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ASIAN PAINTS

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 Taubmans.

Products:

Products in Asian Paints are broadly classified into FOUR categories

Ancilliaries

Automotive

Decorative Paints

Industrial

Industry:

Asian paints ltd. has been the market leader in the paint industry of India for a very long

period of time.
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. 2015 2014 2013 2012
Crores 8105.65 6410.98 5268.93 4330.11
Total Revenue

Expenses 4722.74 3681.92 2840.24 2606.93


Cost of materials consumed 120.41 105.56
Purchases of stock in trade -
Changes in inventories of finished -115.07 140.61
goods, Work in Progress and Stock in 341.63 300.45 260.84 238.9
Trade
1542.7 1231.5 1014.14 862.95
Employees benefit
expense Other
6612.41 5178.82 4115.22 3708.78
expenses

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

9000

8000

7000

6000

5000

4000

3000

2000
2015
5100
0
2014
0
2013
-1000 2012

From the above table we can infer that the total revenue is the highest in 2015 and lowest in
2012 and theres a stark rise. Consequently the cost of materials consumed are also the
highest in 2015. Purchases of stock in trade, work in progress, employee benefit expense
have all remained more or less the same over the years and show no drastic change in value.
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.

2015 2014 2013 2012


Revenue expense
ratio 1.23 1.24 1.28 1.17

Revenue expense ratio


1.30

1.28

1.26

1.24 Revenue
expense
1.22 ratio
1.20

1.18

1.16
0 1 2 3 4 5

PERCENTAGE INCREASE/DECREASE OF COSTS FROM FY2013-14 & 2014-15

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%).
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.

Cost Sheet 2015 2014


Prime Costs

Direct Material Cost


Raw materials consumed 4023.54 3081.92
Purchases of Stock in Trade 120.41 105.56
Changes in inventories of finished goods, WIP and stock
in trade -115.07 -140.61

Total Direct Material Cost 4028.88 3046.87

Direct Expenses
processing charges 49.18 41.67

Total Direct Expenses 49.18 41.67

Total prime Cost 4078.06 3088.54

Overheads

Production Overhead

Indirect Material
Consumption of stores, spares and consumables 23.48 24.99
Power and fuel 74.29 65.98
Total indirect material cost in Production Overhead 97.77 90.97

Indirect Expenses
Reapirs and maintainance
Buildings 6.33 8.16
Machinery 9.18 8.61
Other assets 19.35 17.79
Total Indirect Expenses in production overhead 34.86 34.56

Total production Overhead (Excluding labour) 132.63 125.53

Office and Admistritative Overhead

Indirect Labour
Commission to non-executive directors 1.88 1.89
directors sitting fees 0.25 0.17
Auditors remuneration 1.19 1.11
Total Indirect labour cost in Office and administrative
Overhead 3.32 3.17

Indirect Expenses
Rates and taxes 19.7 14.56
Bank charges 0.49 0.99
legal and professional expenses 10.9 11.14
Total Indirect Expenses in Office and Administrative
Overhead 31.09 26.69

Total Office and Administrative Overhead (excluding


material) 34.41 29.86

Selling and Distribution Overhead

Indirect Materials
Packing materials consumed 699.2 600
Total Indirect Material Costs in Selling and Distribution
Overhead 699.2 600

Indirect Expenses
travelling expenses 41.25 33.69
freight and handling expenses 346.5 269.22
advt and sales promotion expenses 338.59 282.35
cash discount 369.03 291.82
bad debts written off 2.96 1.43
Provision for doubtful debts and advances -1.5 -0.19
Total Indirect Expenses in Selling and Distribution
Overhead 1096.83 878.32

Total Selling and Distribution Overhead (excluding


labour) 1796.03 1478.32

Total Over Head Cost 1963.07 1633.71

Costs which can come under both Prime and Overhead


costs

Material
Printing stationery and communication expenses 31.7 24.57
Total material which can come under both Prime and OH
Costs 31.7 24.57

Labour
Salaries and wages 293.23 257.22
Contribution to PF and other funds 24.61 25.13
Staff welfare expenses 23.79 18.1
training and recruitment 8.42 6.55
Total labour which can come under both Prime and OH
Costs 350.05 307

Expenses
Rent 72.13 50.36
Insurance 5.34 4.7
information technology expenses 18.69 11.18
miscelleneous expenses 62.67 53.68
premium on forward exchange contract amortized 0.72 0.58
Net loss on foreign currency transactions and
translations 26.34 0
Donations 0.87 1.87
Total Expenses which can come under both Prime and
OH Costs 186.76 122.37

Total Costs which can come under both prime and OH


Costs 568.51 453.94

Total Cost 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 2015 2014


Total prime Cost 61.70 59.67
Total Over Head Cost 29.70 31.56
Total Costs which can come under both prime and
OH Costs 8.60 8.77

Total Cost 100.00 100.00

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

100.00
90.00
80.00
70.00
60.00
50.00
540.0 2015
0
30.00 2014
20.00
10.00
0.00
Total prime Cost Total Over Total Costs
Head which Total Cost
can come
Cost under
both prime and
OH
Costs
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 2014-15, there are risks that Inflation might inch up again during the second

half of FY 2015-16. This might lead to overall increase in costs.

The Rupee was very volatile during FY 2014-15. Since the Company imports a significant

portion of its raw material requirements, currency volatility can have financial implications

on your Company.

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.

It can be seen that 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.
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 well 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 2014-15, 2013-14, 2012-13.


th
A text book of cost and management accounting-9 edition, M N Arora
http://www.vakilno1.com/bareacts/companiesact/s233b.htm

www.wikipedia.com

www.asianpaints.com