an analysis of asian paints and their strategic decisions

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Introduction – Paints Industry & Asian Paints India's paint industry can be classified into decorative paints, which account for 75% of the market, and industrial paints, which make up the remaining 25%. Asian Paints is India's largest paint company. The leaders in the organized paint industry in India are Asian Paints with over 40% market share, Kansai Nerolac (20%), Berger Paints (19%) and AkzoNobel (12%). Asian Paints is a market leader in the decorative segment while Kansai Nerolac dominates the industrial and automotive segment. Asian Paints is a market leader in the decorative segment while Kansai Nerolac dominates the industrial and automotive segment. Asian paint is ranked at No 10 among the top Decorative Coatings Companies in the World. Asian Paints and its subsidiaries has operations in 22 countries across the world and 27 paint manufacturing facilities, servicing consumers in 65 countries.Asian paints was started by Champaklal Choksey, Chimanlal Choksey, Suryakant Dani and Arvind Vakil as “Asian oil and Paints company” .Within three years, their turnover reached 3.5 lacs. In April 2009, it reported its turnover for year 2008- 09 as Rs 5463 Crores. Asian Paint is listed in Bombay Stock Exchange and in National Stock Exchange. The three main promoters of the company are the Dani, Choksi and Vakil Families.Out of the 14 member board of directors, 7 belongs to the founders family. Mr Aswin Choksi is the chairman of the board of directors and Mr P.M. Murthy is the MD and CEO. In an

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Page 1: An Analysis of Asian Paints and Their Strategic Decisions

Introduction – Paints Industry & Asian PaintsIndia's paint industry can be classified into decorative paints, which account for 75% of the

market, and industrial paints, which make up the remaining 25%. Asian Paints is India's largest

paint company. The leaders in the organized paint industry in India are Asian Paints with over

40% market share, Kansai Nerolac (20%), Berger Paints (19%) and AkzoNobel (12%). Asian

Paints is a market leader in the decorative segment while Kansai Nerolac dominates the

industrial and automotive segment. Asian Paints is a market leader in the decorative segment

while Kansai Nerolac dominates the industrial and automotive segment.

Asian paint is ranked at No 10 among the top Decorative Coatings Companies in the World.

Asian Paints and its subsidiaries has operations in 22 countries across the world and 27 paint

manufacturing facilities, servicing consumers in 65 countries.Asian paints was started by

Champaklal Choksey, Chimanlal Choksey, Suryakant Dani and Arvind Vakil as “Asian oil and

Paints company” .Within three years, their turnover reached 3.5 lacs. In April 2009, it reported

its turnover for year 2008-09 as Rs 5463 Crores. Asian Paint is listed in Bombay Stock

Exchange and in National Stock Exchange.

The three main promoters of the company are the Dani, Choksi and Vakil Families.Out of the 14

member board of directors, 7 belongs to the founders family. Mr Aswin Choksi is the chairman

of the board of directors and Mr P.M. Murthy is the MD and CEO. In an interesting decision,

Mr. Murthy was asked to come out of retirement and run the company as CEO in April 2009.

Asian Paints aims to become one of the top five Decorative coatings companies world-wide.

They intend to achieve this through alliances with established global partners.

One of the main issues with company could be that it has to compete with the same established

global players in the international market with whom it has alliance in domestic market.

As far as the social issues are concerned, all the paint plants have achieved 'zero industrial

discharge' capability.

Asian Paints Ltd is India's largest paint company and Asia's third largest paint company.  Asian

Paints Ltd was incorporated in the year 1945. In the year 1965, the name of the company was

changed to Asian Paints (India) Pvt Ltd. In the year 1973, the company was converted into a

public limited company. In the year 1972, they undertook a major modernization programme to

streamline the paint production facilities by improving the layout of machines, addition to

balancing equipment and replacement of old machinery to meet the demand. The company, along

Page 2: An Analysis of Asian Paints and Their Strategic Decisions

with their subsidiaries, has operations in 22 countries globally with 27 paint manufacturing

facilities servicing consumers in 65 countries through Berger International, SCIB Paints, Apco

Coatings and Taubmans. The products of the company include ancilliaries, automotive,

decorative paints, industrial paints. The company has manufacturing plants in Maharashtra,

Gujarat, Andhra Pradesh, Uttar Pradesh, Tamil Nadu and Haryana. 

 

 In Decorative paints, the company is present in all the four segments, namely Interior Wall

Finishes, Exterior Wall Finishes, Enamels and Wood Finishes. They have 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 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 Ltd was incorporated in the year 1945. In the year 1965, the name of the company

was changed to Asian Paints (India) Pvt Ltd. In the year 1973, the company was converted into a

public limited company. In the year 1972, they undertook a major modernization programme to

streamline the paint production facilities by improving the layout of machines, addition to

balancing equipment and replacement of old machinery to meet the demand.  

