio of Asian paints is very good, so the company canrepay the interest expense comfortably.

As compared to its peers, Asian paints ratio is 10 times better than others. This

is due to the high operating profit of Asian paints as compared to others.

Solvency Position

The financial leverage used by the company is very low degree as the debt equity

ratio indicates, which suggests that the company is conservative.

The solvency position of the company is strong and thus can raise funds easily at

lower interest rates due to the high interest coverage ratio for long term

investments.

0

20

40

60

80

Interest coverage ratio(times)

Interest coverage

ratio(times)


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Profitability ratio

a) Return on investment:

Return on investment(percentage)

2007-08 57.32

2008-09 49.35

2009-10 62.94

2010-11 55.73

2011-12 52.24

The return on investment for Asian company is very high around 50-60%.

The return on investment across the sector is 15% which indicates that the

company is highly profitable for the owners.

0

20

40

60

80

Return on

investment(percentage)

Return on

investment(perce

ntage)


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b) Earnings per share:

Earnings per share(RUPEES)

2007-08 39.12

2008-09 37.78

2009-10 80.74

2010-11 80.81

2011-12 99.92

EPS of Asian paints had increased over years though there is no new raise of

capital through public issues; this suggests that the company had sustained

profits through the years.

EPS of peers varied from Rs 5 to Rs. 50, but there are no sustained Earnings as

seen in Asian paints.

0

50

100

150

Earnings per

share(RUPEES)

Earnings per

share(RUPEES)


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c) Net profit margin:

Net profit margin(percentage)

2007-08 10.28

2008-09 7.97

2009-10 14.29

2010-11 11.61

2011-12 11.38

1.

Net profit margin had a dip in the year 2008-09, as the income from other

sources had decreased and extra-ordinary items have increased.

There is similar trend observed across all the companies operating in the sector

due to the recession.

0

5

10

15

20

Net profitmargin(percentage)

Net profit

margin(percen

tage)


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d) Operating profit margin:

Operating profit margin(%)

2007-08 15.83

2008-09 13.16

2009-10 19.24

2010-11 17.57

2011-12 16.81

Due to marginal increase in the operating expenses as compared to the

operating income, there is a dip in operating profit margin in year 2008-09.

The operating profit margin of Asian paints is decent and well above the

sector average of 7.5%.

0

5

10

15

20

25

Operating profit margin(%)

Operating

profit

margin(%)


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e) Asset turnover ratio:

Asset turnover ratio

2007-08 3.97

2008-09 4.18

2009-10 4.68

2010-11 4.25

2011-12 5.23

Asset turnover shows the firm's efficiency at using its assets in generatingrevenues.

The ratio is almost the same for the competitors too, which indicates thatturnover on assets is low in the sector.

Profitability

High EPS, ROI, Net profit margin% clearly suggests that the firm is highly profitable for

both the investors and the owners. Even though the firm has high net profit margin over

others, it had generated more sales than any other firm. The profitability of the firm is very

high.

0

1

2

3

4

5

6

2007-08 2008-09 2009-10 2010-11 2011-12




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Trend analysis

ITEM 2012-11 2011-10 2010-09 2009-08 2008-07

Inventory 234.6 198.85 141.59 101.4 100

Property & equipment 209.1 210.62 146.25 138.85 100

Current liabilities 211.3 164.32 137.21 103.27 100

Sales 231.6 183.72 149.28 125.44 100

Net income (loss) 255.43 206.48 206.41 96.58 100

Investment 128.29 244.7 166.4 55.52 100

Reserves 287.29 225.72 175.52 119.94 100

0

50

100

150

200

250

300

350

2011-12 2010-11 2009-10 2008-09 2007-08

Chart Title

Inventory Property & equipment Current liabilities

Sales Net income (loss) Investment

Reserves


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The significance of a trend analysis of ratios lies in the fact that the analysis can know the

direction of movement, that is, whether the movement is favorable or unfavorable. Trend

analysis involves comparison of a firm over a period of time, that is present ratios are

compared with past ratios for the same firm. It indicates the direction of change in the

performance-improvement, deterioration or constancy- over the years. The important pointsto note in the trend analysis are given below:

The inventories remain constant in 2007-08 to 2008-08 which reflects in the sales

also.

The inventories in the past three years have been increasing with a rate of 30%.

The properties have also increased almost constantly in the previous years.

The sales of the company have increased more than 200% in the past five years,

which is tremendous.

Investment have decreased in 2011-12 as about 100 crore of investment were sold in

the year. The reserves and surplus have also increased more than twice in the past five which

after increasing the dividend paid is a very good indicator for the company.


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Chapter 4(Cash flow analysis)


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Cash flow analysis

Cash from operating activities:

Cash from operating activities(in crore rupees)

2007-08 457.29

2008-09 325.21

2009-10 847.41

2010-11 743.25

2011-12 753.67

Cash flow from operations has increased in 2009 due to increase in the sales

which nearly doubled in the year.

From 2009 to 20011 cash flow from operations in nearly constant.

0

200

400

600

800

1000

2007-08 2008-09 2009-10 2010-11 2011-12

Cash from operating activities(in crore rupees)

Cash from operating activities(in

crore rupees)


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Cash used in investing activities:

Cash used in investing (in crore rupees)

2007-08 -331.91

2008-09 -16.69

2009-10 -241.81

2010-11 -410.23

2011-12 -464.87

The cash flow into investing activity in 2008-09 is very low because of huge sale ofinvestment of around 197 crores.

