A

Project Report
On

“Fundamental Analysis of Asian Paints Limited”

Being Submitted in Partial Fulfillment of the Degree of

MBA – MBL
For the subject

INVESTMENT ANALYSIS & PORTFOLIO MANAGEMENT

Submitted by: Submitted to:

Pavan Kumar Gupta Ms. Ruchi Bhandari

MBA- MBL Assistant Professor
Semester- IV Faculty of Management
Roll no. 262

FACULTY OF MANAGEMENT STUDIES

NATIONAL LAW UNIVERSITY, JODHPUR
JANUARY- 2011
11
 ACKNOWLEDGEMENT

This project work would never have been an achievable task, had we not been under the great
shelter of guidance of respected Ma’am Asst. Prof. Ruchi Bhandari. Her simplified teaching
technique based on examples has helped me gain more understanding of the subject. The very
essence of the project work is the linguistic precision which has an impact of conveying more

details in least possible words. An ample use of various reference readings has been very
frequently made while compiling data for this project. Such rich reading has been made available at
hand by the treasure-like well maintained library of the National Law University, Jodhpur. I
am very much grateful to the library staff of the university for their unfailing co-operation. I am

very much under obligation to mention here, the contributions of my batch mates who have,
knowingly or unknowingly, provided me the competitive edge which is the driving force of the whole
labour and extra labour put into the project. Finally, I feel very much gratified to the

administration of the National Law University, Jodhpur for providing comfortable environment
and rich infrastructure which has always been a facilitating stuff.

2
 CONTENTS

SERIAL NUMBER CHAPTERS PAGE

NUMBER

I OBJECTIVES 4

II RESEARCH METHODOLOGY 4

CHAPTER – 1 INTRODUCTION TO ASIAN PAINTS 5-16

CHAPTER-2 ECONOMY ANALYSIS 17-25

CHAPTER-3 INDUSTRY ANALYSIS 26-33

CHAPTER-4 FINANCIAL STATEMENTS ANALYSIS 34-43

CHAPTER-5 CONCLUSIONS & RECOMMENDATIONS 44

CHAPTER-6 BIBLIOGRAPHY. 45

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TOPIC : “Fundamental Analysis of Asian Paints Limited ”

RESEARCH OBJECTIVES

1. To determine the impact of economic factors affecting paint industry

2. To determine the industrial factors affecting the paint industry
3. To analyse the financial statements of Asian Paints Ltd.

RESEARCH METHODOLOGY

This project is based on annual reports of the Asian Paints Ltd. The data used are secondary in
nature. Information has been collected and tabulated. Analysis and recommendations are made.

4
 CHAPTER-1

INTRODUCTION

Fundamental analysis of a business involves analyzing its financial statements and health, its management
and competitive advantages, and its competitors and markets. When applied to futures and forex, it
focuses on the overall state of the economy, interest rates, production, earnings, and management. When
analyzing a stock, futures contract, or currency using fundamental analysis there are two basic approaches
one can use; bottom up analysis and top down analysis. The term is used to distinguish such analysis from
other types of investment analysis, such as quantitative analysis and technical analysis.

Fundamental analysis is performed on historical and present data, but with the goal of making financial
forecasts.

Scope

It provides key company information for business intelligence needs.

The report contains critical company information, business structure and operations, the company
history, major products and services, key competitors, key employees and executive biographies,
different locations and important subsidiaries. The report provides detailed financial ratios for the
past five years as well as interim ratios for the last four quarters. Financial ratios include
profitability, margins and returns, liquidity and leverage, financial position and efficiency ratios.

Two analytical models

When the objective of the analysis is to determine what stock to buy and at what price, there are
two basic methodologies

1. Fundamental analysis maintains that markets may misprice a security in the short run but that the
"correct" price will eventually be reached. Profits can be made by trading the mispriced security
and then waiting for the market to recognize its "mistake" and reprice the security.
2. Technical analysis maintains that all information is reflected already in the stock price. Trends
'are your friend' and sentiment changes predate and predict trend changes. Investors' emotional
responses to price movements lead to recognizable price chart patterns. Technical analysis does
not care what the 'value' of a stock is. Their price predictions are only extrapolations from
historical price patterns.

Investors can use any or all of these different but somewhat complementary methods for stock
picking. For example many fundamental investors use technicals for deciding entry and exit
points. Many technical investors use fundamentals to limit their universe of possible stock to
'good' companies.

The choice of stock analysis is determined by the investor's belief in the different paradigms for
"how the stock market works". See the discussions at efficient market hypothesis, random walk
hypothesis, capital asset pricing model, fed model, theory of Equity Valuation, market based
valuation and behavior finance.

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Fundamental analysis includes:

1. Economic analysis
2. Industry analysis
3. Company analysis

On the basis of these three analyses the intrinsic value of the shares are determined. This is
considered as the true value of the share. If the intrinsic value is higher than the market price it is
recommended to buy the share. If it is equal to market price hold the share and if it is less than
the market price sell the shares 1 .

INTRODUCTION TO ASIAN PAINTS

Asian Paints is India's largest paint company and ranked among the top ten Decorative coatings
companies in the world with a turnover of INR 66.80 billion. Asian Paints along with its subsidiaries have
operations in 17 countries across the world with 23 paint manufacturing facilities, servicing consumers in
65 countries through Berger International, SCIB Paints – Egypt, Asian Paints, Apco Coatings and
Taubmans.

The products of the Company include ancillaries, automotive, decorative paints, industrial paints. The
Company's subsidiaries include Asian Paints (Nepal) Pvt. Limited, Asian Paints (International) Limited,
Asian Paints Industrial Coatings Limited, Multifaceted Infrastructure (India) Limited and Maxbhumi
Developers Limited. On January 27, 2010, the Company completed the acquisition of Multifacet
Infrastructure (India) Limited. On March 4, 2010, Asian Paints South Pacific (Holdings) Limited, a
wholly owned direct subsidiary of Asian Paints (International) Limited had been liquidated.

Corporate Information

Vision
Asian Paints aims to become one of the top five Decorative coatings companies world-wide by leveraging
its expertise in the higher growth emerging markets. Simultaneously, the company intends to build long
term value in the Industrial coatings business through alliances with established global partners.
History
Today

Asian Paints becomes the 10th largest decorative paint company in the world
Asian Paints is more than twice the size of its nearest competitor
It is one of the most admired companies in India
Present in 22 countries with 27 manufacturing locations, over 2500 SKU's, Integrated SAP - ERP & i2 -
SCM solution
Rated Best Employer by BT-Hewitt survey, 2000 Bluest of the blue chips by Hindu Business Line; Most
admired company to work for by ET-BT survey, 2000

1
1. http://en.wikipedia.org/wiki/Fundamental_analysis, last accessed on 9th Feb 2011

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 On the recommendations of Booz, Allen and Hamilton, Asian Paints restructured itself into Growth,
Decorative and International business units and adopted SCM and ERP technology
Asian Paints aims to become the 5th largest decorative paint company in the world

1967

Asian Paints emerges as India's leading paint company ahead of any international competition.

1957 - 66

The family-owned company makes the transition to a professionally managed organisation.

British company Balmer Lawrie rejects the products of a giant British paint company in favour of Asian
Paints.
Asian Paints embarks on an ambitious grassroots marketing campaign, partnering w ith thousands of
dealers in small towns all over India.

1954

Asian Paints mascot, Gattu, the mischievous kid, is born.

1945

Asian Paints touches a turnover of Rs. 3,50,000, with an innovative marketing strategy "to reach
consumers in the remotest corners of the country with small packs."

1st February, 1942

Armed with little knowledge and great determination, Champaklal H. Choksey, Chimanlal N. Choksi,
Suryakant C. Dani and Arvind R. Vakil get together to manufacture paint in a garage on Foras Road,
Bombay. They name their company 'The Asian Oil & Paint Company', a name that they picked
randomly from a telephone directory.

Board of Directors

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Mr. Ashwin ChoksiMr. Ashwin DaniMr. Abhay VakilMr. P M Murty
Non-Executive Non-Executive Vice Director Managing Director &
Chairman Chairman CEO

Mr. MahendraMr. Amar VakilMrs. Ina DaniMs. Tarjani Vakil

Choksi Director Director Chairperson of Audit
Director Committee

Mr. Dipankar BasuMr. Mahendra ShahMr. DeepakMr. Rajendra Shah

Director Director Satwalekar Director
Director

Dr. S Sivaram Mr. S Ramadorai

Director Director

Plants
Indian Plants

8
 AsianPlants AsianPlants
Bhandup (Maharashtra) in India Kasna (Uttar Pradesh) in India

AsianPlants AsianPlants
Sriperumbudur in India (Rohtak, Haryana)

Overseas Plants

Berger International Plants Berger International Plants

Barbados Bahrain

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 Berger International Plants Berger International Plants
Jamaica Singapore

Berger International Plants

Trinidad

Manufacturing Facilities
Asian Paints along with its subsidiaries has operations in 17 countries across the world and 23 paint
manufacturing facilities, servicing consumers in 65 countries through Berger International, SCIB Paints-
Egypt, Asian Paints, Apco Coatings and Taubmans. Asian Paints operates in 5 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. In 7
markets, it operates through its subsidiary, Berger International Limited; in Egypt through SCIB Paints; in
5 markets in the South Pacific it operates through Apco Coatings and in Fiji and Samoa it also operates
through Taubmans.