 

Asian Paints product lines

Ancillaries: Primers, Filler strainers and wall putty

Automotive: for automotive application

Decorative paints : Walls, metal and wood surface

Industrial: Protective coating, floor and road coatings,Ancillaries,Wall Primer, Primer, Wall

Putty, Redoxide Oil Primer (Rust Protector), Thinner Melamyne Brushing, Wood Stains, Knifing

Paste Filler, Exterior Sealer, Wood Filler, Floor Colour, Asian paints PPG, Deltron, Delfleet, K

Nexa Autocolor, Decorative Paints, Royale, Emulsion, Wood finish, Utsav, Industrial Products,

Protective Coatings, Floor coatings, Powder Coating, Road Marking, Phthalic

Page 3: An Analysis of Asian Paints and Their Strategic Decisions

Company >> Finance >> Profit & Loss

Page 4: An Analysis of Asian Paints and Their Strategic Decisions

Asian Paints Ltd

Industry :Paints / Varnishes(Rs in Crs)

YearMar 12(12)

Mar 11(12)

Mar 10(12)

Mar 09(12)

Mar 08(12)

INCOME :

Sales Turnover 9,118.9

27,242.6

55,776.4

75,027.3

34,085.5

9 Excise Duty 783.6 621.64 403.74 549.08 496.83

Net Sales8,335.3

26,621.0

15,372.7

34,478.2

53,588.7

6 Other Income 141.49 74.9 169.31 60.06 60.23 Stock Adjustments 115.07 140.61 106.88 17.41 33.9

Total Income8,591.8

86,836.5

25,648.9

24,555.7

23,682.8

9 EXPENDITURE :

Raw Materials 4,143.9

53,187.4

82,454.0

82,196.0

11,649.7

3 Power & Fuel Cost 76.96 68.61 47.03 45.78 35.86 Employee Cost 341.63 300.45 257.41 232.81 188.89 Other Manufacturing Expenses 806.72 701.22 575.47 497.64 401.45

Selling and Administration Expenses 1,636.7

31,288.2

41,111.5

6 932.11 771.63 Miscellaneous Expenses 92.16 57.37 18.86 32.38 14.94 Less: Pre-operative Expenses Capitalised 0 0 0 0 0

Total Expenditure7,098.1

55,603.3

74,464.4

13,936.7

33,062.5

0

Operating Profit1,493.7

31,233.1

51,184.5

1 618.99 620.39 Interest 31.31 16.34 19.1 15.91 13.46

Gross Profit1,462.4

21,216.8

11,165.4

1 603.08 606.93 Depreciation 99.49 94.48 60.74 57.15 43.77

Profit Before Tax1,362.9

31,122.3

31,104.6

7 545.93 563.16 Tax 400.38 320.77 327.72 160.4 172.62 Fringe Benefit tax 0 0 0 6.78 5.96 Deferred Tax 4.16 26.41 2.45 16.39 9.38 Reported Net Profit 958.39 775.15 774.5 362.36 375.2 Extraordinary Items 23.28 1.6 66.41 -1.12 0.34 Adjusted Net Profit 935.11 773.55 708.09 363.48 374.86 Adjst. below Net Profit 0 0 0 0 0 P & L Balance brought forward 600 600 230 200 150 Statutory Appropriations 0 0 0 0 0

Page 5: An Analysis of Asian Paints and Their Strategic Decisions

Appropriations 858.39 775.15 404.5 332.36 325.2 P & L Balance carried down 700 600 600 230 200 Dividend 383.69 306.94 258.98 167.86 163.06 Preference Dividend 0 0 0 0 0 Equity Dividend % 400 320 270 175 170 Earnings Per Share-Unit Curr 93.43 75.59 76.23 34.8 36.23 Earnings Per Share(Adj)-Unit Curr Book Value-Unit Curr 259.36 205.93 162.35 114.1 96.8

 http://www.capitaline.com

Company >> Finance >> Balance Sheet

Asian Paints LtdIndustry :Paints / Varnishes(Rs in Crs)

Year SOURCES OF FUNDS : Mar 12 Mar 11 Mar 10 Mar 09 Mar 08 Share Capital Reserves Total 95.92 95.92 95.92 95.92 95.92 Equity Share Warrants 2,391.86 1,879.40 1,461.30 998.55 832.58 Equity Application Money 0 0 0 0 0 Total Shareholders Funds 0 0 0 0 0

