Paint majors financial reporting analysis

CFR PROJECT REPORT - TERM I

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Section C Group 3

1. Ganesa Kumar K V, 0128/48 2. Happy Saini, 0137/48 3. Harshit Krishna 0143/48 4. Kashish Mehta 0170/48 5. Uday Mehta, 4035/18 6. Vinay Kumar Juluri, 4040/18

• Asian Paints • Berger Paints • Shalimar Paints

2 CFR PROJECT REPORT - TERM I

1. Introduction

According to a report published in January 2008, the Indian organised Paint sector is expected to grow at 15 to 17% per annum given an expected 30 million new homes expected to be constructed over five years, 8 to 10% annual Industrial Growth and increased Infrastructural Spending and Manufacturing over the coming years. Also 65% of the demand is of replacement type. Since the beginning of our analysis period foreign companies were allowed to open retail franchisees and scale up to 51% stake in JVs in India. The market is primarily divided as follows:

• Decorative: 70% share, an increasingly large (20%) of this are distempers (external coating) • Industrial: 30% share, two-thirds of this are automotive paints, expected to increase faster.

The market is highly oligopolistic with all the big firms in a growth phase aggressively acquiring property across the country. The prime competitors are still local substitutes like limestone which are easily accessible and cheap.

1.1 Asian Paints: India’s largest and Asia’s third largest Paint manufacturer, Asian Paints was established in Mumbai in 1942. Currently it is the leader in eleven national markets in South and South-East Asia and the Middle East and holds that it leads the nearest competitor by twice as much. The company has subsidiaries overseas, viz. Apco Coatings and Scib Paints and has a Joint Venture with PPG Industries Inc of USA and in Africa. It serves primarily the housing market. It has recently built a plant in Rohtak, Haryana with a 150,000KL capacity. All these put it in good stead to occupy the rapidly growing industrial market. The company has been consistently issuing dividends. The company hasn’t had any reported financial irregularities since inception. It’s short term loans are rated P1+ and long term loans are rated AAA by Crisil. It’s shares of stock trade at 3287.15 at market close 01.09.11.

1.2 Berger Paints: They entered India by acquiring the Calcutta based British Paints India Ltd (Estd. 1923) in 1969 and now are the second largest paint manufacturers with a distribution network of 82 stock points and 12,000+ paint retailers. The firm majorly sells Emulsions and Distempers. Thus while it may better capture the decorative market, yet in many countries it is the leader in Industrial Supplies, serving Nuclear Power Plants with its protective coatings and companies like Mercedes-Benz and Nokia in Europe (Poland, Russia). It has a JV with Nippon Bee Chemicals of Japan, again for industrial coating manufacture. The company hasn’t had any reported financial irregularities since inception. It’s short term debt has been rated P1+ and long term loans have been rated AA+ by Crisil. It’s shares are very dominantly held by the Promoters in India and abroad, the shares trading at Rs100.10 at BSE market close 01.09.11.

1.3 Shalimar Paints: Founded in 1902 by AN Turner and AC Wright, it is India’s oldest Paint Company. The firm is growing now after a long slow phase with collaborations in Korea and Africa. It has recently also focussed on R&D. The management has recently decided to divest control to raise funds. The company hasn’t had any reported financial irregularities since inception. It has been assigned CARE A rating for long term loans and PR2+ ratings for short term loans by CARE. The company securities have been moderately liquid, the shares of stock selling at Rs391.5 at market close 01.09.11.