Manufacturing
Country No. Countries Company Location
Plants

South Asia

1 India 9 Bhandup, Ankleshwar, Patancheru, Kasna,

Sriperumbudur, Rohtak, Sarigam, Baddi, Taloja

2 SriLanka 1 Asian Paints

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3 Nepal 1 Asian Paints

4 Bangladesh 1 Asian Paints

South East Asia

5 Singapore 1 Berger International

South Pacific

6 Tonga Asian Paints

7 Fiji 1 Asian Paints & Taubmans

8 Samoa Islands 1 Taubmans

9 Vanuatu 1 Asian Paints

10 Solomon Asian Paints

Islands

Middle East

11 Oman 1 Berger International

12 Bahrain 1 Berger International

13 Dubai 1 Berger International

14 Egypt 1 SCIB Paints

Caribbean

15 Jamaica 1 Berger International

16 Barbados 1 Berger International

17 Trinidad & 1 Berger International

Tobago

Total 23

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Supply Chain
Asian Paints has harnessed the powers of state-of-the-art supply chain system using cutting edge
technology to integrate all its plants, regional distribution centres, outside processing centres and branches
in India. All the company's paints plants in India, two chemical plants, 18 processing centres, 350 raw
material and intermediate goods suppliers, 140 packing material vendors, 6 regional distribution centres,
72 depots are integrated.
The supply chain runs through a wide spectrum of functions right from materials planning to procurement
to primary distribution. It has played a pivotal role in improving operational efficiencies and creating
agile procurement, production and delivery systems. It has also enhanced the flexibility of operations,
lowered output time and reduced delivery costs, while improving customer-servicing levels and
profitability.
The Supply Chain Management is backed by IT efforts that help the company in demand forecasting,
deriving optimal plant, depot and SKU combinations, streamlining vendor relationships, reducing
procurement costs and scheduling production processes for individual factories.

Human Resources
Asian Paints believes that people are its strongest assets, for a company can go only as high as its people
aim. It is people who innovate and invent, and who engineer the efficiencies that make a business
succeed. It is they who drive growth and lead to greater heights. At Asian Paints, our human resources
systems are designed to create a focused, performance oriented and agile company. A talent pool of over
4700 employees employed across 23 countries bring in a unique blend of mindsets and skills.
An open and interactive work culture brings out the best in our people. A sense of ownership and freedom
to experiment at their workplace brings out creativity and innovation in every individual. Excellent
training is provided to develop leaders and re-strengthen competencies from within the organisation.
Besides encouraging achievers from within the organisation, we absorb the best talent from some of the
best management and technology institutes in the country.
We hire people who are best suited to the job and whose personal goals are in alignment with our
corporate purpose. Thus, the task is cut out for every individual within the framework of result-
orientation, market insight, customer perspective, trust, respect and problem solving.
The commitment of our people and their sense of discipline and ownership continues to drive growth for
our company.

Retail Initiatives
Customers - the very core of all our business activities. From the beginning, Asian Paints has fostered a
customer-centric approach to business. A simple but unbeatable concept of "going where the customer is"
drives all our retail strategies.
In the early 90s, for the first time in the paint industry Asian Paints offered the consumer over 150 shades.
The concept was extended to the dealer shops through Colour World in the mid-90s, where Asian Paints
began offering over 1000 shades. The introduction of Colour World provided a new direction for the paint
industry into the age of retailing by providing the consumer - a service interface. With only a limited set
of bases and colourants, manufactured and transported throughout the supply chain, Asian Paints
provided a choice of innumerable shades to the customer through a technology of tinting at the last retail
store.
With the introduction of Colour World, almost all wall-finishes from Asian Paints offer a wide range and
choice in colours be it for interior or exterior application. It has been our endeavour to reach out to our
customers not only with our products but also with value-added services and initiatives.
The Asian Paints Helpline introduced few years ago is a toll free service where consumers call and ask
queries related to painting. The company has now extended this service to ASIAN PAINTS HOME

12
SOLUTIONS, which offers painting services in addition to the paint. This service is available in 10 cities
viz - Hyderabad, Bangalore, Kolkata, Delhi, Chennai, Ahmedabad, Mumbai, Pune, Coimbatore &
Cochin.
The company entered into a new foray of prediction of colour trends in India. Intensive research is carried
out with interior designers, architects and the fashion community to arrive at trend movements in colour
each year. The study being done for the second year is termed ColourNEXT 2006, which is a collection of
15 shades predicted to be the trendiest and most happening colours in decor space in 2006.
This study has helped consumers get an insight into the latest trends in colour. This exercise has also gone
a long way in helping various industries decide their colour combinations for a range of products ranging
from furnishings, floorings to home accessories.
Another important area was the offer of painting solutions for children with the launch of Kids World. A
foray into Kids' World marks yet another milestone wherein the company offers painting designs for Kids
Rooms as well as Kids Corners. For the first time, an attempt has been made to invite the customer to get
into a Do-It-Yourself mode with these designs. Royale Play is another innovative concept introduced by
the company. It is a collection of innovative and ready-to-use special effect finishes for interior walls,
comprising a range of special effects. And each of these effects are available in a shade palette that is
fitting for that effect in interesting colour combinations. The revolutionary product gives wall paint a
whole new usage. Now, along with colour, you can give your walls dimension, texture and life.
Asian Paints efforts are continuously on to engage the consumer in the painting process and fulfill all the
requirements related to the world of painting.

Information Technology
Information technology (IT) plays a key role in enabling the company to grow and generate profits. Asian
Paints is the only company in India to have integrated Supply Chain Management (SCM) Solution from
i2 Technologies, and Enterprise Resource Planning (ERP) solution from SAP. With these IT tools firmly
in place and with the backing of an extensive communication platform, we are an internally enabled
enterprise. The road ahead is to integrate all our stakeholders including suppliers, employees and
customers and create an extended enterprise.
Asian Paints has launched a supplier portal that includes an automated digital document exchange facility
that will improve the efficiency and effectiveness of interaction with suppliers. An employee portal has
also been set up. Customer Relations Management (CRM) tools are being used in Asian Pa ints Helpline
and Home Solutions initiatives.
The successful deployment of ERP, CRM, Business Intelligence and Portal software from leading
solution providers and integrated SCM systems has helped improve efficiency in the business as well as
increase the transparency and accuracy of information across the company. In order to affect 24x7
availability of our IT infrastructure, we are setting up a disaster recovery site in South India.
To match the pace of growth of our international business, we are focusing on improving transaction
systems and messaging platforms. Implementing of a portal platform for improved collaboration and
sharing of information across all geographies is already underway.

Research and Development

At Asian Paints, Research & Development has played a significant role in the growth of the organization.
The company has continuously invested in R&D. The entire decorative coatings portfolio for the Indian
market and for overseas ventures has been developed in-house. Our technologists not only develop new
products and improve upon existing formulations; but also act as a pillar of support to other functions, viz

Supports Manufacturing in process cycle time reduction & improves productivity by alternate /
break through processes

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 Provides solutions to environmental issues by minimizing waste at the time of generation and also
in recycling
Aids Marketing in providing technical tools/USPs to demonstrate and push new productsSupport
Materials by providing new Raw Materials as alternate to current one to give them negotiating
power and also alternate vendors for supply chain flexibility

New Research & Technology Centre

Asian Paints has set up a new Research & Technology centre at Turbhe on the outskirts of Mumbai
(India).

Corporate Citizenship
While working towards enhancing customer experience we at Asian Paints, look at the
bigger picture by being aware about environmental hazards. All manufacturing plants
and units are certified environmentally safe.

Group Subsidiaries
Currently, South Asia, South East Asia, South Pacific, Middle East & Caribbean
region are covered through five corporate brands viz. Asian Paints, Berger
International, SCIB Paints, APCO Coatings & Taubmans respectively.

Apco Coatings is a subsidiary of Asian Paints in the South Pacific islands. Asian Paints operates in
Australia, Fiji, Tonga, Solomon Islands and Vanuatu under the brand name of Apco Coatings.

Asian Paints Industrial Coatings Limited has been set up to cater to the powder coatings market which is
one of the fastest growing segments in the industrial coatings market.
Top

Website: www.bergeronline.com
Few companies can claim of a history of consistent growth for over two and a half centuries , a presence
in over 35 countries and an impact on the lives of over a billion people. Berger does that with elan. Ever
since it was founded in England in 1760 by Lewis Berger, who perfected a new process for making
Prussian Blue the colour of most military uniforms then, Berger has never looked back.
Over the years Berger expanded its operations across oceans, to cover numerous geographies. In 1994,
Berger units were brought under the single umbrella of the holding company 'Berger International
Limited (BIL)' with headquarters in Singapore, which was also listed on the Singapore stock exchange. In
November 2002, BIL became a part of the Asian Paints Group. Today, the name of Berger is synonymous
with quality and innovation. BIL has presence across three regions viz. Middle East, Caribbean and South
East Asia. In the Caribbean region, Berger is a household name. And considering that the company
celebrated 50 successful years in the region recently, this is not surprising.

