CASE STUDY ON ASIAN PAINTS
PRESENTED BY:
Khushbu Rani
Krishna Singh
N.A. Patel
Soumoyo Das
About The Industry
Paint Industry
Product Sector
Industrial Decorative Organized Unorganized
30% 70% 70% 30%
Coil Coatings Enamels
Powder Coatings Distempers
Automotive
Coil CoatingsPaints Coil
Emulsions
Coatings
Marine Paints Exterior Coating
High Performance Wood Finishes
Market Feasibility
The Indian paint industry is a Rs 49 billion sector.
GDP growth is higher, the paint sector will benefit and
vice versa
Highly price sensitive & cyclical
Demand arises in Festive Season.
Change in demand patterns over the years.
INTRODUCTION
In the 1940’s it was largely multinational Companies such as British
paint and Jenson &Nicholson that dominated the Indian paint market.
In order to increase revenue ,AP concentrated on the rural market
ignored by multinationals.
In 1954,Asian Paints asked the famous cartoonist R.K Laxman to
create a mascot for the company &from his pen was born – “Gattu”.
SWOT ANALYSIS
Strengths
Brand Image of Asian Paints
Market Leadership (44 %)
Distribution Network
Inherent advantages of water based wood finishes
(environment friendly etc.)
Weakness
Widening product mix puts strain on production distribution, accounting
and administration.
AP has a major weakness on the technology front in industrial paints.
Most paint firms have technology tie-ups with manufacturers abroad.
For example, Goodlass Nerolac has a tie-up with Kansai paints, which
has provided the company with Cathodic Electro Deposition (CED)
technology.
Ever expanding product mix throws some strain on inventory
management.
Seasonal demand and hence in off seasons it can lead to cash flow
problems.
Opportunity
Asian Paints 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 a
predominance in industrial paints than in decorative
paints
The automobile industry accounted for 50% of the
industrial paint market.
Risk
Risk of diversifying the Asian Paints Business and
entering into new segment.
Threats
Domination of few foreign companies.
Competitors have gone in for hi-tech with instacolour spot
mixing. For example, Jenson &Nicholson’s instacolour
offers 626 shades.
Automated paint blending in retail points already there.
Competition is catching up fast, hi-tech facilities gives
abundant choices.
ANALYSIS OF THE CASE
In the case we have been given Profit and loss account and Balance Sheet so, for
analysis of the case we have chosen ratio analysis.
We have analyzed the case by using different ratios like
Current Ratio
Quick Ratio
Interest Coverage Ratio
Inventory Turnover
Gross Margin
Net Profit Margin
Total Asset Turnover
Return On Investment
Working Capital
Retention Ratio
Growth rate
ASIAN PAINTS
Serial No. Particulars Years
1991 1992
1. Current Ratio 2.22 2.60
2. Quick Ratio 1.09 2.52
3. Interest Coverage 3.15 3.30
Ratio
4. Inventory Turnover 3.54 63.80
5. Gross Margin 5439 9862
6. Net Profit Margin 0.62 0.03
7. Total Asset Turnover 1.36 1.90
8. Return On 0.18 0.16
Investment
9. Working Capital 6246 10661
COMPARATIVE
Serial Particulars
ANALYSIS
Asian Paints Nerolac Berger
No.
1. Current Ratio 2.60 2.4296 2.07
2. Quick Ratio 2.52 1.328 0.99
3. Interest Coverage Ratio 3.30 3.13 1.75
4. Inventory Turnover 63.80 3.10 3.87
5. Gross Margin 9862 2588 5439
6. Net Profit Margin 0.03 0.02 0.01
7. Total Asset Turnover 1.90 1.88 1.88
8. Return On Investment 0.16 0.14 0.13
9. Working Capital 10661 5174 2849
Liquidity Ratios
Working capital = Current assents – Current liabilities
= 17294 – 6633
= 10661
Thus, the firm is able to continue its operations and it has
sufficient cash flow to satisfy both maturing short-term debt
and upcoming operational expenses.
Current assets
Current ratio (working capital ratio) =
Current liabilities
= 17294/6633
= 2.60
Industry Average = 2.07
The ratio, and therefore APL’s ability to meet its short-
term obligations, has improved, and also it is higher as
compared to the industry’s average
Liquidity Ratios
Cash equivalents + Market securities + Net receivables
Acid-test ratio =
Current liabilities
Or
Current Asset-Inventories
Current Liabilities
= 17294 -582/6633
= 2.52
Interest Coverage Ratio = EBIT
Interest
= 3961/3961-2720
= 3.30
Industry Average = 2.58
Interest Coverage is a great tool when measuring a
company's ability to meet its debt obligations. When
the interest coverage ratio is smaller than 1, the
company is not generating enough cash from its
operations EBIT to meet its interest obligations. The
Company would then have to either use cash on hand
to make up the difference or borrow funds. Typically it
is a warning sign when interest coverage falls below 2.5
Activity Ratios
Net sales
Total asset turnover =
Total assets
=46991/24706
= 1.90
Industry Average = 2.46
This ratio is an indicator of how Asian Paint makes
effective use of its assets. A high ratio indicates effective
asset use to generate sales. The industry average is more
than APL which is not good so, APL should use more
effective use of asset by employing new technology.
Activity Ratios
Cost of goods sold
Inventory turnover =
Average inventory
= 37,129/582
= 63.80
This measure how quickly inventory is sold is an
indicator of enterprise performance. The higher of
turnover, in general, the better the performance. It
has highly increased as compared to last year.
Profitability Ratios
Gross margin = Sales – Cost of Good Sold
= 46,991 – 37129
= 9862
It is a good indication of how profitable a company is at the
most fundamental level. Companies with higher gross margins
will have more money left over to spend on other business
operations, such as research and development or marketing. It
has increased as compared to last year.
Net Profit Margin = PAT/Net Sales
= 1429/46991
= 0.039(1992) and 0.62(1991)
Industry Average = 0.028
Profitability Ratios
EBIT
Return on investment =
Average Total Asset
= 3,961/24,706
= 0.16
Industry Average = 0.182
ROI measures the performance of the firm without
regard to the method of financing. We can see that the
ROI of the APL is lower than the industry and it has
also come down as compared to last year which is not
at all in favor of the Co.
Retained earning = PAT – Dividend
= 1420 – 622
= 798 (1992) and 1048(1991)
Retention Ratio = RE/PAT
= 798/1420
= 0.56(1992) and 0.65(1991)
Growth = RE/Net Worth
= 798/10,113
= 0.078(1992) and 0.133(1991)
Industry Average = 0.087
RECOMMENDATIONS
Decrease dividend payout and retain high fund as
company wants to expand their operation.
Increase equity to raise fund to upgrade technology.
Expand company as a small unit so as to entertain the
benefit.
The Co. should increase their retained earning for further
growth and for reinvestment
As their export has declined compared to 1991, so they
can look for some new countries for export.
They should look for some other substitutes for their key
raw material.
Thank