2. BALANCE SHEET , P&L ACCOUNT, CASH FLOW

Asian paints Berger paints Shalimar Paints

Balance Sheet 2011 2010 2009 2008 2007 2011 2010 2009 2008 2007 2011 2010 2009 2008 2007 Assets 38616.6 31341.1 21746.5 20063.2 15401.5 12188.0 9773.0 7489.0 7068.0 6111.0 2516.5 2129.8 1818.6 1936.0 1672.0 Current Assets 22169.7 18089.8 12281.1 12418.8 9734.5 8724.0 7169.0 5415.0 5266.0 4638.0 2168.9 1800.1 1556.9 1670.1 1449.2 Long term Assets 10968.6 10881.4 7117.7 5392.2 3465.3 1345.0 1584.0 1811.0 2172.0 2810.0 339.6 322.1 258.9 264.9 222.7 Intangibles 283.8 525.0 331.3 366.8 467.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Liabilities 18863.4 15768.9 10801.8 10751.2 7960.7 4958.3 3511.4 3238.0 3579.0 3355.0 1979.4 1673.4 1427.9 1566.2 1365.2 Current Liabilities 17483.5 14607.7 9577.4 9646.2 6969.2 4868.0 3421.0 3165.0 3513.0 3286.0 1931.4 1624.9 1366.4 1477.5 1212.7 Long Term Liabilities 1379.9 1161.6 1224.4 1126.5 901.5 90.3 90.4 73.0 66.0 69.0 16.4 20.3 37.7 65.7 130.4 Stock Holders Equity 19753.2 15572.2 10944.7 9312.0 7440.8 2759.0 3489.7 4251.0 6262.0 7230.0 537.1 456.3 390.8 369.8 306.8 P&L account

Net Sales 63222.4 51251.0 42700.5 34190.6 28212.9 20962.0 16841.0 15083.0 13396.0 11652.0 4044.5 3655.7 3324.0 3401.4 2561.5 COGS 38031.2 29459.2 27057.2 20428.2 17376.8 13853.0 11149.0 10426.0 9020.0 7889.0 2678.2 2322.7 2082.9 2315.0 1698.2 Gross Profit 25191.2 21791.8 15643.3 13762.4 10836.1 7109.0 5692.0 4657.0 4376.0 3763.0 1366.3 1333.0 1241.1 1086.4 862.3 Selling and Admin costs

Depreciation 944.8 607.4 571.5 437.7 454.2 300.0 265.0 205.0 186.0 179.0 22.5 23.0 28.5 18.2 14.1 EBIT 11673.8 11141.9 5850.7 5801.0 4323.3 2234.0 1741.0 1297.0 1303.0 1106.0 250.1 247.6 164.8 207.9 134.6 Interest expense 153.5 137.6 104.0 82.7 68.7 122.0 48.0 124.0 113.0 83.0 83.7 76.0 80.6 63.0 53.4 PBT 11520.3 11004.3 5746.7 5718.3 4254.6 2112.0 1693.0 1173.0 1190.0 1023.0 166.4 171.6 63.4 144.8 81.2 PAT 7751.5 7745.0 3623.6 3752.0 2720.5 1483.0 1201.0 887.0 921.0 832.0 116.7 100.0 35.6 95.8 47.5 Exceptional Items 0.0 0.0 59.0 254.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 20.4 20.9 0.0 0.0 Dividends paid 3069.4 2569.8 1678.6 1630.6 1284.3 450.0 381.0 191.0 159.0 319.0 0.0 0.0 0.0 0.0 0.0 Retained Earnings 18794.0 14613.0 9985.5 8352.8 6481.6 6529.0 5570.0 3515.0 2852.0 2121.0 499.2 418.5 353.0 331.9 268.9 CFO 7432.5 8482.2 3252.1 4572.9 3122.5 1147.0 1650.0 991.0 914.0 -41.0 62.5 243.0 136.8 151.3 21.4 CFI -4102.3 -2418.1 -166.9 -3319.1 -1109.3 -292.0 -2072.0 -429.0 -530.0 -233.0 -37.9 -86.8 -14.0 -61.0 -22.7 CFF -3211.5 -2388.0 -2216.1 -1265.2 -1872.2 -1.0 479.0 -642.0 -203.0 238.0 -19.1 -191.2 -118.5 -71.8 24.8 Net Change in Cash 118.7 3676.1 869.1 -11.4 141.0 535.0 -319.0 -1309.0 182.0 -36.0 5.6 -35.0 4.3 18.5 23.5