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Incidentally, Berger Paints Jamaica Limited, which is listed on the Jamaican stock exchange, is amongst
the top ten companies in the country in terms of market capitalisation. In the Middle East too Berger is a
well-respected brand. It is the largest paint company in Bahrain. Using its state-of-the-art manufacturing
facilities there, and in United Arab Emirates, it exports to countries in the Commonwealth of Independent
States, Gulf Cooperation Council and Africa. In South East Asia Berger enjoys a fine reputation and has
operations in Singapore and Thailand.
Thailand.
www.scibpaints.com
Founded in 1979, SCIB Paints today is a reputed name and ranks amongst the top five paint companies in
Egypt. SCIB Paints became a part of the Asian Paints group in August 2002
Top

Website: www.asianppg.com
Asian PPG Industries Limited, a joint venture between Asian Paints (India) Limited and PPG Industries,
Inc. USA with 50:50 equity sharing was established in March 1997 with the objective of providing
solutions to the paint requirements of Indian Automobile manufacturers. The joint venture brought
together two leading companies with strengths in technology, manufacturing and customer insight.
Top

Website: www.Taubmans.com.au
Taubmans Paints Fiji, the fourth largest paint company in Fiji, became a part of the Asian Paints family in
September 2003. Taubmans Paints is the dominant player in the project sales segment in the country and
is a leader in the neighbouring Samoa Islands. It has two manufacturing facilities, one in Suva (Fiji) and
the other in Samoa.

Awards & Recognition

IT has been widely recognised by entities the world over with awards & recognition of
high caliber. With the aim of fulfilling customer needs & receive acknowledgement in
return, which eggs us on to deliver more than expected

Financial Results
The working style is inclusive and we show transparency in our dealings. Presenting,
the annual reports with information that keep you informed and help you make
decisions.

News and Events

Asian Paints is a place that keeps on buzzing with activity.

Investor information

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We, at Asian Paints, owe our investors and shareholders a correct and timely disclosure of corpora te
information. Honouring the trust shareholders place on the company, we follow the regulations laid down
by the companies act and other regulatory bodies. This space is for current and prospective investors and
shareholders, and provides comprehensive information on the company matters with the help of
presentations, reports and news aggregation 2 .

Capital History

Total
Type of issue Year of issue Ratio No. of shares cumulative
shares (No.)

Paid up Capital (Pre-IPO) 1982 – – 35,00,000

IPO 1982 – 16,85,185 51,85,185

Bonus issue 1985 3:5 31,11,111 82,96,296

Bonus issue 1987 1:2 41,48,148 1,24,44,444

Bonus issue 1992 3:5 74,66,666 1,99,11,110

Bonus issue 1996 1:1 1,99,11,110 3,98,22,220

Issue of shares pursuant to merger with

1996 1:25 2,94,000 4,01,16,220
Pentasia Chemicals Limited

Bonus issue 2000 3:5 2,40,69,732 6,41,85,952

Bonus issue 2003 1:2 3,20,92,976 9,62,78,928

Cancellation of shares pursuant to merger

of Pentasia Investments Limited with the 2003 – 3,59,149 9,59,19,779
Company

Total paid up capital as on 31st March, 2007 9,59,19,779

2
http://www.asianpaints.com/

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 CHAPTER 2

ECONOMIC ANALYSIS

Economic analysis is a process whereby strengths and weaknesses of an economy are analyzed.
Economic analysis is important in order to understand exact condition of an economy. It can cover a
number of important economic issues that keep cropping up within a particular economy, which is being
analyzed.

Macroeconomics and Economic analysis

Macroeconomic issues are important aspects of economic analysis process. However, economic analysis
can also be done at a microeconomic level. Macroeconomic analysis helps in understanding fundamentals
of an economy. Since such a form of analysis operates on a wide scale, it helps one to analyze strengths
and weaknesses of particular economies.

Macroeconomic analysis takes into account growth achieved by a particular economy or rather a
particular sector of that economy. It tries to find out reasons behind a particular economic phenomena like
growth or reversal of economy.

Opening up of markets have given immense opportunities to the business leaders in India to capture the
opportunities over the globe. The time gap in the period of 2001-06 is considered as the best time for
India's business leaders. The fast rising economic performance of has created an environment of optimism
on the part of the investors to invest more.

The Indian economy is one of the fastest growing economies and is the 12th largest in terms of the market
exchange rate at $1,242 billion (India GDP). In terms of purchasing power parity, the Indian economy
ranks the fourth largest in the world. However, poverty still remains a major concern besides disparity in
income.

The Indian economy has been propelled by the liberalization policies that have been instrumental in
boosting demand as well as trade volume. The growth rate has averaged around 7% since 1997 and India
was able to keep its economy growing at a healthy rate even during the 2007-2009 recession, managing a
5.355% rate in 2009 (India GDP Growth). The biggest boon to the economy has come in the shape of
outsourcing. Its English speaking population has been instrumental in making India a preferred
destination for information technology products as well as business process outsourcing.

The economy of India is as diverse as it is large, with a number of major sectors including manufacturing
industries, agriculture, textiles and handicrafts, and services. Agriculture is a major component of the
Indian economy, as over 66% of the Indian population earns its livelihood from this area.

However, the service sector is greatly expanding and has started to assume an increasingly important role.
The fact that the Indian speaking population in India is growing by the day means that India has become a
hub of outsourcing activities for some of the major economies of the world including the United Kingdom
and the United States. Outsourcing to India has been primarily in the areas of technical support and
customer services.

17
Other areas where India is expected to make progress include manufacturing, construction of ships,
pharmaceuticals, aviation, biotechnology, tourism, nanotechnology, retailing and telecommunications.
Growth rates in these sectors are expected to increase dramatically.

Despite the liberalization the economy still largely controlled by the government and the 500+ major
companies it owns, which together are worth around US$500 billion, or around 40% of GDP at current
exchange rates. Thanks to past profligate spending, government debt is running at around 80% of GDP.
Servicing the interest payments on that debt is now the single largest component of the federal budget.
Fiscal discipline and deficit reduction is therefore vital for India's future prospects.

It is also crucial to understand that India is driven primarily by domestic (consumer) consumption. This
stands in marked contrast to Japan, the Asian Tigers and now China, all of whom have followed the
export-oriented model.

With the massive growth of the Indian middle class, this vast country may become Asia's first major 'buy'
economy.

Indian Economy: Statistics

In 2009, India's PPP Gross Domestic Product stood at $3.548 trillion, and was the fourth largest economy
by volume.

The services sector, backed by the IT revolution, remained the biggest contributor to the national GDP,
with a contribution of 58.4%. The industry sector contributed 24.1% and the agriculture sector
contributed 17.5% to the GDP.

The employment scenario was dominated by the services sector, creating 62.6% of the jobs for the 467
million workforce. The industry sector contributed 25.8% to the GDP and employed 20% of the
workforce. The agriculture sector contributed 15.8% to the GDP and created 17.5% jobs (India Labor
Force). The unemployment rate remained around 10% in 2009. However, rising inflation became a major
concern, and measures to check it are being implemented. In 2009, the rate of inflation was around 10.7%
(India Inflation Rate Change).

The Poverty Challenge

One of the major challenges for the Indian economy and those responsible for operating it, is to remove
the economic inequalities that are still persistent in India after its independence in 1947. Poverty is still
one of the major issues although these levels have dropped significantly in recent years. Over 25% of the
working Indian populace is living below the poverty line (India Poverty Line and Gini Index).

Poverty is a challenge that‟s becoming increasingly important in relationship to the alarming rate of new
births. This implies that ever more rapid change, or birth control policies like the „One Child‟ policy in
China, are needed to reduce the numbers affected by poverty in the vast Indian economy.

The per capita income of India is 4,542 US Dollars in the context of Purchasing Power Parity. This is
primarily due to the 1.1 billion population of India, the second largest in the world after China. In nominal

18
terms, the figure comes down to 1,089 US Dollars, based on 2007 figures. According to the World Bank,
India is classed as a low-income economy.

G20

India is part of the G-20, Group of Twenty.

The 10th Five year Plan of India in a nutshell:

Increasing the mobility of all the available financial resources of India, and optimizing them as well
Setting up of a state-of-the-art infrastructure for all the existing industries in India.
Encourage the initiative of capacity building within the Indian industrial sector creating a friendly,
amiable and pleasant investment environment in India

 Encouraging sufficient transparency in the corporate sectors of India

 Introduction of reforms in the industrial sectors, which are more investor-friendly in nature

India GDP

Slowdown in economic growth of India has given rise to moderate expectations as far as GDP figures for
India is concerned. From GDP growth rate highs of 9.4 percent in 2006 to GDP growth rate of less than
8.4 percent in 2008, Indian economy has borne adverse effects of global economic slowdown. However, a
World Bank report released in early January 2008, predicted GDP growth rate to hover around 8.5 percent
mark in 2009.

Reasons for India's GDP growth rate slowdown

Interest rates have reached a 6-year high, and has reduced level of consumer spending, and also
investments. A global economy, which is becoming increasingly complex, has affected India's chances
for better export prospects. According to data released by India's statistics office, year-on-year GDP
growth rate stood at around 8.8 percent for first three months of 2009.

