POSTGRADUATE PROGRAMME IN MANAGEMENT

2022-24 | Term 1
FINANCIAL ACCOUNTING ANALYSIS REPORT

BERGER PAINTS INDIA LIMITED

BERGER ANNUAL REPORT ANALYSIS

Submission to: Prof. Pooja Kumari

Submitted by: Group 8 (Section A)

1. Jayanth Krishna(2210024)
2. Meheresh Gupta(2210034)
3. Megha Singh Solanki(2210033)
4. Sumit Kishore(2210062)
5. Yash Purohit(2210071)
 ACKNOWLEDGEMENT

We would take this opportunity to offer our heartfelt gratitude to various individuals who

contributed directly or indirectly towards the development and completion of this project

work and inspired our conduct, thoughts, and actions during the project.

We are thankful to our professor, Prof. Pooja Kumari, for her valuable guidance, interest,

and continuous motivation to complete the project work. We are grateful to him for his

insights, feedback, and supervision during the completion of the project. We are grateful to

the Indian Institute of Management, Visakhapatnam, for providing the requisite facilities and

resources for the completion of the project.

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Table of Contents

Berger Business Model:.....................................................................................................................4

Profit & Loss Sheet- Multistep Income Statement.............................................................................6
Revenue recognition policy:..............................................................................................................7
Inventories:........................................................................................................................................8
Fixed assets accounting policy:..........................................................................................................9
Cash Flow Statement Analysis:........................................................................................................10
Vertical & Horizontal Analysis:.............................................................................................................11
Ratio Analysis :.....................................................................................................................................23

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Berger Business Model:
Berger paints comes under paint industry of chemical sector. Unique selling proposition of Berger
paints is its innovative approach, ethical practice, pocket friendly quality delivery and valuing people.
To perform in market it focuses on market mix strategy.

1. Pricing Strategy: It keeps its prices lower compared to its competitors without compromising
quality of the product hence considered as the customer choice for budget friendly. This
strategy is suitable to increase sales which generate more revenue.
2. Product Strategy: Products offered by Berger is of high quality and at affordable charges for a
wide range of audience. It spends considerable amount on R&D to differentiate itself in
market with new product.
3. Networking/stock point: The distribution channel is strong it has a wide distribution network
with more than 160 stock points. A network of 7 manufacturing facilities, several regional &
area offices with 2500 employees, 85 depots, and over 15000 dealers throughout the
country.
4. Promotion strategy: It focuses on aggressive marketing strategy. It has launched various ads
and campaigns throughout its life.

Berger has three verticals on broader scale based on end users, but it is not limited to these:

1. Interior Walls
2. Exterior Walls
3. Other surfaces
4. Undercoats
5. Waterproofing solutions construction
6. Some flagship products of the British Paints Division of the company

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Berger Paints capture around 13-14% of market share in domestic paint industry on contrary Asian
Paints captures almost 50% of the market share. Currently Berger falls in dog category on BCG
matrix but it has a lot of growth potential. Berger is second largest to capture market after Asian Paint.

Berger overall performance was hardly impacted due to COVID-19, in fact it show slight growth
during COVID-19 time as well. However it’s operational profit was slightly low post COVID-19. It
was reported a 91.44 per cent decline in consolidated net profit to Rs 15.09 crore for the quarter ended
June, hit by the COVID-19 crisis. Due to shutdowns the paint industry and its activities were
impacted. Apart from essential services, almost all other commercial and industrial activities were
shut down during this period.

All the paint producers in the country had to suspend manufacturing for more than 30 days. After that,
partial production resumed at some of the manufacturing units in phases. However, to date, capacity
utilization in the Indian paint and coatings industry has remained low. According to Indian Paint
Association (IPA), Paint companies witnessed no sales in the month of April. Thus, the April-June
quarter seen significant de-growth. While the paint industry witnessed a loss of revenues for about 35-
40 days, manufacturing has resumed now, barring the plants that are in the containment zones. Pre-
COVID-19 demand levels in the Indian paint industry may return around the October-November
period.

