Asian Paints

Overview
Asian Paints Limited (APL) is the market leader in the Indian paint industry, commanding a market share of 38 per cent in decorative paints and 33 per cent overall in the organised sector. Its annual sales turnover exceeds Rs.1,300 crore, way ahead of all the competitors in the industry. In profits too, Asian Paints is far ahead. Asian paints market leadership in the decorative paints segments can be grasped correctly when we take note of the relative position of the various players in the industry. Whereas Asian Paints has a market share of 38 per cent, its nearest rival, Goodlass Nerolac, commands a share of just 14 percent. All others have only less than 10 percent. Such an achievement by a company that is wholly Indian in capital, management and technology and in an industry historically dominated by multinationals is certainly a commendable feat. Some of the key initiatives undertaken are: Initiatives in manufacturing to reduce losses at factory Sourcing efficiencies Sweat existing assets for better productivity Introduction of new technology to drive efficiencies and increase productivity Implementation of a new supply chain solution Implementation of an ERP solution

Background
Asian Paints Limited was established in 1942 as a partnership firm by four friends Champaklal H. Choksey, Chimanlal N. Choksi, Suryakant C. Dani and Arvind R.Vakil to manufacture paints in a garage in Mumbai (Bombay). From its humble beginnings, the company has moved on to become the largest paints company in India with a market share of 38 per cent. Its reach and dominance in the Indian market can be gauged from the fact that it is more than twice the size of its nearest competitor in India and it has been the market leader in paints industry in India since 1968.The company operates in 22 countries and has 29 paint manufacturing plants in the world which service consumers in over 65 countries. The company operates around the world on its own and also through its three subsidiaries Berger International Limited, Apco Coatings and SCIB Chemicals. The company aims to become one of the top five decorative paint companies in

the world and has embarked on an aggressive strategy of expanding its global operations.

Products
Asian Paints is engaged in manufacturing of paints. The company offers interior and exterior wall paints, automotive paints, powder coatings, auto refinishes paints, and wood finishes. It operates in 22 countries and has 29 paint manufacturing facilities in the world-servicing consumers in over 65 countries. It is headquartered in Mumbai, India. Asian Paints basket offers the following: Interior Wall Paints Exterior Wall Paints Wood & Metal Paints Wood Finishes Ancillaries

Strategic Mantras
Audacious in vision. Focus on what know best. Trim flab to achieve operational excellence. Good governance made the business sense Forge stronger partnerships with supplier base. Pursue quality with zeal. Innovate to create value for customers. Good in distribution.

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.

Mission
To provide paints as per market demand, ensuring desired level and quality of customer (dealer) service, continued availability of the right product mix of right quality at the right time.

Core Values
Commitment and Integrity in dealing with internal and external customers A strong belief in individual ability and creating an environment in which entrepreneurial spirit is encouraged Ownership and Responsibility To continuously rejuvenate every living and working space of people and bring joy to their lives.

Competitive Advantage Profile

Financial Statistics (as on 30/03/2010) Total Paid Up Equity Capital: Rs.95.92 Cr. Market capitalization: Rs. 25904.58 Cr. Revenues: Rs. 6944.30 Cr. PAT: Rs. 796.60 Cr. Marketing Factors Market leader - 38% share in organized sector. Asian Paints is more than twice the size of its nearest competitor. More than 50 yrs leader in the industry Widest product range -product shades, wide colours, pack sizes 40 different decorative paints -1000 shades, 8 different sizes in packing, no. of brands all segments Brands -quite powerful High quality MR & MIS, 90% accuracy in forecasting, 100 fastest moving Stock Keeping Units, monitored daily Countrywide distribution (29 plants in 22 countries). Physical distribution far superior to competitors Strong in inventory control (18 processing centres, 350 raw material and intermediate goods suppliers, 140 packing material vendors, 6 regional distribution centres, 72 depots