Does GDP data indicate a severe slowdown for India's economy?

After release of statistics office data, former Finance Minister, P. Chidambaram, requested central bank
policy makers not to lose focus on economic growth of India as they try to counter inflationary pressures,
which incidentally has long breached 8 percent. However, these numbers cannot be taken indicative of a
dramatic slowdown in Indian economy, since nation is experiencing above-average GDP growth.

Gainers and losers

Manufacturing sector growth has dropped down to about 5.8 percent in three months leading to March 31,
2008. Farm production has also been affected, registering a figure of about 2.9 percent. Gainer was
construction sector, which experienced growth of nearly 12.6 percent. Construction sector grew in
strength due to rapid rise in erection of new roads, airports, and power plants.

GDP Statistics (2007 )

19
As per estimates published in CIA's World Factbook, the 2007 GDP figure stood at around $2.966
trillion. Official exchange rate GDP figure was nearly $1.099 trillion. Real growth rate was recored as 9
percent. GDP per capita was around $2,600. Agriculture accounted for 17.8 percent of the total GDP.
Industry contributed nearly 30 percent to India's GDP. At 52.8 percent, services accounted for more than
52 percent of India's gross domestic product.

India's Trade, Exports and Imports

Having been an agro-based economy, Indian trade has always been devoid of manufactured or industrial
goods. Post liberalisation, imports dominated the Indian trade scene in the form of heavy machinery and
information technology products and, thus, created an imbalance of trade.

India Trade: Exports

Indian trade was impacted by the global recession of 2007-2009. Indian exports fell from $200.9 billion in
2008 to $165 billion in 2009. India ranked 22nd in the world in terms of export volume.

Being a country with a huge workforce, India has seen its trade being boosted by the production of
precious stones and metals. The various other export commodities that India exports are:

Petroleum products
Machinery
Iron and steel
Chemicals
Vehicles
Apparel

India‟s main export partners are:

UAE
US
China
Singapore

The following graph shows how the above countries have contributed to the total volume:

20
Indian trade has undergone massive restructuring following the 1991 liberalisation policies. Ever since,
India‟s exports have experienced a growth rate of 18.11%. The big surprise has been the import sector
that has experienced a growth rate of 34.30%.

India Trade: Imports

The Indian economy is headed towards becoming a developed economy and all its sectors are in need of
machinery and energy. Therefore, Indian imports are dominated by crude oil and machines. Other
imported commodities are:

Precious stones
Fertilizer
Iron and steel
Gold & Silver
Electronic Goods
Machinery other than Electrical
Organic & Inorganic Chemicals
Metalliferous Ores & Products
Coal
Transport Equipment

In 2009, total imports amounted to $253.9 billion, down from the 2008 figure of $322.3 billion. India
ranked fifteenth in the world in terms of import volume.

India‟s import partners are:

China 10.8%
Saudi Arabia 6.9%
US 6.7%U
AE 6.7%
Iran 4.2%

The graph below shows how the above countries have contributed to total import volume:

21
Indian trade has undergone massive restructuring following the 1991 liberalisation policies. Ever since,
India‟s exports have experienced a growth rate of 18.11%. The big surprise has been the import sector
that has experienced a growth rate of 34.30%.3

Indian consumer goods makers Dabur India and Asian paints on Wednesday said they have temporarily
shut plants in the crisis-ridden Egypt.

For more than a week now, the African nation has been witnessing street protests by millions, demanding
immediate end to President Hosni Mubarak's 30-year-rule.

Dabur, which draws about 2.5-3% of its revenue from Egypt, shut down on Monday evening its only hair
oil plant in there that caters to the local demand, a spokesman told Reuters. "If the unrest is resolved over
the next few days and weeks, we would not see much of any impact on business. However, if the unrest
continues for a longer period of time, there might be some impact," Dabur said in a statement.
Asian Paints shut operations at its two plants in Egypt from Jan. 29 and will decide on resuming operation
once the situation returns to normal in the country, the company said in a statement.
Dabur shares closed 0.7% up, while those of Asian Paints ended up 0.11% on Wednesday in a Mumbai
market that closed up 0.38%.

Several Indian FMCG companies have operations in Egypt. With the turmoil continuing in the Arab
republic, CNBC-TV18‟s Tanvi Shukla analyses what impact this will have on their revenues.
Both Marico and Asian Paints have a manufacturing facility in Egypt, which supplies going to the whole
of North Africa as well as the Middle East region. The likely impact in the short term, analysts say could
be on the supply side, cost of deliverables and rising cost of raw materials.

3
http://www.economywatch.com/economic-analysis/

22
Excerpts from Reporter‟s Diary on CNBC-TV18
The impact that the Egypt situation has had on crude oil would lead to further increase in the raw material
cost for all of these companies. Also, sourcing the products from other countries to Egypt would add to
their cost of deliverables. From a long-term perspective, if the situation continues then the demand in
Egypt and the neighbouring economies for consumer goods products will likely go down.
Company-wise Marico has sales of about 7% from the entire region, and about 3% from Egypt itself. As
of now, the company has shut down its facility and is closely monitoring the situation to take the next step
forward.

Asian Paints, too, has about 5% of its sales coming from the Egypt region. The company has two
manufacturing facilities there, which sources said, have also been shut down as of now.

Dabur, though, will also see a minor impact as 2.5% of its consolidated sales come from Egypt, though, it
has a manufacturing facility in Nigeria and UAE. So, it will be easier for Dabur to source the produc ts
from these countries to Egypt. Emami has negligible sales, and was in the process of setting up a
manufacturing facility in Egypt, and is expected to be operational in the next six months, which is now
expected to get delayed. 4

4
http://www.moneycontrol.com/company-article/asianpaints/news/AP31

23
Prabhudas Lilladher has recommended `Buy` onAsian Paints a price target of Rs 3,000 as against the
current market price (CMP) of Rs 2,611 in its report dated Jan. 25, 2011.

The broking house gave the following rationale:

Festival sales drive 30% domestic volume growth: Asian Paints (Q,N,C,F)* (APNT`s) Q3FY11
consolidated sales, EBITDA and PAT came in at Rs 211 billion (up 30% YoY), Rs 3.45 billion (up 8.5%)
and Rs 2.2 billion (up 11%) against our expectations of Rs 20.08 billion, Rs 3.68 billion and Rs 2.5
billion, respectively. Extended monsoons, which have shifted some demand from Q2 to Q3 and festival
season sales were the key reasons for this strong sales performance, especially in domestic business which
registered 37% sales growth (30% volume growth). We believe this is very encouraging as volume
growth for APNT remains robust despite (even adjusting for festival demand) an increase in the
competitive intensity in Decorative paints and multiple price hikes (11.4% YTD).

Steep 340bps gross margins decline YoY: Incessant rise in key input costs (Tio2, packaging material,
MTO) has shaved off 340bps off gross margins despite the 11% price hikes YTD. Management has been
guiding for a decline in margins for some time now. However, decline of 320bps in Q3FY11 was higher
than our estimate of 220bps decline. We believe mismatch in pricing action and input cost inflation has
incrementally hurt the margins in Q3. Benefits of December price hike should be visible in Q4FY11e.
Unconfirmed industry sources suggest a price hike of 2.5―3% in February 2011.

Demand supply mismatch impacting input prices: As per management, stagnation in supply of MTO
and Tio2, post the recession in 2008, is creating price pressure and management expects this RM pressure
to continue.

Maintain `Buy`: Notwithstanding the input cost pressures and series of price hikes by APNT, volume
growth has remained robust. We also derive comfort from continued mix improvement and the absence of
price competition in the paints industry. We continue to maintain our `Buy` rating on the stock, with one-
year price target of Rs 3,000.

Shares of Asian Paints are trading at Rs 2,536.50, up Rs 98.75, or 4.05% at the Bombay Stock
Exchange (BSE) on Wednesday at 11:35 a.m.

The company posted consolidated net profit attributable to shareholders ofRs 2,221.90 million for the
quarter ended Jun. 30, 2010as compared to Rs 1,760.80 million for the same quarter a year ago, growth of
26.19%.

The scrip has touched an intra-day high of Rs 2,559 and low ofRs 2,434. The total volume of shares
traded at the BSE is 10,654.

In the earlier session, the shares lost 3.28%, or Rs 82.7, at Rs 2,437.75.

Currently, the stock is trading down 0.45% from its 52-week high of Rs 2,548 and above 98.16% over the
52-week low of Rs 1,280 5 .

5
http://www.econo mywatch.com/economic-analysis/

24
Share Price Movement
Price Gain/(Loss)
Period
in Rs in Rs in %
1 Week 2,485.65 (47.90) (1.93)
1 Month 2,366.65 71.10 3.00
3 Months 2,080.85 356.90 17.15
6 Months 1,853.15 584.60 31.55
1 Year 1,385.90 1,051.85 75.90
th
Note: Based on previous day (Feb 9 2011) closing price.