3. Key Accounting Policies Of Asian Paints

3.1 Basis of Accounting The accounting policies followed comply with the Companies (Accounting Standards) Rules (2006) and with the relevant provisions of the Companies Act (1956). Estimates and Assumptions affect the reported amounts of assets and liabilities and hence, disclosures of contingent liabilities on the date of financial statements have been made as per Indian GAAP. 3.2 Fixed Assets (a) Fixed assets are carried at the cost of acquisition or construction, less accumulated depreciation and impairment. (b) Know-how related to plans, designs and drawings of buildings or plant and machinery is capitalised under relevant asset heads. (c) Depreciation on fixed assets is provided under Written Down Value/Straight Line Method as the case may beand at rates permissible under applicable local laws or at such rates so as to write off the value of assets overtheir useful life. (d) At balance sheet date, an assessment is done to determine whether there is any indication of impairment ofthe carrying amount of the Group’s fixed assets. If any such indication exists, an asset’s recoverable amountis estimated. An impairment loss is recognised whenever the carrying amount of asset exceeds its recoverableamount. 3.3 Goodwill Goodwill arising on the acquisition of a subsidiary represents the excess of the cost of acquisition over the Group’s interest in the net fair value of the identifiable assets and liabilities of the subsidiary recognized at the date of acquisition. For impairment testing, goodwill is allocated to cash generating units. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. 3.4 Revenue Recognition Revenue from sale of goods is recognised on transfer of all significant risks and rewards of ownership to the buyer, net of taxes. Revenue from service is recognised on rendering of services to customers. Dividend income is recognised when the right to receive payment is established. Interest income is recognised on the time proportion basis. 3.5 Lease Accounting Lease rentals on assets taken on operating lease are recognised as expense in the Profit and Loss Account on an accrual basis over the lease term. For assets leased out, lease rentals are accounted on accrual basis in accordance with the respective lease agreement. 3.6 Inventory Raw material, COGS, finished goods etc are costed at lower of cost and realisable value calculated at item by item basis, besides provisioning for damages and loss. 3.7 Investments Long term investment carried at cost, current investments carried at lower of cost and fair value. Profit and Loss on sales calculated as per FIFO method. 3.8 Transactions and translations in foreign currency Foreign currency transactions in tangibles and monetary assets and liabilities are recorded in the balance sheet as per exchange rate on the date of transaction and differences due to rate change during the year, as also the premiums and discounts on futures are recorded in the profit and loss account.


3.9 Sundry Debtors Written after writing off bad debts and provisioning for doubtful debts.Discounts due fall under Current Liabilities and Provisions. 3.10 Employee Benefits Short term (payable within a year) recognised in the same year as the rendering of service, unpaid short term benefits recognised as a liability. Long term Defined Benefit plans are costed using Projected Unit Credit Method to the extent already provided, else are amortised using the Straight Line Method. 3.11 Research & Development Capital Expenditures recorded under Fixed Asset heads in Balance Sheet and Revenue Expenditures recorded under Expense heads in Profit and Loss account. 3.12 Provision for Taxation {Tax = Current Tax + Deferred Tax} where Deferred Tax charge or Liability depends on the laws existing at the date of Balance Sheet and are reviewed on the Balance Sheet to assess realisation and recorded accordingly. 3.13 Provisions and Contingencies If estimate available of resource outflow in current cycle due to past event, a Provision is reported. Otherwise depending on the extent of possibility of such an outflow, a Contingency may / may not be reported. 3.14 Earnings Per Share {Net Income attributable/Weighted average of shares outstanding} 3.15 Proposed Dividend Provided for by the Board of Directors subject to Annual General Meeting’s approval


4. Overall Interpretation of Financial Statements 4.1 Asian Paints The Net worth of the company is constantly growing over the last 5 years. Assets and current assets have been growing consistently and were enough to cover short term and long term liabilities. There is huge surge in cash( almost triples) in 2008-09 and current investments at the end of year are Zero. The Macro economic factors ( recession) must have influenced the decision to liquidate all current investments which should have contributed to the cash increment. From Income statement, we can see that Net Sales , Gross profit and Net income all are growing continuously. We can see that NI has increased suddenly in 2010 even though Net Sales have increased as per norm. This suggests a change in operational efficiency.