are integrated) Manufacturing/Operations factors Size advantage in relation to competitors. Finesse in production planning, scheduling, matching with marketing requirements In-house production outsourcing high reliability suppliers superior quality assurance. Four production location spread benefits. Asian Paints believes that people are its strongest assets High caliber A talent pool of over 4700 employees employed across 23 countries bring in a unique blend of mindsets and skills Excellent training is provided to develop leaders and re-strengthen competencies from within the organisation Information Technology 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. Customer Relations Management (CRM) tools are being used in Asian Paints Helpline and Home Solutions initiatives Improve efficiency in the business as well as increase the transparency and accuracy of information across the country. Research & Development At Asian Paints, R&D plays an important role in developing new products and innovations, and reducing costs by value re-engineering of formulations. It consists of 140 strong R&D team consisting of 7 doctorates and around 115 qualified scientists, has always backed the company's business plan and demands of the market place. Asian Paints' R&D team has successfully managed to develop High-end exterior finished and wood finishes in-house. Environment and Safety Asian Paints approaches the environment issue from the perspective of waste minimisation and conservation of resources. Its attempt is to reuse, recycle and eliminate waste, which results in less and less waste

Human Resources

being generated. Accordingly, the material losses in manufacturing have been reduced substantially over the last few years. It has ISO 14001 certification for environment management standards. It has achieved 'zero industrial discharge' capability. This has been achieved by the installation of upgraded effluent treatment facilities and installation of reverse osmosis plants in conjunction with appropriate recycling and reuse schemes Some of its innovative schemes which enhance green productivity are dealer tinting systems which has resulted in large batch sizes; bulk storage facility for monomers which reduces wastage; Use of natural gas which is a cleaner fuel; solvent recovery plants have been set up which has resulted in zero reduction of solvent disposal; Improved incinerating systems and reverse osmosis. Quality Policy Asian Paints endeavor to provide products and services that meet stated standards on time, every time. Asian Paints accepts Zero Defect as a quality absolute, and shall design and operate its quality system accordingly. The company has organized its work practices to do a job right the first time, every time. The company is committed to continuous improvement in quality in all business processes and shall track such improvement through measurable indicators.

Brand Positioning
It is how the Asian paints enabled people to form a mental image for their products in the customers mind. The strategies that they followed where as follows: Brand Image Till 1990s, Indian paint industry was a low involvement industry. People will just tell their budget for painting their house to their contractors and some customers will also mention the colour they need. During that period Asian Paints analyzed the customer market and found that people where not brand conscious but their concern was only the price of the paint. To meet this need of the customer Asian paints reduced the cost of the raw materials by backward integration in order to reduce the cost of the paints Established an advertising strategy with created an emotional touch among the customers All these strategies helped them in creating a Brand Image for their products among people

and people started realizing the importance of brand in this industry. Umbrella Brand Asian Paints realized that instead of spending on individual brands and in promoting them it was logical to promote their corporate image and all the brands under their umbrella brand. Asian Paints has embarked on an umbrella branding policy encompassing all its products and services. The project includes a new visual identity that establishes the company name as the dominant reason for purchase. Tractor, Royale, Utsav and Apcolite names are no longer the focus on the can; rather consumers will be buying "Asian Paints." Some key brand names are being retained for the time being--to signal a position in the market rather than a product or surface. For instance, Tractor will represent the "value for money" brands. The immediate advantage is obvious. Rather than spread resources thinly across brands and sub-brands, a company centric portfolio can synergize communication efforts. To be competitive in a world of fragmentation and rising costs, traditional mass media, such as television, can be prohibitively costly. With the umbrella-branding move, Asian Paints can also afford to move forward from a mere functional platform for each individual product to the high ground of a mood-based emotional dimension. An Underlying Theme At Asian Paints, the underlying theme is "har ghar kuchh kehta hai," or "every home has something to say." The depth and texture visualized by this line goes into the customer's basic psyche of owning a home, and will carry through various messages emanating from the company, which is the leader in the decorative coatings market in India.