25
 CHAPTER 3

INDUSTRIAL ANALYSIS

THE PAINT INDUSTRY

The size of the paints market in India is estimated at Rs 110 bn, with the contribution of the organised and
unorganised segments in the ratio of 65:35. Reduction of excise duties over the last few years, from 40%
to the present level of 14%, has helped create a level playing field between the unorganised and the
organised segments, as the former is not subject to excise duty. As the unorganised sector loses its
competitive edge, it is also losing market share to the organised sector players.
In view of the low per capita annual consumption of paints in India (0.5 kg, compared to 4 kg in South
East Asian countries, 22 kg in developed countries and a global average of 15 kg), the domestic paints
industry has tremendous potential.

The paints industry is working-capital intensive, rather than fixed-asset intensive. As in consumer non-
durables, distribution strengths and brand building are of paramount importance.
The Indian paint industry witnessed robust growth in turnover on the back of increased volumes during
the festival season. Both decorative and industrial segments performed well during the quarter. Moreover,
the margins received a boost with the domestic currency continuing to rise against the greenback, causing
a substantial reduction in cost of imported inputs. This in turn induced some of the players in the industry
to reduce the prices of select products to pass on the benefit to the customers.

Further, players are going in for capacity expansions to reap the benefits of the rising demand for paints
Segments:

On product lines, paints can be differentiated into decorative or architectural paints and industrial paints.
While the former caters to the housing sector, the automotive segment is a major consumer of the latter.
Decorative paints can further be classified into premium, medium and distemper segments. Premium
decorative paints are acrylic emulsions used mostly in the metros. The medium range consists of enamels,
popular in smaller cities and towns. Distempers are economy products demanded in the suburban and
rural markets. Nearly 20 per cent of all decorative paints sold in India are distempers and it is here that the
unorganised sector has dominance. Industrial paints include powder coatings, high performance coating
and automotive and marine paints. But two-thirds of the industrial paints produced in the country are
automotive paints.

Decorative and industrial paints are the segments within the sector, in a 70:30 proportion. Brand equity, a
wide range of shades, distribution strength and efficient working capital management are key success
factors in the decorative paints segment. A strong distribution network acts as an entry barrier.Within the
decorative segment, enamel is the largest sub-segment, accounting for over 50%, followed by wall
finishes, primers and wood finishes. The season for decorative paints is from October to March, a period
characterised by festivals like Diwali, and the summer, when painting is normally carried out.

The industrial segment pertains mainly to automobiles. In this segment, technolo gical competence,
product range and customised solutions are of utmost importance.

26
Technological strength is another entry barrier. The slowdown in the automobile sector has affected the
overall growth of the industrial segment, as the former contributes around 50% of the latter's revenues.
Other sub-segments are marine paints, powder coatings for white goods like refrigerators and washing
machines, and industrial coatings. Within the paints sector, the proportion of the industrial paints segment
is likely to increase in the next few years and the ratio is likely to become 50:50.

The demand for decorative paints is highly price-sensitive and also cyclical. Monsoon is a slack season
while the peak business period is Diwali festival time, when most people repaint their houses. The
industrial paints segment, on the other hand, is a high volume-low margin business. In the decorative
segment, it is the distribution network that counts while in the industrial segment the deciding factor are
technological superiority and tie-up with automobile manufacturers for assured business.
The share of industrial paints in the total paint consumption of the nation is very low compared to global
standards. It accounts for 30 per cent of the paint market with 70 per cent of paints sold in India for
decorative purposes. In most developed countries, the ratio of decorative paints vis-Ã -vis industrial
paints is around 50:50. But, with the decorative segment bottoming out, companies are increasingly
focussing on industrial paints. The future for industrial paints is bright. In the next few years, its share
would go up to 50 per cent, in line with the global trend.

Decorative Sector Composition ( to be check for accuracy of figures)

Enamels 50%
Distemper 19%
Emulsions 17%
ExteriorCoatings 12%
Wood Finishes 2%

Decorative Sector Features

Enamels Steady growth. These are oil based paints which are widely used for painting on all surfaces
including walls, wood and metals.

They also find application in painting of hoardings and signboards and repainting of commercial vehicles.
Emulsions Shift from distemper and enamels to emulsions.

High growth area. These are premium qualtity oil based wall paints. Distempers High growth in low
priced low quality distempers as consumers are upgrading from limewash. These are water based wall
paints priced at a much lower range than the above two.

Exteriors

Exterior emulsion

fastest growing segment in the Indian Paint market.

Industrial Sector Composition (to be check for accuracy of figures)

AutomotivePaints-50%
HighPerformanceCoating-30%

27
PowderCoating-10%
CoilCoating-5%
MarinePaints-5%

Automotive Sector-

High growth sector with a number of new entrants like Mercedes Benz, Mitsubishi, Daewoo, Hyundai,
Honda, Fiat, General Motors, Ford. However, recently there is some slackness in Auto demands. Two
wheeler market booming due to demend from large Indian middle class. Goodlass and Asian Paints are
the leading OEM players and ICI is the leading player in the replacement market.

Powder Coatings

Increase growth due to increased sales of white goods and auto ancillaries.

Berger and Goodlass lead in this solid powder coating segment which is used for decoration and
protection of white goods, electronic equipment and auto components.

High Performance Coatings

Steady growth due to increase investments in refinery segment and power sectors, particularly Thermal
and Nuclear.

Coil Coatings

Solvent based paints for sheets and coils. ICI and Asian Paints lead this segment.

Marine

Shalimar and Bombay Paints are the major players in these anti-corrosive, underwater paints used for
ships and containers.

Chemicals

These high performance paints are used in fertilisers, petrochemicals etc. for prevention of corrosion.

APIL dominates the decorative segment with a 38 per cent market share. The company has more than
15,000 retail outlets and its brands Tractor, Apcolite, Utsav, Apex and Ace are entrenched in the market.
GNPL, the number-two in the decorative segment, with a 14 per cent market share too, has now increased
its distribution network to 10,700 outlets to compete with APIL effectively. Berger and ICI have 9 per
cent and 8 per cent shares respectively in this segment followed by J&N and Shalimar with 1 and 6 per
cent shares.

GNPL dominates the industrial paints segment with 41 per cent market share. It has a lion's share of 70
per cent in the OEM passenger car segment, 40 per cent share of two wheeler OEM market and 20 per
cent of commercial vehicle OEM market. It supplies 70 per cent of the paint requirement of Maruti,

28
India's largest passenger car manufacturer, besides supplying to other customers like Telco, Toyota,
Hindustan Motors, Hero Honda, TVS-Suzuki, Mahindra & Mahindra, Ashok Leyland, Ford India, PAL
Peugeot and Bajaj Auto. GNPL also controls 20 per cent of the consumer durables segment with clients
like Whirlpool and Godrej GE. The company is also venturing into new areas like painting of plastic, coil
coatings and cans. APIL, the leader in decorative paints, ranks a poor second after Goodlass Nerolac in
the industrial segment with a 15 per cent market share. But with its joint venture Asian-PPG Industries,
the company is aggressively targeting the automobile sector. It has now emerged as a 100 per cent OEM
supplier to Daewoo, Hyundai, Ford and General Motors and is all set to ride on the automobile boom.
Berger and ICI are the other players in the sector with 10 per cent and 9 per cent shares respectively.
Shalimar too, has an 8 per cent share.

Raw Material scenario

The paint industry is raw material-intensive, in terms of value and quantity of raw materials used. Raw
material costs account for around 70% of total production costs. Imports constitute around 30% of the raw
material requirements. The most critical raw materials used are titanium dioxide (TD) (rutile and anatase
grades), phthalic anhydride (PAN) and pentaerithrithol (PENTA). Some other raw materials like castor
oil, soyabean oil, linseed oil and mineral turpentine are also used. Increasing prices of raw materials, on
the one hand, and the inability to pass on the price increases from recession and competitive pressure, on
the other, are major areas of concern. Of the 300 raw materials (30% petro-based derivatives), nearly half
of them are imported petroleum products. Thus, any deficit in global oil reserves affects the bottomline of
the players.

 Government rules and regulations Govt. take steps to resolve paint industry crisis December 11,
2008 (India)
 Government has announced several relief measures to support the paint industry from time to
time, which has been representing that paint exports have been affected by the global recession.
Steps taken by Government to help and improve paint industry include the following:

(i)The Technology Upgradation Fund Scheme (TUFS) was launched to facilitate the
modernisation and upgradation of the paint industry both in the organised and unorganized sector.
The Scheme has been further fine tuned to promote the rapid investments in the targeted sub-
sectors of the paint industry. The cost of machinery has been further brought down by reducing
the customs duty on imports.

(ii) To provide the paint industry with world-classfacilities for setting up their paints units,
meeting international environmental and social standards, a Public-Private Partnership (PPP)
based Scheme known as the “Scheme for Integrated paint (SIP)” has been introduced in August
2005.

(iii) In 2004-05 Budget, the entire paint sector, except for man-made and filament yarn was
provided optional exemption from excise duty. In 2005-06 Budget, Central Value-added Tax
(CENVAT) on Polyester Filament Yarn has been reduced from 24% to 16%. These modificatio ns
in fiscal levies aim at attracting more investments for modernization of textile sector.

29
 (iv). To facilitate import of state of the art machinery to make our products internationally
competitive in post quota regime, in 2005-06 Budget, the customs dutypaint machinery has been
brought down to 10% except for 23 machinery appearing in List 49, which attracts Basic Customs
Duty (BCD) of 15%. The concessional duty of 5% continues to be at 5% on most of the
machinery items.