Cash Flow statements show that CFO is +ve and CFF and CFI are negative for all five years. Even though negative CFF suggests that they are not taking debts for growing, closer look suggests that CFO is high and is being used to pay both high dividends and for investments for growth. This is the reason why the CFF is negative and hence should not be seen as indicator of stagnation. Also in 2010, there is increase in CFO, decrease in absolute amounts of CFF and CFI, all in lieu of Macroeconomic variables as per MD & A statement.

4.2 Berger Paints Current assets and long term assets of the company are growing consistently over the last five year which is a positive indication. Current assets were abnormally high in 2010 because of huge investments by the company in short term investments. Short term and long term liabilities have also increased over the years but in lesser proportion as compared to assets. Total borrowings of the company have decreased which is not a positive indication and then it again increased in 2011. Net sales of company have increased (almost twice) and cost of goods sold has increased in the same proportion. Although the figures are quite low as compared to Asian paints.

Cash flow from operations was negative for 2007 because of high receivables and significantly high amount of payments to suppliers. Then, there is a drastic increase in the cash flow from operations (almost 18 times) in five years. Thereafter it has increased consistently till 2010 and in 2011 it has again decreases by 500 millions. Cash flow from investments is always negative for Berger paints which is a good indicator because company is investing in its assets and is growing whereas CFF has been positive except the recession years 2008 and 2009. But due to high CFO company did not face any liquidity problem.

4.3 Shalimar Paints The total assets has been growing consistently but heavily due to increase in current assets which is attributed to high inventory and accounts receivables. Though there has been increase in long term assets consistently over the years. Again in total liabilities , the increase is mainly due to current liabilities due heavy bank overdraft's to support the working capital demands. Stock holder's equity raise is only due to increase in retained earnings. There has not been any issue of common stock over the five year period. The net sales, Cogs, gross profit has consistently increase over the years except for the dip in 2008-09 due to macro-economic factors. Also the interest expense seems to be very high when compared to the net income. Cash flow from operations has been increasing except for the year 2010-11 where it has decreased due to high trade & other receivables and high inventory.CFO has been positive throughout five years. Whereas CFF and CFI has been negative over the five year period.


5. Ratio Analysis 5.1 Asian Paints Liquidity has been consistently decreasing over past 5 years as measured by current ratio, Quick ratio and financial slack. The absolute numbers convey that they have been liquid over past five years. Also the decrease is taking the current ratio towards 1 , which is the ideal state as one should not tie down assets in current assets that cannot be used for productivity.

Solvency has generally increased over past five years as measured by Times interest earned ratio, and cash debt coverage ratio. DOTA has consistently been around 50% indicating proper debt management.

Gross profit rate has been consistent at around 40% and the Profit margin ratio has slightly improved over years. We can infer that the production efficiency is constant and operational efficiency has been increasing. Also both are considerably higher than competitors. ROA has also increased over years. Degree of Operating Risk has decreased substantiating our earlier conclusion that compay’s operational efficiency has increased ( converting Gross Profit into Operating profit). Degree of Total risk has also decreased over years like DOR and DFR is constant.

5.2 Berger Paints Current ratio has increased over time except in 2011 when it reduced from 2.1 to 1.79. Working capital of the company has tripled over five years.

In 2010 Berger paints hugely invested in short term investments which increased its current assets and have improved both their current as well as quick ratio. Financial slack was always between 3 to 5% but cash in hand was quite high in 2011 which increased the financial slack to 10%. Company had good liquidity in 2011 but for a manufacturing company this is an unusual value of financial slack.

Inventory turnover has increased over five years which means that company is able to manage its inventory in a better way. Gross profit rate and profit margin ratio have not improved significantly over time. It shows that company is maintaining its profitability but is not improving. Return on asset has decreased over time. Company's assets are growing faster than the profit growth which is also evident in the above statement.