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Profit & Loss Sheet- Multistep Income Statement

A
bove comparison between two companies shows business owners decide whether they can generate
profit by increasing revenues, by decreasing costs, or both. Following are observations with respect to
Assets

1. We can see that Asian Paints is more than two-folds of Berger in Paint industry.
2. An amount of ‘expected credit loss’ is recognised as an exceptional item in Asian Paints
while no such exceptional item accounts in Berger paints for current year i.e. 2021-22.
3. Taxes are comparatively managed properly by Berger paints.
4. The useful life of assets is more in Berger and Asian Paints: for eg.
a. Motor vehicle life- 5 years (Asian Paints)
6.67 years (Berger Paints)

b. Plant and Equipment- 4-20 years (Asian Paints)

3-21.05 years (Berger Paints)

5. Due to large scale Asian paints have more sources of ‘other income’ as compared to Berger
such as properties given on lease by Asian paints.
6. Due to more freight in Asian paints the expenditure of handling them is higher in it as
compared to Berger. Also Asian Paints is spending a huge amount in advertisement and
marketing expenses which is almost four folds to Berger. This may be the reason why an
Asian paint is consistently earning good revenue without spending much on R&D and not
providing the best quality in market.
7. Finance Costs of Berger are increased may be because of post covid effect on the company.
8. Other expenses of Berger are almost same but the cost of material consumed is spiked a little
but that is acceptable as the revenue due to operation is also increased.

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Revenue recognition policy:
Berger
Goods For Sales to customer:
Revenue is recognised on the sales-basis
method i.e. the moment when the goods
are transferred to customers.
Asian Paints
For Sales to customer:
Revenue is recognised on the sales-
basis method i.e. the moment when the
goods are transferred to customers.

For sales in foreign currency: For sales in foreign currency:

Transaction is recorded in functional Foreign exchange happens by hedging
currency rate of that day of reporting. using fair value method.

For Financial assets: For Financial assets:

Initially fair value cost is recorded than Initially fair value cost is recorded than
 Debt instruments at amortised  Debt instruments at amortised
cost cost
 Equity instrument at Fair Value  Equity instrument at Fair Value
Through Other Comprehensive Through Other Comprehensive
Income Income

For Deferred Tax: For Deferred Tax:

Liability method is followed the taxes that
are owned but not due to be paid are
mentioned. However if it comes under
initial recognition of asset than the initial
recognition method is preferred over
Liability method.
Liability method is followed the taxes
that are owned but not due to be paid
are mentioned. However if it comes
under initial recognition of asset than
the initial recognition method is
preferred over Liability method.

For PPE : For PPE :

Cost model is considered for recognition Revaluation method is considered for
of PPE Assets. recognition of PPE Assets.

For Impairment of Financial Assets: For Impairment of Financial Assets:

Simplified approach is followed for
recognition of impairment loss.
Services Mostly firm deals with products or
combined contracts
For Services to customer:
 Percentage-of-completion method
performance obligations are met
in B2C transactions.
Simplified approach is followed for
recognition of impairment loss.
For Services to customer:
 Percentage-of-completion
method performance
obligations are met in B2C
transactions.
 Output method is used for
measurement of revenue from
décor services.
 Input method is used for
measurement of revenue from
processing and other services.

 Comment: The methodology to record certain particulars are similar while for others like PPE
it is different. The independent explanation of input/output is not explained in financial report.
A better insight can be gained if it is described as in peer’s company.

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Inventories:
Berger Asian Paints
Valuation Traded goods are valued at lower of The lower of cost:
cost and net realizable value. Cost  Raw materials, work-in-
includes cost of purchase and other progress, finished goods,
costs incurred in bringing the packing materials, stores,
inventories to their present location and spares, components,
condition. consumables and stock-in-
trade are carried at the lower
The lower of cost: of cost and net realizable
 Raw materials, work-in- value.
progress, finished goods, Net realizable value:
packing materials, stores,  Selling price in the ordinary
spares, components, course of business less
consumables and stock-in-trade estimated cost of completion
are carried at the lower of cost and estimated costs
and net realizable value. necessary to make the sale
Net realizable value:  Materials and other items
 Selling price in the ordinary held for use in production of
course of business less inventories are not written
estimated cost of completion down below cost if the
and estimated costs necessary finished goods in which they
to make the sale will be incorporated are
 Materials and other items held expected to be sold at or
for use in production of above cost.
inventories are not written
down below cost if the finished
goods in which they will be
incorporated are expected to be
sold at or above cost.
Costing method  Weighted average method is  Cost of all inventories is
used as costing method for determined using weighted
inventories. average method of valuation.