Secured Loans 2,487.7

8 1,975.32 1,557.22 1,094.47 928.5 Unsecured Loans 38.23 31.31 25.59 24.59 36.7 Total Debt 150.78 42.31 43 49.94 58 Other Liabilities 189.01 73.62 68.59 74.53 94.7 Total Liabilities 68.78 71.39 0 0 0

APPLICATION OF FUNDS :2,745.5

7 2,120.33 1,625.81 1,169.00 1,023.20 Gross Block Less : Accumulated Depreciation 1,659.51 1,611.22 1,194.39 1,116.93 937.89 Less:Impairment of Assets 640.12 543.78 473.65 466.82 469.41 Net Block 10.35 10.25 13.28 27.2 39.65 Lease Adjustment 1,009.04 1,057.19 707.46 622.91 428.83 Capital Work in Progress 0 0 0 0 0 Investments 602.84 39.67 380.72 88.86 110.39 Current Assets, Loans & Advances 542.22 547.83 703.69 234.77 422.88 Inventories Sundry Debtors 1,264.42 1,071.76 763.14 546.71 538.97 Cash and Bank 500.24 355.56 331.43 311.02 251.9 Loans and Advances 500.97 509.01 28.6 128.26 41.35 Total Current Assets 248.96 176.24 219.11 242.43 211.45

Page 6: An Analysis of Asian Paints and Their Strategic Decisions

Less : Current Liabilities and Provisions 2,514.59 2,112.57 1,342.28 1,228.42 1,043.67 Current Liabilities Provisions 1,576.48 1,182.44 1,156.27 771.9 784.56 Total Current Liabilities 577.23 476.77 304.17 186.15 166.49 Net Current Assets 2,153.71 1,659.21 1,460.44 958.05 951.05 Miscellaneous Expenses not written off 360.88 453.36 -118.16 270.37 92.62 Deferred Tax Assets 0 0 0 0 0 Deferred Tax Liability 25.38 27.4 22.57 20.03 16.75 Net Deferred Tax 106.13 102.9 70.47 67.94 48.27 Other Assets -80.75 -75.5 -47.9 -47.91 -31.52 Total Assets 311.34 97.78 0 0 0

Contingent Liabilities2,745.5

7 2,120.33 1,625.81 1,169.00 1,023.20 http://www.capitaline.com 443.68 319.64 297.3 355.67 297.9

Investment Decision at Asian Paints:

APL showed a 14 per cent increase in net profit for the first quarter ending June 2001. Better realisations from phthalic anhydride and pentaerythritol helped Asian Paints to increase its profitability. Net sales moved up to Rs 273.81 crore from Rs 249.59 crore, when most of the paint majors are showing negative growth. The company has lowered its interest burden to Rs 4.70 crore from Rs 5.13 crore in the same period last year. Currently the company’s plants are operating at over 85 per cent capacity and the company is expanding its capacity through process rationalistion and further investments in pollution control equipment. The company expects to increase the capacity by 60,000 tons in the current year 2,28,900 tonnes per annum. This should help the company in overcome any sudden increase in demand. The decorative paints market is expected to grow at around eight-nine per cent and the company’s paints business is expected to grow between three-four per cent above the market growth.

Asian Paints has been in the paints manufacturing industry since 1960. Over the years, the company has been growing tremendously through an efficient mix of its marketing, financial and operations measures. To analyse the investment decisions of the company, we can start off with the asset side of the balance sheet of the company, which is as given below:

Page 7: An Analysis of Asian Paints and Their Strategic Decisions

Asian Paints gives a detailed account of the break up of fixed assets under several heads. Appreciating the data given and observing the trends could go a long way in understanding the financial interests of the company. In this analysis, we like to focus more on the Fixed Assets, Current Assets, Depreciation and Inventory figures of the company.

Fixed Assets

1) Tangible Assets

 

i) Freehold land – As on 31.03.10, Asian Paints had Rs. 90.88 cr worth freehold land.

ii) Leasehold land – During the fiscal year ’09-’10, Asian Paints added a significant land area on lease, to its existing assets. It acquired Rs 66.75 cr. worth leasehold land in a year to set up new plants at different locations. There has been a 235.62 percent increase in the worth of leasehold land in just one year.

iii) Buildings – Asian Paints acquired Rs. 12.35 cr. worth of buildings through mergers and acquisitions in the previous financial year. Buildings worth Rs. 11.02 cr. were added to the assets of the company. So, the total worth of buildings stands at Rs. 229.47 crores as on 31.03.10.

iv) Plant and Machinery – The Company has added Rs. 40.01 crores worth machinery in the previous fiscal year. That is an increase of around 7% on the existing machinery. The total plant and machinery worth now stands at Rs 601.23 crores.