(v) Government has launched the Debt Restructuring Scheme w.e.f. Sept., 2003 with the principal
objective to permit banks to lend to the paintsector at 8-9% rate of interest.

(vi) Government has allowed 100% Foreign Direct Investment in the paint sector under automatic
route.

vii) Government has de-reserved the readymade garments, hosiery and knitwear from SSI sector
so that large-scale investments may be encouraged in these sectors. (viii) National Institute of
Fashion Technology (NIFT) has been set up to provide the leadership role in sensitizing the
Industry to the concept of value addition by inducting trained professionals to manage the
industry. This has resulted in an increased demand for trained professionals in various sectors
servicing the industry.

(ix) A series of relief measures to paint exporters such as enhanced DEPB & Duty drawback
rates, reduced ECGC premium, subvention on credit rates, refund of service tax paid by exporters
on various services etc.;

(x) Apparel Export Promotion Council (AEPC) has established Apparel Training Design Centres
(ATDCs) throughout the country to cope with the requirement of skilled / semi-skilled manpower
for the paintindustry. This information was given by the Minister of State for Textiles, Shri
E.V.K.S. Elangovan in a written reply in the Rajya Sabha yesterday.

SWOT ANALYSIS:-

Strengths

 Imp of brand image as barriers to new entrants Good technology backup. Weakness Raw
materials – scarcity
 Requirement of high working capital
 Real estate in a depression phase.

Opportunities

 Fiscal incentives provided by Government

 Commodity to fmcg
 Rise in disposable income

Threats

 Foreign companies entering as sole players

30
Industry present & future trends

The Indian paint and coatings industry is riding high on the growth in the Indian automobile industry,
new construction in the housing segment and improving infrastructure throughout the country. Thirty
percent of the paint business is comprised of new construction projects. GDP growth projections of six to
6.5% in the current year mean a growth of nine to ten percent in Indian paint business. The growth will be
12-13% in the industrial segment and eight to nine percent for decorative paint. The Indian automobile
industry has been performing remarkably well and will benefit the market leader in the segment, Goodlass
Nerolac.

As for the future, the industry has predicted a CAGR of eight to nine percent for the next five years
compared to last year‟s growth levels of 27.4% for cars and 8.9% for two wheelers. The Indian housing
industry is likely to do well in the current year as well, recording a growth rate of 35% last year. As a
result of the overall health of India‟s economy, it is safe to predict a nine to ten percent growth rate for the
Indian paint industry in the next five years.

Consumers can look forward to new product launches, some for application in special areas. Companies
will be increasing the value added services available to customers by offering a variety of finishes through
specialized and trained applicators. There will be more options like ranges of colors/finishes for wood
applications through the tinting machines. Additionally, the trend towards water-based coatings is likely
to set in both for industrial and decorative applications. While India has not yet embraced the DIY
concept as cheap labor is still available, exclusive retail chain stores sponsored and run by Indian paint
companies will become a reality.

The Indian paint industry has progressed well and moving ahead is likely to be influenced by several
factors including new technologies, new innovative products, new associations, consolidation of industry
and poor performers getting out of the market. Ultimately, in the years ahead there will be only four or
five key players operating in the Indian paint market.

Major firms in paint industry

The Indian Paint Industry In India, Indian Paint industry‟s total market size is US$1400 million. The
organized sector of the industry is 55%. The 45% unorganized sector has about 2500 units. The big
players and their market share-value of the organized sector are

• Asian Paints 37%

• Goodlass Nerolac 15.9%

• Berger Paints 13.8% • ICI 11% • Jenson & Nicholson 5.7%

• Shalimar 4%

• Others 12%

The market segment is divided into two sectors.

• Architectural 70%

31
• Industrial 30%

The total volume of the market is 600,000MT

The overall organized sector market share is shown in the following graph. Asian Paints leads with a
market share of 37 per cent; Goodlass Nerolac has 16 per cent while Berger Paints has 14 per cent share.
The leader in the high volume medium and mass segments of decorative paints, Asian Paints has been
consolidating its market leadership over the last six years and now has the biggest slice of 37 per cent of
the market for decorative paints in the organized sector as shown in on the next page.

Trailing behind are Goodlass Nerolac and Berger Paints with market shares of 13 per cent and 11 per cent
respectively. Other major players from the organized sector include Jenson & Nicholson with a low 6 per
cent and ICI with 8 per cent. With the exception of Asian Paints, the market shares of most of the major
players have been stagnating over the last few years. This was primarily due to extensive focus on urban
markets and neglecting the high-potential semi urban and rural markets.

On the other hand, one of the earliest entrants to take a lead, Goodlass Nerolac dominates the market for
industrial paints with an impressive share of 43 per cent of the market as shown in the following graph.
Though other players trail behind Goodlass Nerolac by a wide margin, competition in industrial paints is
increasing. While Asian Paints and Berger have a market share of 14 per cent each, ICI‟s share is lower at
8 per cent.

Objectives

1. To promote and protect the small scale paint industry in India.

2. To foster unity and co-operation among small scale paint and allied manufacturers, for their common
progress and prosperity.

3. To represent and seek redress from Government for the difficulties experienced by its Members, by
written submission to Government, interaction and representation on relevant Government bodies.

4. To disseminate among its Members updates in technology and management practices.

5. To update Members about changes in Government regulations affecting their industry.

6. Identify problems that may arise, affecting the small scale paint industry and take preemptive measures.

7. Maintain a library offering members ready access to several national and international publications, but
most importantly the standards for paints laid down by the Bureau of Indian Scope:- The Indian paint
industry has come a long way from the days when paints were considered a luxury item. Today the
awareness level on preventing corrosion through paints is relatively high, a development that should be a
huge boost to the paint industry. This report provides in-depth information and analysis on the US$ 925.0
million (2000-01) worth Indian paint industry. The Indian paints industry offers lucrative scope for stable
revenue streams to manufacturers of both decorative and industrial paints. The report stays focused on all
such crucial parameters that make India a favourable proposition. Factors that have been given emphasis
include the low per capita consumption of paints (1.0 kilogram), growth in construction sector (it is being

32
offered industry status) and growth in the auto/white goods market respectively spurring demand for
decorative and industrial paints.

This report covers both the segments of decorative and industrial varieties of paints along with
elaboration on product sub-segments within these two product segments. The typical characteristics of the
Indian paints industry have been discussed in depth covering the typical features of the Indian industry
viz., raw material intensiveness, working capital intensiveness, seasonality of The current global scenario
with reference to the paint industry has been covered in the report with special focus on auto-coats
market, which is a key growth area in the International market. The current scenario prevailing in the
Indian paint industry has been pictured in detail. The share of the organized and unorganized sector has
been dealt with in detail, discussing the impact of recent issues and trends (like excise duty
rationalizations, quality consciousness in user segments) on the industry dynamics. The demand-supply
scenario existing in the industry has been covered, detailing paint production trends in India, consumption
across user segments, the trends in the exports and imports front and factors influencing pricing. Raw
material is a major cost-driver in the paint industry, and thus the report provides comprehensive coverage
on duty structur applicable for raw materials, The organized sector has been given an in-depth focus
detailing major players, their forte, market shares of majors across product mixes and price categories 6 .

6
http://www.scribd.com/doc/24945245/Paint-Industry

33
 CHAPTER 4

FINANCIAL STATEMENT ANALYSIS

Quote

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34
Quantity 0 0

Financials

Balance Sheet of Asian Paints 7 ------------------- in Rs. Cr. -------------------

Mar '06 Mar '07 Mar '08 Mar '09 Mar '10
12 mths 12 mths 12 mths 12 mths 12 mths

Sources Of Funds
Total Share Capital 95.92 95.92 95.92 95.92 95.92
Equity Share Capital 95.92 95.92 95.92 95.92 95.92
Share Application Money 0.00 0.00 0.00 0.00 0.00
Preference Share Capital 0.00 0.00 0.00 0.00 0.00
Reserves 526.36 648.16 832.58 998.55 1,461.30
Revaluation Reserves 0.00 0.00 0.00 0.00 0.00
Networth 622.28 744.08 928.50 1,094.47 1,557.22
Secured Loans 31.88 66.90 36.70 24.59 25.59
Unsecured Loans 40.70 40.70 40.70 40.70 40.70
Total Debt 72.58 107.60 77.40 65.29 66.29
Total Liabilities 694.86 851.68 1,005.90 1,159.76 1,623.51
Mar '06 Mar '07 Mar '08 Mar '09 Mar '10
12 mths 12 mths 12 mths 12 mths 12 mths

