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Introduction:
ASIAN PAINTS is an Indian paint company headquartered in Mumbai, India. It
manufactures a wide range of paints for decorative and industrial use.
Asian Paints is India's largest paint company and Asia's third largest paint company, with a
turnover of
77.06 billion.
It is one of the largest paint companies in the world and operates in 17 countries.
Consist of 23 paint manufacturing facilities servicing consumers in 65 countries through
Berger International, SCIB Paints Egypt, Asian Paints, Apco Coatings and Taubmans9.
Products:
Products in Asian Paints are broadly classified into FOUR categories
Ancilliaries
Automotive
Decorative Paints
Industrial
Services:
Foresite and Samplers:
Colour Connect
APHS-Asian Paints Home Solutions
APPS-Asian Paints Project Sales
Asian Paints Colour Ideas
Industry:
Asian paints ltd. has been the market leader in the paint industry of India for a very long
period of time.
The paint industry in India has seen a small amount of slowdown due to the burst of the real
estate bubble in the country but still Asian paints ltd. Has been performing well with a
healthy yearly growth rate.
Market
share
2011
(source
BCCIR-Bajaj
Capital)
Asian
paints
Berger
Kansai
Nerolac
Akzo
nobel
Others
Unorganised
32.40%
10.80%
10.80%
6%
5%
35%
The company has been facing with tough competition from the other players in the industry
through the years.
Cost Analysis
Asian paints being a listed paint manufacturing company releases its annual report and we
can take sufficient data to analyze the costs of the company, as it does not release its cost
audit report to the public. The reasons for not releasing the cost audit report to the public will
be discussed later in this document.
2012
8105.65
4722.74
120.41
-115.07
341.63
1542.7
2011
6410.98
2010
5268.93
2009
4330.11
3681.92
2840.24
2606.93
105.56
-140.61
300.45
260.84
238.9
1231.5
1014.14
862.95
6612.41
5178.82
4115.22
3708.78
This is the graph depicting the value of expenses and total revenue
9000
8000
7000
6000
5000
4000
3000
2000
2012
1000
2011
2010
-1000
2009
The vertical analysis of the expenses taken from the profit and loss account gives us the
weightage of the expenses in the total revenue earned by the company.
Vertical
Analysis
Total
Revenue
Expenses
Cost
of
materials
consumed
Purchases
of
stock
in
trade
Changes
in
inventories
of
finished
goods,
Work
in
Progress
and
Stock
in
Trade
Employees
benefit
expense
Other
expenses
Total
Expenses
2012
2011
100
100
-1.42
4.21
19.03
-2.19
4.69
19.21
80.78
81.58
57.43
1.65
2009
100
58.26
1.49
2010
100
53.91
60.20
4.95
19.25
5.52
19.93
78.10
85.65
This is the graph depicting the value of expenses as a percentage of the total revenue (vertical
analysis)
100
80
60
40
20
2012
2011
2010
2009
-20
Here, we can easily observe that the value of expenses as well as total revenue has increased
over the year. But, if we check how much percentage increase is there for expenses and total
revenue (using horizontal analysis) we can see that the growth in expenses when compared to
previous year is more than the growth in Total revenue which can also be seen by using the
values and margins of EBITDA.
Horizontal
analysis
Total
Revenue
Total
Expenses
2012
26.43
27.68
2011
21.68
25.85
2010
21.68
10.96
2009
EBITDA
EBITDA
profit
margin
before
ITDA
2012
1493.24
22.58
2011
1232.16
23.79
2010
1153.71
28.04
2009
621.33
16.75
So, we can now easily conclude that the EBITDA is increasing in terms of value but not in
terms of margins from the past TWO years.
The reasons for this may or may not be in the hands of the company. For example the
inflation and cost of raw materials like Petroleum products used in paints is not in the hands
of the company.
But, if we go deeper and check the different aspects and categories of costs we can conclude
about what the company can do about the expenses to an extent.