Looking in the cash flow in investing activity we can say that company is increasing

its investment in the past four years and want to consolidate its current market

position.

-500

-400

-300

-200

-100

0

2007-08 2008-09 2009-10 2010-11 2011-12

Cash used in investing (in crore rupees)

Cash used in investing (in crore

rupees)


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Cash used in financing activities:

Financing activities(in crore rupees)

2007-08 -126.52

2008-09 -221.62

2009-10 -237.99

2010-11 -321.15

2011-12 -297.06

Cash flow in financing activity has consistently increased in the past years excluding

2011-12.

Cash flow in financing activity in 2011-12 have decreased because there is huge

inflow of short borrowing which increased from 2 crore rupees to 109 crore rupees.

-350

-300

-250

-200

-150

-100

-50

0

2007-08 2008-09 2009-10 2010-11 2011-12




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Net increase/decrease in cash:

Column1 Net change in chash in crore rupees

2007-08 -1.4

2008-09 -110.75

2009-10 367.61

2010-11 11.87

2011-12 -8.26

Net change in cash is positive in 2009-10 because the sales get doubled in this year.

The cash change in the years following 2009-10 is near to zero because of not much

increase in sales, and also any major change in investment was missing.

-200

-100

0

100

200

300

400

2007-08 2008-09 2009-10 2010-11 2011-12

Net change in chash in crore rupees

Net change in chash in crore

rupees


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Chapter 5(SWOT analysis of company)


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SWOT ANALYSIS OF ASIAN PAINTS

SWOT analysis is a basic, straightforward model that provides direction and serves as a basis for the

development of marketing plans. It accomplishes this by assessing an organizations strengths (what anorganization can do) and weaknesses (what an organization cannot do) in addition to opportunities

(potential favourable conditions for an organization) and threats (potential unfavourable conditions for an

organization).

Strengths:

1. Market leaders with 37% market share in the organized sector, the closest competitor does not have even

half of Asian Paints share.

2. Comprehensive nationwide coverage of the market urban, semi-urban and rural areas. They have quite

a number of brands, covering all segments and filling all gaps. For example, they have brands in different

price slots like Utsav for rural lower-end markets and Apcolite for high end-markets.

3. Asian Paints logo Gattu, an impish boy with the paint tin and brush, is most popular and

easily recognized;

4. Widest product range in terms of products, shades, pack sizes - 40 different decorative,

some in 150 shades, 8 different pack sizes;

5. Unlike its competitors who concentrate only in urban areas, it is found everywhere. It has a

country wide distribution.

6. A network of 13,000 dealers spread all over the country. The nearest competitor has less

than 8,000. For this, they have large network of regional offices and company depots and

sales personnel to service the nationwide dealer network;

7. Strong in inventory control. APs average inventory level is 28 days sales against 51 days

for the industry. AP has 45% edge in inventory carrying costs;

8. The pricing strategy is oriented to middle/lower end consumers;

9. AP is quite strong in production-marketing coordination. Their policy of offering tailor-

made products to suit customer need has resulted in an ever growing product range;

10. In-house production, no outsourcing, high reliability in suppliers, superior in quality

assurance;


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11. Leader in profit and operating margins, ROI of AP is 40% while ROI of the rest of the

industry is 22%, Net worth of Rs 204 crores against Rs 58 crores of Goodlass Nerolac and Rs

41 crores of Berger.

13. Corporate reputation has been a major strength for AP. The image is that of a successful

and well-managed company. They have won many accolades and awards.

Weaknesses:

1. In industrial paints, AP has only a 15% market share. It is far behind the leader Goodlass

Nerolac, which has a market share of 43%. Since this is going to be the major growth

segment in the future, a lag in this segment will end up as a major weakness;

2. Widening product mix puts strain on production distribution, accounting and

administration;

3. Innovation in developing new products is adequate;

5. Ever expanding product mix throws some strain on inventory management;

6. Seasonal demand and hence in off seasons it can lead to cash flow problems;

7. No tie up with foreign manufactures .Though it has operation in several countries.

Opportunities:

1. Acquiring/ increasing market share in Industrial paint sector.

2. Developing market in automobile industry, which accounts for 50% of Industrial paint

market.

3. It has always encashed on opportunities that have come its way. It has maintained a

product profile keeping the market trends in picture. It shifted to predominance in industrial

paints than industrial paints than in decorative paints as was evident from the production

figures of 1995-96;

4. The automobile industry accounted for 50% of the industrial paint market.


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Threats:

1. Domination of few foreign companies;

2.Since both Goodlass Nerolac (43%) and Bergers (14%) have a higher market share than

APs (14%), it is possible that in the future, they may capture the entire industrial paintmarket;

3. Competitors have gone in for hi-tech with instacolour spot mixing. Forexample, J&Ns

instacolour offers 626 shades;

4. Automated paint blending in retail points already there. ICIs Touch Colourand Bergers

Colour Bank are indicative of this;

5. Competition is catching up fast, hi-tech facilities gives abundant choices. The study of this

SWOT analysis shows that the strengths and opportunities far outweigh weaknesses and

threats.

Financial Analysis of Asianpaints

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