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Cost

Analysis Of Asian paints Ltd.



Submitted by:
V.Bhargav
1220738
MBA V
CUIM 2012-2014

Submitted to:
Prof. Latha Ramesh
Assistant Professor Finance
Christ University Institute of Management








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.

From Statement of Profit and Loss - In Rs.


Crores
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
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.

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.

Revenue expense ratio

2012
1.23

2011
1.24

2010
1.28

Revenue expense ratio


1.30
1.28
1.26
1.24

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

Commission to non-executive directors


1.88
1.89
-0.53
directors sitting fees
0.25
0.17
47.06
Auditors remuneration
1.19
1.11
7.21
Bank charges
0.49
0.99
-50.51
Net loss on foreign currency transactions and translations
26.34
0

premium on forward exchange contract amortized
0.72
0.58
24.14
information technology expenses
18.69
11.18
67.17
legal and professional expenses
10.9
11.14
-2.15
training and recruitment
8.42
6.55
28.55
freight and handling expenses
346.5
269.22
28.71
advt and sales promotion expenses
338.59
282.35
19.92
cash discount
369.03
291.82
26.46
bad debts written off
2.96
1.43
106.99
Provision for doubtful; debts and advances
-1.5
-0.19
689.47
loss on sale of fixed assets (net)
0.1
0

miscelleneous expenses
62.67
53.68
16.75




Total other expenses
1542.7
1231.5
25.27




Total Expenses
6612.41
5178.82
27.68
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
maintenance (22.43%) and Changes in inventories of finished goods, WIP and stock in trade
(18.16%).
We can conclude from the above table and the percentage changes that the company is on
the plan of large expansion, which can be seen in the increase of various infrastructure,
production and employee costs.
But its the company which has to take the call whether the rapid expansion is good for the
company or not when the Infrastructure as well as the Paint Industry has been experiencing
a slowdown.

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

directors sitting fees


Auditors remuneration
Total Indirect labour cost in Office and administrative Overhead

Indirect Expenses
Rates and taxes
Bank charges
legal and professional expenses
Total Indirect Expenses in Office and Administrative Overhead

Total Office and Administrative Overhead (excluding material)

Selling and Distribution Overhead

Indirect Materials
Packing materials consumed
Total Indirect Material Costs in Selling and Distribution Overhead

Indirect Expenses
travelling expenses
freight and handling expenses
advt and sales promotion expenses
cash discount
bad debts written off
Provision for doubtfu; debts and advances
Total Indirect Expenses in Selling and Distribution Overhead

Total Selling and Distribution Overhead (excluding labour)

Total Over Head Cost

Costs which can come under both Prime and Overhead costs

Material
Printing stationery and communication expenses
Total material which can come under both Prime and OH Costs

Labour
Salaries and wages
Contribution to PF and other funds
Staff welfare expenses
training and recruitment
Total labour which can come under both Prime and OH Costs

Expenses

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

Graph showing Prime and Overhead costs as a Percentage of Total Costs.


100.00
90.00
80.00
70.00
60.00
50.00
40.00

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

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Total Cost

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-9th edition, M N Arora
http://www.vakilno1.com/bareacts/companiesact/s233b.htm

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