Cost Analysis of Asian Paints Ltd PDF

7/25/2019 Cost Analysis of Asian Paints Ltd PDF

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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 FOURcategories

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.


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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.

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This is the graph depicting the value of expenses and total revenue

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.

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This is the graph depicting the value of expenses as a percentage of the total revenue (vertical

analysis)

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.

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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.

Revenue to Expense Ratio:

This ratio gives us how much return is the company getting for every rupee they spend as

expenses.

For Asian paints the ratio has decreased the past TWO years.

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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.

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From this table we can easily observe that very few expenses have decreased when compared

to the previous year and as we have seen earlier the profit margin ratio has also gone down.

This is not a good sign for the company.

The highest % increases in the costs are from IT expenses (67.17%), Rent (43.23%), Staff

Welfare (31.44%), Raw Materials Consumed (30.55%) , Travelling expenses (22.44).

The highest % decreases in the costs are from bank Charges (50.51%), Building Repair and

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If we do a vertical Analysis on what percentage of total cost are prime and over head cost we

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Efforts of company to reduce costs:

Costs of key raw materials like Titanium Dioxide have been on rise for some time now due to

their relative shortage, inadequate investment in fresh capacities and buoyant demand

conditions. There is risk of the prices not coming down anytime soon.

Inflation was a challenge in India during the last year. Although it has reduced during the last

quarter of FY 2011-12, there are risks that Inflation might inch up again during the second

half of FY 2012-13. This might lead to overall increase in costs.

The Rupee was very volatile during FY 2011-12 breaching new lows. Since your Company

imports a significant portion of its raw material requirements, currency volatility can have

financial implications on your Company.

RBI has followed a tight monetary policy during the last financial year. However, it has

started FY 2012-13 by cutting lending rates by 50 bps. There are expectations of further

reduction in interest rates during FY 2012-13. However, if inflation continues to flare and

interest rates are not cut down further, it can have an impact on the overall growth and

investment climate in the country which might also adversely impact the paint demand.

Here, we can clearly observe from the Management discussion and analysis that there are

many external factors which are affecting the companys costs and the company can hardly

do anything about it. External factors as mentioned above include Inflation, Raw material

cost, RBI monetary policy, rupee volatility.

And when the company is in the verge of expanding its domestic and international market

share it cannot exactly keep on cutting costs.

We have seen earlier that some of the costs have come down for the company like Changes in

inventories of finished goods, WIP and stock in trade has gone down in the past Two years.


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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.

Possible Revenue centers/Profit centers/Cost centers and Investment

centers:

The possible Cost/Revenue/Investment/Profit centers of Asian paints Ltd. According to me

they can be taken in three ways.


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Production Plants and Depots

Markets

Products

Production Plants and Depots:

Production level:

Take different production plants are Revenue/Cost/Investment centers and take the revenue

generated from these centers and the cost incurred. These costs generally come under Prime

and production Overhead costs.

Eg: Sriperambadur plant, Patancheru plant etc.

Distribution level:

Take different Regional Distribution centers and Area Depots 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.

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.


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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-9thedition, M N Arora

http://www.vakilno1.com/bareacts/companiesact/s233b.htm


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Cost Analysis of Asian Paints Ltd PDF