Application Of Funds
Gross Block 736.14 806.20 937.89 1,116.93 1,194.39
Less: Accum. Depreciation 435.71 471.29 509.06 494.02 486.93
Net Block 300.43 334.91 428.83 622.91 707.46
Capital Work in Progress 5.87 16.31 136.25 164.64 380.72
Investments 274.55 334.39 422.88 234.77 703.69
Inventories 348.79 434.07 538.97 546.71 763.14
Sundry Debtors 185.11 235.96 251.90 311.02 331.43
Cash and Bank Balance 28.17 42.47 41.33 128.05 28.58
Total Current Assets 562.07 712.50 832.20 985.78 1,123.15
Loans and Advances 123.87 156.69 203.00 186.37 241.68
Fixed Deposits 0.21 0.02 0.02 0.21 0.02
Total CA, Loans & Advances 686.15 869.21 1,035.22 1,172.36 1,364.85
Deffered Credit 0.00 0.00 0.00 0.00 0.00
Current Liabilities 489.11 649.00 850.79 849.08 1,229.04
Provisions 107.29 54.15 166.49 185.84 304.17

7
1. http://www.moneycontrol.com/company-article/asianpaints/news/AP31

35
Total CL & Provisions 596.40 703.15 1,017.28 1,034.92 1,533.21
Net Current Assets 89.75 166.06 17.94 137.44 -168.36
Miscellaneous Expenses 24.26 0.00 0.00 0.00 0.00
Total Assets 694.86 851.67 1,005.90 1,159.76 1,623.51

Contingent Liabilities 187.26 180.22 222.05 356.87 223.80

Book Value (Rs) 64.88 77.57 96.80 114.10 162.35

Profit & Loss account of Asian Paints 8 ------------------- in Rs. Cr. -------------------
Mar '06 Mar '07 Mar '08 Mar '09 Mar '10
12 mths 12 mths 12 mths 12 mths 12 mths

Income
Sales Turnover 2,807.06 3,389.79 4,092.36 5,042.40 5,794.09
Excise Duty 359.28 436.42 496.83 532.28 426.37
Net Sales 2,447.78 2,953.37 3,595.53 4,510.12 5,367.72
Other Income -9.40 34.38 52.29 23.86 150.61
Stock Adjustments -1.48 71.50 33.90 0.61 130.83
Total Income 2,436.90 3,059.25 3,681.72 4,534.59 5,649.16
Expenditure
Raw Materials 1,363.82 1,733.28 2,003.37 2,641.09 2,966.23
Power & Fuel Cost 27.30 33.30 35.86 45.78 47.03
Employee Cost 129.43 155.60 195.54 239.77 262.73
Other Manufacturing
25.75 31.53 39.26 40.45 52.30
Expenses
Selling and Admin Expenses 518.72 620.77 771.66 939.16 1,119.89
Miscellaneous Expenses 15.25 14.11 14.25 10.55 17.41
Preoperative Exp
0.00 0.00 0.00 0.00 0.00
Capitalised
Total Expenses 2,080.27 2,588.59 3,059.94 3,916.80 4,465.59
Mar '06 Mar '07 Mar '08 Mar '09 Mar '10
12 mths 12 mths 12 mths 12 mths 12 mths

Operating Profit 366.03 436.28 569.49 593.93 1,032.96

PBDIT 356.63 470.66 621.78 617.79 1,183.57
Interest 8.16 15.34 13.46 15.91 19.10
PBDT 348.47 455.32 608.32 601.88 1,164.47
Depreciation 45.53 45.42 43.77 57.15 60.74
Other Written Off 0.00 0.00 0.00 0.00 0.00

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Profit Before Tax 302.94 409.90 564.55 544.73 1,103.73
Extra-ordinary items 0.91 2.12 -2.69 3.60 7.23
PBT (Post Extra-ord Items) 303.85 412.02 561.86 548.33 1,110.96
Tax 117.08 139.99 186.66 185.97 336.46
Reported Net Profit 187.81 272.05 375.20 362.36 774.50
Total Value Addition 716.43 855.31 1,056.57 1,275.71 1,499.36
Preference Dividend 0.00 0.00 0.00 0.00 0.00
Equity Dividend 119.90 124.70 163.06 167.86 258.98
Corporate Dividend Tax 16.82 17.77 27.72 28.53 43.33
Per share data (annualised)
Shares in issue (lakhs) 959.20 959.20 959.20 959.20 959.20
Earning Per Share (Rs) 19.58 28.36 39.12 37.78 80.74
Equity Dividend (%) 125.00 130.00 170.00 175.00 270.00
Book Value (Rs) 64.88 77.57 96.80 114.10 162.35

Cash Flow of Asian Paints ------------------- in Rs. Cr. -------------------

Mar
Mar '07 Mar '08 Mar '09 Mar '10
'06
12 mths 12 mths 12 mths 12 mths 12 mths

Net Profit Before Tax 304.89 409.92 564.55 547.88 1104.81

Net Cash From Operating
218.69 312.25 457.29 325.21 847.41
Activities
Net Cash (used in)/from
-105.97 -110.92 -331.91 -16.69 -241.81
Investing Activities
Net Cash (used in)/from
-110.06 -187.23 -126.52 -221.61 -237.99
Financing Activities
Net (decrease)/increase In
2.66 14.11 -1.14 86.91 367.61
Cash and Cash Equivalents
Opening Cash & Cash
25.73 28.39 42.49 41.35 127.94
Equivalents
Closing Cash & Cash
28.39 42.49 41.35 128.26 495.55
Equivalents

Key Financial Ratios of Asian Paints9 ------------------- in Rs. Cr. -------------------

Mar '06 Mar '07 Mar '08 Mar '09 Mar '10

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Investment Valuation Ratios
Face Value 10.00 10.00 10.00 10.00 10.00
Dividend Per Share 12.50 13.00 17.00 17.50 27.00
Operating Profit Per Share (Rs) 38.16 45.48 59.37 61.92 107.69
Net Operating Profit Per Share
255.19 307.90 374.85 470.20 559.61
(Rs)
Free Reserves Per Share (Rs) 52.29 67.52 86.75 104.05 152.29
Bonus in Equity Capital 97.98 97.98 97.98 97.98 97.98
Profitability Ratios
Operating Profit Margin(%) 14.95 14.77 15.83 13.16 19.24
Profit Before Interest And Tax
12.96 13.09 14.41 11.80 17.94
Margin(%)
Gross Profit Margin(%) 15.66 15.35 14.62 11.90 18.11
Cash Profit Margin(%) 9.43 10.63 11.52 9.40 13.42
Adjusted Cash Margin(%) 10.75 10.49 11.52 9.40 13.42
Net Profit Margin(%) 7.59 9.11 10.28 7.97 14.29
Adjusted Net Profit Margin(%) 8.91 8.97 10.28 7.97 14.29
Return On Capital
49.74 49.68 57.32 49.35 62.94
Employed(%)
Return On Net Worth(%) 30.18 36.56 40.40 33.10 49.73
Adjusted Return on Net
36.85 35.99 40.55 33.85 42.79
Worth(%)
Return on Assets Excluding
14.54 77.57 96.80 114.10 162.35
Revaluations
Return on Assets Including
14.54 77.57 96.80 114.10 162.35
Revaluations
Return on Long Term
51.08 52.70 58.11 49.35 62.95
Funds(%)
Liquidity And Solvency Ratios
Current Ratio 1.08 1.09 0.99 1.13 0.89
Quick Ratio 0.55 0.60 0.47 0.59 0.38
Debt Equity Ratio 0.12 0.14 0.08 0.06 0.04
Long Term Debt Equity Ratio 0.09 0.08 0.07 0.06 0.04
Debt Coverage Ratios
Interest Cover 90.22 41.16 69.73 55.04 74.27
Total Debt to Owners Fund 0.12 0.14 0.08 0.06 0.04
Financial Charges Coverage
47.92 30.56 46.09 39.57 56.68
Ratio
Financial Charges Coverage
29.59 21.70 32.13 27.37 44.73
Ratio Post Tax
Management Efficiency Ratios
Inventory Turnover Ratio 7.09 6.88 8.03 9.80 7.95
Debtors Turnover Ratio 14.65 14.03 14.74 16.02 16.71
Investments Turnover Ratio 8.80 8.27 8.03 9.80 7.95
Fixed Assets Turnover Ratio 8.51 9.87 3.97 4.18 4.68

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Total Assets Turnover Ratio 3.67 3.60 3.70 4.02 3.40
Asset Turnover Ratio 3.46 3.81 3.97 4.18 4.68
Average Raw Material Holding 36.49 32.72 43.11 33.13 42.69
Average Finished Goods Held 40.35 45.08 42.67 31.72 42.38
Number of Days In Working
13.20 20.24 1.80 10.97 -11.29
Capital
Profit & Loss Account Ratios
Material Cost Composition 55.71 58.68 55.71 58.55 55.26
Imported Composition of Raw
20.81 17.96 21.04 19.49 20.74
Materials Consumed
Selling Distribution Cost
17.31 17.23 17.98 17.27 17.51
Composition
Expenses as Composition of
0.83 0.81 0.67 0.64 0.64
Total Sales
Cash Flow Indicator Ratios
Dividend Payout Ratio Net
72.79 52.36 50.84 54.19 39.03
Profit
Dividend Payout Ratio Cash
58.59 44.87 45.53 46.81 36.19
Profit
Earning Retention Ratio 37.97 46.82 49.34 47.00 54.64
Cash Earning Retention Ratio 48.59 54.53 54.61 54.09 58.43
AdjustedCash Flow Times 0.27 0.34 0.18 0.15 0.09