Times interest earned has always stayed above 10 which is a good solvency indicator. It was exceptionally high in 2010.

5.3 Shalimar Paints Liquidity has been fluctuating with Working capital positive over the five years. Current ratio has been maintained around 1 also the Financial slack is maintained around 6 and quick ratio around 0.7 which shows the company has been able to maintain it liquidity over the years.

Solvency, Shalimar paints have been heavily dependent on Debts as it can be seen with Debt to Total Assets Ratio has been consistently maintained around 80%. Also Times Interest Earned Ratio is quite low which is been around 2-3, suggesting it did not have ability to service its debt. Cash debt coverage has also been very low maintained around 0.10 when compared to other two companies.

Profitability& Efficiency, Gross profit rate has been consistently maintained around 35% and profit margin ratio is around 3% which very low when compared to other two companies. High and consistent Gross profit margin indicating high production efficiency and low operational efficiency due to low profit margin.ROA has been around 5%.Degree of Operational Risk and Degree of Total Risk has also been high when compared to other two companies indicating low efficiency.


6. Dupont analysis

ROE = Profit Margin Ratio X Total Asset Turnover Ratio X Financial leverage Multiplier

Profit Margin Ratio is a measure of operational efficiency which measures how effective is a company in converting its Gross profits, Net sales into Net income. Asset Turnover ratio is a measure of how efficiently one leverages their assets to generate profits.Financial leverage multiplier is a measure of financial leverage i.e how the company is sourcing its assets.

Below Table shows comparative ratios of all three companies.

2011 2010 2009 2008 ROE 0.44 0.58 0.36 0.45 PMR 0.12 0.15 0.08 0.11

TATO 1.81 1.93 2.04 1.93 FLM 1.98 2.00 2.06 2.12

Asian Paints Berger Paints

Asian Paints: As we can see, for Asian paints, Financial leverage multiplier has essentially remained constant as they have maintained their equity and loan source ratio over the years. Total Asset turnover ratio has slightly decreased over the years and this has contributed to a decrease in ROE from 2008 to 2011. PMR has increased in later years, implying that the operating efficiency has gone up even though the asset turnover ratio has decreased slightly.

Comparative Analysis: As we can see, ROE of Berger is much less compared to that of Asian Paints. TATO of both the companies is effectively the same . FLM of Asian paints is higher than that of Berger Paints. However this need not mean much except that the sources of funds for companies are different. Both types of sources have their benefits and losses and cannot be compared. There is a clear demarcation in terms of PMR for both companies. This huge difference in PMR is essentially the reason for difference in ROE. This implies that the operational efficiency, and may be even production efficiency( say due to economies of scales), of Asian Paints is better.

2011 2010 2009 2008 ROE 0.22 0.23 0.23 0.29 PMR 0.07 0.07 0.06 0.07

TATO 1.81 1.93 2.04 1.93 FLM 1.63 1.64 1.88 2.11


6. Common Size &Trend Analysis

6.1 Common Sizing for the Three companies together

High Current Assets with respect to Long Term Assets for Shalimar Paints and the same decreasing though Berger and the least in the case of Asian Paints denote that the latter have high fixed assets and have established themselves in the market as giants, as opposed to the firms. Relative Liabilities increase in the same vein, although Asian Paints has still lower current liabilities compared to Shalimar Paints while they all have similar Relative Long Term Liabilities. Asian Paints and Berger Paints have relied equally on equity and debt Financing while Shalimar highly debt reliant as per the comparative Owners’ Equity numbers.

On higher net sales and similar depreciation, relatively lesser COGS lead to relatively more Gross Profit and hence higher EBIT, PBT and PAT. CFO for Asian Paints is high across all years. Berger falls short in certain years due to lax Accounts Receivable Terms and high Inventory costs. Asian Paints has relied in these years on Operating Income to fulfil Investments and Financing obligations, while Berger and Shalimar with lesser CFO relative to Assets also have correspondingly lower absolute values of CFI and CFF.