Future Plans
The company plans to consolidate its dominant position in India by launching new products in line with the market developments in both decorative paint and industrial coating segments. The company is focusing on further improving the operations of all of its subsidiaries in India and abroad and has already launched E-Strides, an ERP initiative through which all the overseas ventures are being covered for sharing of global knowledge, best practices and better control on operations. The companys objective is to be among the top three players in each market where it is currently operating. The company plans at: Introducing Water based Paints Repositioning of existing Brands in Rural Market Broadening of Distribution Network

Adding more choices for shades and effects Enhancing Better Quality Entering Constructions and Housing segment

Financial Statistics
Financial Ratios March10 12 Return on Capital Employed Operating Margin Net Profit Ratio EPS Current Ratio Quick Ratio Inventory Turnover Ratio Financial Charges Coverage Ratio Debtors Turnover Ratio Debt Equity Ratio Fixed Assets Turnover Ratio Operating Income Material Consumed Months 61.77 19.24 14.29 80.74 0.89 0.37 9.80 56.68 16.71 0.04 4.68 5367.72 2835.4 March09 12 Months 47.98 13.16 7.97 37.73 1.13 0.58 7.95 39.57 16.02 0.06 4.17 4510.12 2640.40 March08 12 Months 55.99 15.83 10.28 39.40 1.02 0.47 8.03 46.09 14.74 0.08 3.97 3595.53 1969.4 March07 12 Months 47.89 14.77 9.11 28.14 1.24 0.59 7.89 30.56 14.03 0.14 3.81 2953.38 1661.7 March06 12 Months 48.56 14.95 7.59 19.58 1.15 0.55 7.44 47.92 14.65 0.12 3.46 2447.78 1365.3

Questions
1) Analyze Asian Paints on various parameters viz. HRM, Marketing, Finance etc. 2) Analyze Asian Paints Financial Ratios.

Possible Solutions
1) Vision Statement a) Management is involved right from the start. b) Adequate or correct marketing research is done at each and every level c) There is no lack of vision on the relationships between processes, technology and organization. TQM and Decision Making a) There are sufficient company resources to accomplish task. b) New strategies are well explained to employees.

c) Incentives given to workers to embrace the new strategy. d) Promoting the new employee and their management skills. e) There is a good employee commitment. f) Important strategies like collaboration with lead manufacturing companies. Human Resource Management It is observed that Companys succeed in today's free market economy, only because their employees perform to their fullest potential. The governing theme in the organisation is the well being of their employees strategies. The work ethics include: a) Freedom to experiment b) Continuous learning and training. c) Transparency in all aspects. d) Quality in all aspects of work. e) Rewards based on performance and potential. f) The salary and benefits offered are on par with the best available in Construction Industry. g) It is aimed at not only attracting but also retaining talent. Financial aspects a) Because of the economic crisis all over the world, the company profit percentage gets reducing. b) To control this, there should be a meeting with all familiar construction companies CEO to get their views on financial crisis aspects and financial management. c) But, Reduced financial expenses have resulted in substantial increase in the return on net worth as well as the capital invested from them. Environmental upgradation a) It has ISO 14001 certification for environment management standards b) It is using more innovative techniques. c) This augurs well for the country and now there is an imminent need to introduce green concepts and techniques in this sector. d) Green concepts and techniques in the construction sector can help address national issues like handling of consumer waste, water efficiency, reduction in fossil fuel use in commuting, energy efficiency and conserving natural resources. e) Most importantly, these concepts can enhance occupant health, happiness and well being. f) So automatically enhance the mood of occupant and they feel fresh throughout the day

and in the mean time profit also increases. Marketing Strategy a) It has large network of dealers. b) Wide range of varieties. c) Rich in product diversification. d) High Innovation in technology. e) Given more importance for R & D. f) Since the firm has following good strategies, but it must be careful about MNCs coming for various segments and there is aggression from existing players. 2)