2012
1.23
2011
1.24
2010
1.28
Revenue
expense
ratio
1.22
1.20
1.18
1.16
0
2009
1.17
Now let us see the detailed figures and components of the expenses mentioned in the Profit
and Loss Statement.
The below table shows the detailed costs of the past TWO years in which a red colored cell
implies that there is an increase in the cost and a blue colored cell implies there has been a
decrease in the cost.
Cost
of
materials
consumed
Raw
materials
consumed
Packing
materials
consumed
Total
cost
of
materials
consumed
Purchases
of
Stock
in
Trade
Changes
in
inventories
of
finished
goods,
WIP
and
stock
in
trade
Employees
benefit
expense
Salaries
and
wages
Contribution
to
PF
and
other
funds
Staff
welfare
expenses
Total
employees
benefit
expense
Other
expenses
Consumption
of
stores,
spares
and
consumables
Power
and
fuel
processing
charges
Reapirs
and
maintainance
Buildings
Machinery
Other
assets
Rent
Rates
and
taxes
Water
charges
Insurance
Printing
stationery
and
communication
expenses
travelling
expenses
Donations
2012
4023.54
699.2
4722.74
120.41
2011
3081.92
600
3681.92
105.56
%
change
30.55
16.53
28.27
14.07
-115.07
2012
293.23
24.61
23.79
341.63
2012
23.48
74.29
49.18
6.33
9.18
19.35
72.13
19.7
2.67
5.34
31.7
41.25
0.87
-140.61
2011
257.22
25.13
18.1
300.45
2011
24.99
65.98
41.67
8.16
8.61
17.79
50.36
14.56
2.63
4.7
24.57
33.69
1.87
-18.16
%
change
14.00
-2.07
31.44
13.71
%
change
-6.04
12.59
18.02
-22.43
6.62
8.77
43.23
35.30
1.52
13.62
29.02
22.44
-53.48
Now
let
us
see
how
the
costs
are
differentiated
into
various
prime
costs
and
Overheads
which
is
done
during
the
preparation
of
a
Cost
sheet.
But,
here
we
cannot
exactly
prepare
a
cost
sheet
as
many
costs
are
generalized.
Cost
Sheet
Prime
Costs
Direct
Material
Cost
Raw
materials
consumed
Purchases
of
Stock
in
Trade
Changes
in
inventories
of
finished
goods,
WIP
and
stock
in
trade
Total
Direct
Material
Cost
Direct
Expenses
processing
charges
Total
Direct
Expenses
Total
prime
Cost
Overheads
Production
Overhead
Indirect
Material
Consumption
of
stores,
spares
and
consumables
Power
and
fuel
Total
indirect
material
cost
in
Production
Overhead
Indirect
Expenses
Reapirs
and
maintainance
Buildings
Machinery
Other
assets
Total
Indirect
Expenses
in
production
overhead
Total
production
Overhead
(Excluding
labour)
Office
and
Admistritative
Overhead
Indirect
Labour
Commission
to
non-executive
directors
2012
2011
4023.54
120.41
-115.07
3081.92
105.56
-140.61
4028.88
3046.87
49.18
41.67
49.18
41.67
4078.06
3088.54
23.48
74.29
97.77
24.99
65.98
90.97
6.33
9.18
19.35
34.86
8.16
8.61
17.79
34.56
132.63
125.53
1.88
1.89
10
0.25
1.19
3.32
0.17
1.11
3.17
19.7
0.49
10.9
31.09
14.56
0.99
11.14
26.69
34.41
29.86
699.2
699.2
600
600
41.25
346.5
338.59
369.03
2.96
-1.5
1096.83
33.69
269.22
282.35
291.82
1.43
-0.19
878.32
1796.03
1478.32
1963.07
1633.71
31.7
31.7
24.57
24.57
293.23
24.61
23.79
8.42
350.05
257.22
25.13
18.1
6.55
307
Rent
Insurance
information
technology
expenses
miscelleneous
expenses
premium
on
forward
exchange
contract
amortized
Net
loss
on
foreign
currency
transactions
and
translations
Donations
Total
Expenses
which
can
come
under
both
Prime
and
OH
Costs
Total
Costs
which
can
come
under
both
prime
and
OH
Costs
Total
Cost
72.13
5.34
18.69
62.67
0.72
26.34
0.87
186.76
50.36
4.7
11.18
53.68
0.58
0
1.87
122.37
568.51
453.94
6609.64
5176.19
If we do a vertical Analysis on what percentage of total cost are prime and over head cost we
will get the below table.