Common Sizing 2010-11 2009-10 2008-09 2007-08 2006-07

Asian Paints Current Asset 57% 58% 56% 62% 63% Long term Asset 28% 35% 33% 27% 22%

Berger Paints

Current Asset 72% 73% 72% 75% 76% Long term Asset 23% 22% 24% 22% 22%

Shalimar Paints

Current Asset 150% 124% 107% 115% 100% Long term Asset 152% 145% 116% 119% 100%

Common Sizing 2010-11 2009-10 2008-09 2007-08 2006-07

Asian Paints Net Sales 100% 100% 100% 100% 100% COGS 60% 57% 63% 60% 62% PAT 12% 15% 8% 11% 10%

Berger Paints Net Sales 100% 100% 100% 100% 100% COGS 66% 66% 69% 67% 68% PAT 7% 7% 6% 7% 7%

Shalimar paints Net Sales 100% 100% 100% 100% 100% COGS 66% 64% 63% 68% 66% PAT 3% 3% 1% 3% 2%

Common Sizing 2010-11 2009-10 2008-09 2007-08 2006-07

Asian Paints CFO 12% 17% 8% 13% 11% CFI -6% -5% 0% -10% -4% CFF -5% -5% -5% -4% -7%

Berger Paints CFO 5% 10% 7% 7% 0% CFI -1% -12% -3% -4% -2% CFF 0% 3% -4% -2% 2%

Shalimar Paints CFO 27% 34% 22% 50% 12% CFI -10% -25% -1% -14% -6% CFF -16% -9% -15% -14% -5%


6.2 Trend Analysis

Total Current Assets have increased by slightly more than twice through five years at a regular pace, while during the same time Long term assets experienced a bigger jump after 2009 and they have more than tripled in the five year analysis period. Current liabilities have increased in proportion with the current assets, suggesting that the same were used in the form of short term loans to finance the assets. The above investments in assets has resulted in stockholders’ equity going up by almost the same proportion as the liabilities signaling that the financing came equally from owned and loaned funds. Net sales and COGS have increased in proportion and thus the Gross Profit has similarly increased as the difference. Due to almost half the financing coming from Loans, interest expenses increased very rapidly. Since gross profit has increased in 2010 fiscal by almost 50% only, while EBIT has doubled, this indicates that their difference, the Operating and Other Expenses have been brought under control to a large extent in this time.

On the whole, with revenues and expenses rising in the same proportion give a Net Income rising in a similar proportion as all other variables, ending at less than thrice the original value. As already pointed out, a lot of investment has occurred and thus CFI (3.7 times in 5 years) has inflated much more than CFO (2.38 times) and CFF (1.72 times). Clearly more financing has come from current sources than long term sources.

Trend Analysis 2010-11 2009-10 2008-09 2007-08 2006-07

Asian Paints Current Asset 228% 186% 126% 128% 100%

Long term Asset 317% 314% 205% 156% 100%

Berger Paints Current Asset 188% 155% 117% 114% 100%

Long term Asset 209% 161% 135% 118% 100%

Shalimar Paints

Current Asset 150% 124% 107% 115% 100% Long term

Asset 152% 145% 116% 119% 100%

Trend Analysis 2010-11 2009-10 2008-09 2007-08 2006-07

Asian CFO 238% 272% 104% 146% 100% CFI 370% 218% 15% 299% 100% CFF 172% 128% 118% 68% 100%

Berger CFO -2798% -4024% -2417% -2229% 100% CFI 125% 889% 184% 227% 100% CFF 0% 201% -270% -85% 100%

Shalimar CFO 292% 1135% 639% 707% 100% CFI 167% 382% 62% 268% 100% CFF -77% -770% -477% -289% 100%


7. Comparative Analysis

7.1 Profitability Vs. Sales growth

Shalimar 2011 2010 2009 2008 2007 PMR 0.03 0.03 0.01 0.03 0.02 ROA 0.05 0.05 0.02 0.05 0.03

Sales growth 1.58 1.43 1.30 1.33 1.00

For all the three companies sales has been increasing consistently for last five years. Berger and Shalimar maintained their profitability and Asian Paints actually managed to increase their profitability despite their already high profitability compared to the other two. MD &A statements of Asian Paint suggest that their investment on new CRM technology has helped them improve profitability. Further information on net implies that Asian Paints is an early adopter of technology to further their profitability. CFI and CFF of the other two companies suggest they are not investing as much as Asian paints.