v) Capital Work In Progress – The CWIP for all the projects that were undertaken in the year amounted to Rs. 407.23 crores.

vi) Investments – Long-term investments -Asian Paints has invested in Govt. securities, subsidiaries, mutual funds and a joint venture with Asian PPG Industries Ltd. Total long term investments was Rs. 236.74 crores as on 31.03.10

Page 8: An Analysis of Asian Paints and Their Strategic Decisions

Current investments – Mutual funds accounted for all the current investments made by the company. Some of the well-known mutual funds are BIRLA Sunlife, ICICI Prudential Flexible Income Plan, JM Money Manager, Kotak Flexi Debt, LIC MF, Reliance Money Manager, Religare Ultra Short Term fund etc.

vii) Depreciation – There has been an accumulated depreciation of Rs. 473.65 crores, which accounts for 39.65% of the gross block. The company however, has also added buildings and machinery during the year.

2) Intangible Assets :The intangible assets that include the trademark of the company and the software installed, amounts to Rs. 34.78 crores, which is 2.91% of the total assets.

Current Assets, Loans and Advances

1)      Cash in hand – Accounting for cash and current/savings accounts in scheduled banks, the cash in hand comes up to Rs. 28.60 crores. Thus, Asian Paints has maintained just 2.1% of the total current assets as cash. The majority of current assets are accounted for in the form of inventory and loans/advances.

2)      Debtors or receivables – The amounts due from customers amounted to Rs. 331.43 crores, which is a huge 24.6 % of all current assets of the company as on 31.03.10. The percentage of bad debtors as a part of total debts is negligible.

Page 9: An Analysis of Asian Paints and Their Strategic Decisions

3)      Inventories – The stock of raw materials, packing materials, work-in-process items etc. amounted to Rs. 763.14 crores. The break up of inventory is shown below:

Finished goods accounted for Rs 408.16 crores, which is a big 44.93%, leap from previous year’s figures. This indicates that the company was up and ready for increased sales projections last year.

4)      Loans and advances – The loans and advances /claims kept with the central govt./subsidiaries and other heads are given below:

Financial Decision at Asian Paints:The total Equity Share Capital of Asian Paints Ltd. as on March 2010 was Rs. 95.92 cr. The total number of shares as on 30th Jun 2010 was 95919779 with a face value of Rs 10 and market value of Rs 2058.72. The price to book ratio was 12.68.

The capital structure is how a firm finances its overall operations and growth by using different sources of funds. It is a mix of company’s long-term debt, short-term debt, common equity and preferred equity.

The table given below shows the breakup of sources of Asian Paints via-a-vis its competitors this year. A debt equity ratio of 0.05 indicates that the business is driven primarily by the retained profits of the company. A low ratio of 0.05 shows that the company has exposed itself to a large amount of equity. It is heavily financed by equity and hence does not pose much risk. The ratio for the year 2009 was 0.059, which shows that over the year the company has further increased

Page 10: An Analysis of Asian Paints and Their Strategic Decisions

its dependence on equity to finance the assets. The problem with issuing more and more stock like is that outstanding shares become diluted and existing investors receive a smaller ownership portion with each additional share issued.

One way to improve their situation would be to issue more debt and use the cash to buyback some of its outstanding shares. For Berger Paints the debt-equity ratio for the year ending 03/2010 was 0.039, which is lower than that of Asian Paints. For the year 2009 the ratio was 0.188, which means that Berger Paints has increased considerably its source of financing through equity. The company has distributed dividends to shareholders, thereby indicating that there might not be many avenues left for investment. However, the year on year profits show a consistent upward trend, which is a positive sign.

For Asian Paints equities comprises around 96% of the total sources and reserves account for 94% of the equities which indicates that the company basically relies on investing the retained profits i.e., harnessing profits rather than issuing new shares to finance its operations. It also indicates that the company is in a position to declare dividends and that it does not have major investment proposals with them. For Berger Paints also equities account for 96% of the total sources out of which reserves account for around 89% .

For Asian Paints loans comprise around 4% of the total sources out of which secured loan accounts for 38.6% whereas in the case of Berger Paints secured loans account for 99.8% of the total loans. Since unsecured debt carries more risk for the lender, the loan is more expensive for Asian Paints.

The shareholding pattern is as shown below:

Page 11: An Analysis of Asian Paints and Their Strategic Decisions

As is seen from the pattern, promoters hold a major chunk of the shares at 50.62%. The general public comes second with 14% of the shares. Domestic financial institutions hold almost 10% of the shares. However, foreign financial institutions play a major role with respect to sourcing the company’s assets with a 15.49% of the total share volume.