Vertical
Analysis
Total
prime
Cost
Total
Over
Head
Cost
Total
Costs
which
can
come
under
both
prime
and
OH
Costs
Total
Cost
2012
61.70
29.70
8.60
100.00
2011
59.67
31.56
8.77
100.00
2012
30.00
2011
20.00
10.00
0.00
Total
prime
Cost
Total
Over
Head
Total
Costs
which
Cost
can
come
under
both
prime
and
OH
Costs
11
Total Cost
12
Cost Auditor:
Pursuant to the direction from the Ministry of Corporate Affairs for appointment of Cost
Auditors, your Board has reappointed Ms. Ketki Visariya, as the Cost Auditor of your
Company for the financial year 2011-12 to conduct the audit of the cost records of the
Company.
The Cost Audit report for the FY 2010-11 due on 27th September, 2011 was filed by the Cost
Auditor on 3rd August, 2011. Further, for the FY 2011-12, due date for submission of Cost
Audit Report is 27th September, 2012.
In India, corporations must follow the guidelines given by the Companies Act 1956 related to
auditing their financial information. Section 233B of the same clearly states that a cost
audit has to be carried out if a company is of a certain prescribed size.
The cost auditors maybe appointed by the board of directors from the pool of auditors and
audit firms previously approved by the government. In some cases, the state or central
governments may appoint the auditors.
The company must submit this report to the Ministry of Corporate Affairs. However, it is not
bound to disclose the same to general public. Therefore Raymond chooses not to disclose the
cost audit report as such information may be taken advantage of by competing firms.
Raymond follows this rule as can be seen from the excerpt from the 2011-2012 annual
reports under the section DIRECTORS REPORT & MANAGEMENT DISCUSSION AND
ANALYSIS on page 7, point 13. The Company appointed Messrs. R. Nanabhoy & Co.,
Cost Accountants, as Cost Auditors.
13
Markets:
Domestic/Indian Markets:
Take different geographical divisions which the company follows like Regions and Areas as
Revenue/Cost/Investment centers and take the revenue generated from these centers and the
cost incurred. These costs generally come under Selling and Distribution Overhead costs.
International Markets:
Take the different Countries in which the company operates and produces goods as
Revenue/Cost/Investment centers and take the revenue generated from these centers and the
cost incurred. These costs generally cover all costs as the international markets are mostly
based on company tie-ups.
14
Products:
Take different classifications of products like ancilliaries, Automotive, decorative, Industrial
Products as Revenue/Cost/Investment centers and take the revenue generated from these
centers and the cost incurred. These costs generally cover all costs and are very helpful in
perfect pricing of the products.
Conclusion
The company has started to penetrate deep into the Domestic as well as International markets.
But the company has to take care it does not invest in markets, which do not have any long
life of the product consumption.
The company has to concentrate more on the repainting sector of households rather than new
projects which have a high risk of bursting of the real estate bubble which already has
contributed its part in slowing down the growth of the company as well as Paint industry.
According to me, the company has to stick to its basics of network expansion and increasing
of sales without decreasing the margins. The biggest advantage of the company is its brand
value and goodwill.
The company in order to expand its domestic network is rapidly growing its selling and
distributive overhead, which can be controlled to an extent.
At the outset Asian Paints Ltd. Has been growing very welsl over the years and is one of the
best companies for investor returns and dividends and I hope the company continues to
perform in the same way no matter what macro economic conditions prevail in the market.
References
Asian Paints Annual reports 2011-12, 2010-11, 2009-10.
A text book of cost and management accounting-9th edition, M N Arora
http://www.vakilno1.com/bareacts/companiesact/s233b.htm
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