7.2 Efficiency Vs. Profitability

Trend Analysis 2010-11 2009-10 2008-09 2007-08 2006-07 Asian Paints Net Sales 100% 100% 100% 100% 100%

COGS 219% 170% 156% 118% 100%

PAT 285% 285% 133% 138% 100%

Berger Paints Net Sales 100% 100% 100% 100% 100% COGS 176% 141% 132% 114% 100%

PAT 178% 144% 107% 111% 100%

Shalimar Paints Net Sales 100% 100% 100% 100% 100% COGS 158% 137% 123% 136% 100%

PAT 246% 211% 75% 202% 100%

Asian 2011 2010 2009 2008 2007 PMR 0.12 0.15 0.08 0.11 0.10

Return on asset 0.20 0.25 0.17 0.19 0.18 Sales growth 2.24 1.82 1.51 1.21 1.00

Berger 2011 2010 2009 2008 2007 PMR 0.07 0.07 0.06 0.07 0.07

Return on asset 0.12 0.12 0.12 0.13 0.14 Sales growth 1.80 1.45 1.29 1.15 1


Shalimar 2011 2010 2009 2008 2007 Inventory TOR 3.67 4.10 3.68 3.83 2.91

Receivables TOR 3.95 4.29 4.23 4.79 4.04 GPR 0.34 0.36 0.37 0.32 0.34 OPM 0.03 0.05 0.08 0.06 0.03

Asian 2011 2010 2009 2008 2007 Inventory TOR 4.15 4.50 4.98 4.20 4.00


Berger 2011 2010 2009 2008 2007 Inventory TOR 3.94 3.94 3.89 3.46 3.13


Profitability ratios have increased a little for Asian paints as measured by GPR and Operating profit Margin. The same for Berger and Shalimar are very low compared to that of Asian Paints and remained constant over the period. Inventory turnover ratios are slightly higher for Asian paints but are essentially same for all companies for all the years. Perhaps this is industry dependent and hence same every time. Receivables turnover ratio(RTOR) is increasing for Berger and Asian paints and decreasing for Shalimar. Also RTOR of Asian paints is almost twice of Berger which in turn is more than twice of that of Shalimar. We can infer that Receivables are being handled much better by Asian paints. We can see that there is a clear direct correlation between efficiency and profitability of firms.

7.3 Liquidity Vs. Profitability

Asian 2011 2010 2009 2008 2007 Quick ratio 0.66 0.72 0.71 0.73 0.77

CR 1.27 1.24 1.28 1.29 1.40 PMR 0.12 0.15 0.08 0.11 0.10 OPM 0.17 0.19 0.12 0.15 0.14

Berger 2011 2010 2009 2008 2007

Quick ratio 0.96 1.22 0.87 0.73 0.64

CR 1.79 2.10 1.71 1.50 1.41

PMR 0.07 0.07 0.06 0.07 0.07

OPM 0.09 0.09 0.07 0.09 0.08

Shalimar 2011 2010 2009 2008 2007 Quick ratio 0.69 0.72 0.77 0.71 0.71


CR 1.12 1.11 1.14 1.13 1.20 PMR 0.03 0.03 0.01 0.03 0.02 OPM 0.03 0.05 0.08 0.06 0.03

The liquidity of Asian Paints, which can be measured by Current Ratio or Quick Ratio, has been decreasing over the 5 years. Profitability, which can be measured by Profit Margin Ratio and Operating Profit Margin, has been generally decreasing, with the exception of 2009. This shows an inverse relationship between the two, perhaps because freeing up of current assets has led to increase in productivity and therefore, profits.