Financial Ratio Analysis

PROFITABILITY RATIOS Return on Capital Employed Return on capital employed should at least be the weighted average expected return of different stakeholders else; the company is not profitable in the eyes of the stakeholders. The return on capital employed in case of Asian Paints has been continuously stable upto March 2009. It was 47.98 for the year ended March 2009 and has risen sharply to 61.77 for the year ended March 2010. Compared to the industrys declining Return on Capital Employed these are impressive. Operating Margin Operating margin is an important criterion to measure the companys profitability. Asian Paints operating margin was almost stagnant near 15% upto March 2009. Lately, Operating Margin has shown a jump of 46% on y-o-y basis. Asian Paints is able to achieve this sharp rise in Operating Margin by: Keeping its material to sales ratio lower by efficient sourcing and reduction in primary freight. Upgrading its product mix in favour of high value premium products, re-engineering product formulations through R&D initiatives and controlling overheads. Accomplishing impressive growth in profits of the chemicals (others) business. Net Profit Ratio Net Profit ratio vis--vis the Operating Margin shows the non-operating expenses incurred by the company. Any high difference between the two indicates scope of cost cutting by reducing the unnecessary flab of non-operating expenses (net of non operating income). In the case of Asian

Paints the net profit ratios are increasing and the difference between the operating margin and the net profit ratio is almost stagnant at 5%. Operational efficiencies and lower interest payouts have resulted in a growth of pre- tax profit margin. Net Profit Ratio was lower during the year 200809 due to higher material to sales ratio. Earnings Per Share This ratio gives the net return on a share. Continuous increase in the net income has kept the EPS on an up trend. The EPS has shown a jump of 114% in 2009-10 on y-o-y basis because of two factors, namely; 19% jump in Operating income on y-o-y basis. Just 7.4% increase in Material Cost on y-o-y basis.

LIQUIDITY AND COVERAGE RATIOS Liquidity ratios check the firms ability to square off the debts at that particular moment or to service the debts during a particular period of time. It also checks the liquidity of the various assets. Current Ratio The current ratio for Asian Paints has declined from 1.15 at March 2006 to 0.89 at March 2010. This is primarily because of the tinting machines introduced in the past few years. The total inventory required at the retailer level has decreased and thereby the inventory at every other level has been reduced. The industry average is 1.44. This indicates the effectives of the working capital management system of Asian Paints. Quick Ratio The Quick Ratio measures the firm ability to pay its debts in a very short period. The difference between the Current Ratio and the Quick Ratio gives the quantity of inventory the firm is carrying. (Assuming there is no illiquid liability and no other illiquid assets). In the case of Asian Paints Quick Ratio has decreased over the past five years from 0.55 to 0.37. Inventory Turnover Ratio Effective and efficient working capital management was always an added advantage to the company. The inventory turnover of Asian Paints has been on the rise due to the measures taken to improve the distribution system of the company. The ratio was 7.44 five years back and is now 9.80 as on March 2010. Financial Charges Coverage Ratio Continuous decrease in the debt and rising income has dual impact on the rise of the Financial

Charges Coverage Ratio. The ratio was 47.92 five years ago and now it stands at 56.68. Debtors Turnover Ratio The company has continuously reduced the working capital cycle time throughout the past five years. One of the components that drove this reduction was increase in debtors turnover. The company managed to reduce the debtors payment cycle time. The debtors turnover has been increased to 16.71 from 14.65. Therefore the debtors payment days now stands at 22 days from 25 days five years back. LEVERAGE AND UTILISATION RATIOS Debt Equity Ratio The debt ratio of the Asian Paints is on the downslide by the persistent effort to reduce debt component in the capital employed. Currently it stands at 0.04 against 0.12 five years back. Fixed Assets Turnover Ratio The fixed assets turnover ratio has increased from 3.46 to 4.68 in the past five years. The Fixed Asset productivity is being improved and production cycle time is being reduced by curtailing time losses in individual processes, which form part of the overall production process. Better utilisation of assets using factory level planning software and improvements in inventory management have resulted in better utilisation of productive assets.