Mar '06 Mar '07 Mar '08 Mar '09 Mar '10
Earnings Per Share 19.58 28.36 39.12 37.78 80.74
Book Value 64.88 77.57 96.80 114.10 162.35

Yearly Results of Asian Paints 10 ------------------- in Rs. Cr. -------------------

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

Sales Turnover 1,941.52 2,319.16 2,821.29 3,416.16 4,270.05

Other Income 31.61 35.93 40.45 62.58 60.06
Total Income 1,973.13 2,355.08 2,861.74 3,478.74 4,330.11
Total Expenses 1,647.74 1,967.24 2,399.54 2,862.15 3,708.78
Operating Profit 293.78 351.92 421.75 554.01 561.27
Profit On Sale Of Assets -- -- -- -- --

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Profit On Sale Of Investments -- -- -- -- --
Gain/Loss On Foreign Exchange -- -- -- -- --
VRS Adjustment -- -- -- -- --
Other
-- -- -- -- --
Extraordinary Income/Expenses
Total
-4.23 -33.60 -- -- -5.90
Extraordinary Income/Expenses
Tax On Extraordinary Items -- -- -- -- --
Net Extra
-- -- -- -- --
Ordinary Income/Expenses
Gross Profit 325.39 387.85 462.20 616.59 621.33
Interest 2.75 3.83 6.87 8.27 10.40
PBDT 318.41 350.42 455.34 608.32 605.03
Depreciation 47.61 45.53 45.42 43.77 57.15
Depreciation On Revaluation Of
-- -- -- -- --
Assets
PBT 270.80 304.89 409.92 564.55 547.88
Tax 96.98 117.08 139.99 186.66 185.97
Net Profit 173.82 187.81 269.93 377.89 361.91
Prior Years Income/Expenses -0.33 -1.03 2.12 -2.69 -0.45
Depreciation for Previous Years
-- -- -- -- --
Written Back/ Provided
Dividend -- -- -- -- --
Dividend Tax -- -- -- -- --
Dividend (%) -- -- -- -- --
Earnings Per Share 18.12 19.58 28.14 39.40 37.73
Book Value -- -- -- -- --
Equity 95.92 95.92 95.92 95.92 95.92
Reserves 476.30 526.36 648.16 -- 998.55
Face Value 10.00 10.00 10.00 10.00 10.00

Capital Structure (Asian Paints)11

Period Instrument Authorized Issued -PAID UP-
Capital Capital
From To (Rs. cr) (Rs. cr) Shares (nos) Face Capital
Value
2009 2010 Equity Share 99.5 95.92 95919779 10 95.92
2008 2009 Equity Share 99.5 95.92 95919779 10 95.92

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2007 2008 Equity Share 99.5 95.92 95919779 10 95.92
2006 2007 Equity Share 99.5 95.92 95919779 10 95.92
2005 2006 Equity Share 99.5 95.92 95919779 10 95.92
2004 2005 Equity Share 99.5 95.92 95919779 10 95.92
2003 2004 Equity Share 99.5 95.92 95919779 10 95.92
2002 2003 Equity Share 99.5 64.19 64185952 10 64.19
2001 2002 Equity Share 99.5 64.19 64185952 10 64.19
2000 2001 Equity Share 99.5 64.19 64185952 10 64.19
1994 1995 Equity Share 34.5 19.91 19911110 10 19.91
1993 1994 Equity Share 34.5 19.91 19911110 10 19.91
1992 1993 Equity Share 34.5 19.91 19911110 10 19.91
1990 1992 Equity Share 19.5 12.44 12444444 10 12.44
1987 1990 Equity Share 19.5 12.44 12444444 10 12.44
1985 1987 Equity Share 9.5 8.3 8296296 10 8.3
1984 1985 Equity Share 7.5 5.19 5185185 10 5.19
1983 1984 Equity Share 7.5 5.19 5185185 10 5.19
1980 1983 Equity Share 2.5 2.5 250000 100 2.5
1978 1980 Equity Share 2.5 2.5 250000 100 2.5
1975 1978 Equity Share 2.5 1.5 150000 100 1.5

The 64th Annual Report of Company and the Audited Accounts for the financial year ended 31st March,
2010(Rs. in Crores)12

Asian Paints Limited Asian Paints Limited

Group Consolidated

2009-10 2008-09 Growth 2009-10 2008-09 Growth

(%) (%)

Sales and Operating

Income (Net) 5125 4270 20 6681 5464 22

Operating Profit 1154 621 86 1368 721 90

Less: Interest 14 10 28 26

Less: Depreciation 61 57 84 75

Profit before Tax

and exceptional

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item 1079 554 95 1256 620 103

Less: Exceptional
items (25) 6 (1) 1

Profit before Tax

and prior period
items 1105 548 102 1257 619 103

Add/(Less): Prior
period items (0) (2) (0) (2)

Profit before Tax 1105 546 102 1257 617 104

Less: Provision
for Taxes 330 184 373 197

Profit After Tax 775 362 114 884 420 111

Less: Minority
interest - - 48 22

Net Profit
attributable to
shareholders
of the Company 775 362 114 836 398 110

Add: Balance
brought forward
from the
previous year 230 200 230 200

1005 1066

That the Directors

recommend for
appropriation
as under:

Dividend - Interim 82 62 82 62

-Final 177 106 177 106

Tax on Dividend 44 28 44 29

Transfer to
General Reserve 102 136 163 171

Balance carried
forward to Balance
Sheet 600 230 600 230

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Competition
Last Price Market Cap. Sales Net Profit Total Assets
(Rs. cr.) Turnover
Asian Paints 2,483.75 23,824.08 4,270.05 361.91 1,623.51
Kansai Nerolac 753.00 4,058.07 1,707.41 165.50 882.80
Berger Paints 75.65 2,618.04 1,688.68 120.14 650.69
Akzo Nobel 702.20 2,586.51 947.07 159.26 992.10
Shalimar Paints 224.05 84.82 367.28 10.02 99.42
Jenson Nicholso 3.85 14.41 38.45 -3.87 -2.29

Asian Paints
BSE: 500820 | NSE: ASIANPAINT | ISIN: INE021A01018 | Paints/Varnishes

Historic Prices of Asian Paintss13

BSE
1 week 2 week 1 month 3 month 6 month 9 month 1 year

Price 2486.90 2599.95 2674.60 2755.05 2656.75 2111.40 1968.00

Gain / Loss -0.14% -4.48% -7.15% -9.86% -6.52% 17.62% 26.19%

NSE
1 week 2 week 1 month 3 month 6 month 9 month 1 year

Price 2471.60 2600.05 2677.75 2747.45 2666.95 2117.85 1979.60

Gain / Loss 0.49% -4.47% -7.24% -9.6% -6.87% 17.28% 25.47%

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 CHAPTER 5

CONCLUSIONS & RECOMMENDATIONS

From the above information about Asian Paints Ltd. including the economy analysis, industry analysis
and financial statement analysis the conclusion drawn is that company‟s growth increases as the growth
of infrastructure sector and the infrastructure sector is in boom now so it would be advisable to invest in
paint industry, specially in Asian paints Ltd. which has been earning very good profit compare to other its
competitive paint and coating industry. From its financial statements it is drawn that the data are correct
and in compliance with the indian accounting standards (AS), no significant information is missing,
everything is true and fair and clearly stated, nothing is hidden. The profits and employee per year are
increasing and consistently strong. The data are easily comparable.

The Asian Paints is in expansion state of business cycle and industry life cycle. So investors should invest
in equity shares. The attitude of Government towards this industry has been liberal and foreign direct
investment is also very good. The role of labour union has been not so significant and strikes are seen to
be very rare. The fixed cost is low only variable cost is significant, hence the recession does not affect
this so much. Past sales has been increasingly consistently and earning performance is also very good. It
is the growth industry so still good time to invest in. The risk factor beta is also low.

44
 CHAPTER 6

BIBLIOGRAPHY

1. http://en.wikipedia.org/wiki/Fundamental_analysis , last accessed on 9th Feb 2011

2. http://www.asianpaints.com/, last accessed on 9th Feb 2011
3. http://www.economywatch.com/economic-analysis/, last accessed on 9th feb 2011
4. http://www.moneycontrol.com/company-article/asianpaints/news/AP31,last accessed on 9th
Feb 2011
5. http://www.economywatch.com/economic-analysis/ last accessed on 9th Feb 2011
6. http://www.scribd.com/doc/24945245/Paint-Industry, last accessed on 9th feb 2011
7. http://www.moneycontrol.com/company-article/asianpaints/news/AP31,last accessed on 9th
Feb 2011
8. http://www.moneycontrol.com/company-article/asianpaints/news/AP31,last accessed on 9th
Feb 2011
9. http://www.moneycontrol.com/company-article/asianpaints/news/AP31,last accessed on 9th
Feb 2011
10. http://www.moneycontrol.com/company-article/asianpaints/news/AP31,last accessed on 9th
Feb 2011
11. http://www.moneycontrol.com/company-article/asianpaints/news/AP31,last accessed on 9th
Feb 2011
12. http://www.moneycontrol.com/company-article/asianpaints/news/AP31,last accessed on 9th
Feb 2011
13. http://www.moneycontrol.com/company-article/asianpaints/news/AP31,last accessed on 9th
Feb 2011

45