The liquidity of Berger has increased, while the profitability of the company has remained almost constant. This makes it difficult to predict any relationship between the two.

Shalimar too has essentially remained the same on both counts. However, the one year which saw a drop in liquidity saw a large corresponding rise in productivity.

7.4 Dividend PayoutvsCapEx

Asian 2011 2010 2009 2008 2007 Dividend Payout 0.40 0.33 0.46 0.43 0.47

CapEx 1414 3489 2308 2567 656 Dividend paid 3069 2570 1679 1631 1284

Dividends and CapEx are the two major distributions of Net Cash Flow from operations. Companies intent on increasing growth spend a higher proportion on CapEx (They may also use borrowings for this), while whose growth possibilities are limited tend to spend their Cash Flow on dividends for share-holders.

CapEx of Asian Paints had been steadily increasing until 2011, when they chose to invest their cash on other ventures. Their dividends have also been increasing throughout, with a high payout ratio. This suggests a very healthy cash flow from operations, and limited options for growth in the final year.

Berger’s CapEx has been increasing steadily, which shows their intent to grow and invest more within the company. As a result, dividends paid have depended on the extent of cash available from operations for that particular year.

Shalimar 2011 2010 2009 2008 2007 Dividend Payout

ratio 0.26 0.28 0.32 0.28 0.40 Capex 52 98 30 75 38

Dividend Paid 30 28 11 26 19

Berger 2011 2010 2009 2008 2007 Dividend Payout 0.30 0.32 0.22 0.17 0.38

CapEx 932 611 352 428 250 Dividend paid 450 381 191 159 319


Shalimar’s dividend payout ratios have been steadily decreasing, which shows they have been spending more of the cash flow they have on CapEx.

8.Operating and Financial performance and position

ASIAN PAINTS

Total Assets have been continuously increasing . Increase in current assets is mainly due increase in inventory & current investments, cash has indeed reduced. Long term assets increase mainly due to increase in PPE over the years.

Current Liabilities have consistently increased due to increase in Accounts payable and Notes payable. Long term liabilities have rather shown a little growth over years.

Stock Holders Equity has increased over the years mainly owing to the factor of increase in Retaining Earnings. There has been no issue of common Stocks.

Solvency has increased over the years as it can be seen through increase in Cash Debt Coverage Ratio and Times Interest Earned Ratio.

Though the company has been liquid over the years which can be interpreted through Working Capital. But the liquidity has actually been decreasing as it can be seen through quick ratio, current ratio and Financial Slack. The company has tried to balance the Current Ratio around 1 .

The company has maintained consistently high profit margins as it can be seen by Gross profit margin which has been consistent around 40% and profit margin around 12%.The production and the operational efficiency has also been increasing. ROA has also increased over the years.

Though the cash flow has been increasing , it has been around 10-12% of the net sales as seen in the Common size analysis.CFO has been positive and CFF and CFI has been negative for all five years.

9. Operating and Financial Strength and Weakness

The company has ideally managed its liquidity ratio though the liquidity ratio has been decreasing. It has tried to maintain the current ratio around 1 which is ideal as the investments should not be held by high inventories.

Negative CFF merely indicates that they have been paying high dividends and investing and other companies and should not be taken as indicator for stagnation.

When compared to the competitors they have been able to retain a high percentage from Gross profit margin to net profit margin mainly due reducing their operational expenses, they are more efficient.

The company is able to sustain its growth with the Cash obtained from operations. Degrease in cash mainly due to investment in other companies. The company has good payout ratio and has paid high dividend across the years. Also the companies long term borrowing has actually reduced over the years. It has high ability to repay the loan as it can be seen from Cash Debt Coverage and TIE ratio. The company has high confidence from both the Creditors as well as Stock Holders. The company should look to grow more aggressively.

Paint majors financial reporting analysis

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Transcript of Paint majors financial reporting analysis