Comment: The costing method used is weighted average costing by both the companies which is
suitable as per the business industry and model to ease the calculation and keep record of the units.
The benefit of using weighted average costing method is that unusual cost differences can be avoided.
Also the valuation cost is similar for both the companies. In valuation low to cost method follows the
conservatism principle to avoid overstated value of the asset.

We can observe that Asian Paints and Berger Paints both have increased purchase of inventories but a
lot of work is in-progress. As both the firm is going through this we can assume that the current
market of paint is impacted.

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Fixed assets accounting policy:
Berger Asian Paints
Depreciation  Straight line method is  Straight line method is
used for depreciation. used for depreciation.
 For PPE yearly useful  For PPE yearly useful
life and residual values life and residual values
are calculated and are calculated and
reviewed and changes reviewed and changes
are incorporated in are incorporated in
accounting estimates accounting estimates
Fixed assets recording  Historical cost method  Revaluation model is
is used for Fixed assets used for fixed assets
recording. recording
Impairment  Generally impairment  CGU impairment
testing is performed testing is done in every
annually but 5 years. From previous
impairment testing is year to next three years
also done whenever impairment might be
events or changes in done.
circumstances indicate
that the carrying
amount may not be
recoverable.

Comments:- Both firms' accounting procedures are acceptable in our eyes, which is to say yes, we
agree with the accounting policies. However, in order to increase the value of their fixed assets,
Berger Paints can also use revaluation model for their fixed asset recording. This is because inflation
causes the market value of assets to increase relative to their historical value, which in turn enables
Berger Paints to increase the value of their fixed assets.

Difference between the fixed asset recording model might also be the reason for significant visible
change in fixed asset value for both the companies that can be seen in the balance sheets.

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Cash Flow Statement Analysis:
Berger Asian Paints
2022 2021 2022 2021
CFO 518.61 676.72 1,260.31 3,458.58
CFI (537.96) (458.63) (339.98) (436.16)
CFF (5.35) (183.07) (1,989.32) (582.90)

Comment: If we look at Berger paints Cash flow statement analysis , it is evident that they are
moving towards no debt structure in the firm. Also, they are investing heavily as can be seen from the
CFI.Upon looking at the annual report we found out that company is investing in PPE heavily and
they are building long term assets which will further benefit the share holder’s in future.

If we look At Asian paints cash flow statement analysis, they are also following clearing their debts
and moving forward with minimum debt policy. But, looking at the cash flow from operations we can
conclude that they are investing very less amount as compared to Berger paints.

If we compare both the companies from their cash flow statement, we can conclude that despite being
cash rich Asian paints is investing very less and the company is not utilizing their cash properly
whereas if we look at the Berger paints cash flow statement, we can see that they are utilizing their
cash properly and investing their cash to generate long term assets. As we can see that except
operational activities investment and financial activities are negative which shows that firm has lot
potential to grow further.

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 Vertical & Horizontal Analysis:
Excel: Balance sheet of Berger

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Excel: Balance sheet of Asian Paint

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 Analysis of Balance Sheet

Current Asset Current Liabilities

14000 12747 6000 5647
12000 5000 4575
9946
10000
4000
8000 3195
5804 3000 2515
6000
1820
4000 2877 3522 2000 1478
2030
2000 1000
0 0
2020 2021 2022 2020 2021 2022

Berger current Asian current Berger current Asian current

Non Current Assets Non current liabilities

7000 6485.46 6583.13 1000 920 901 895
6029.49 900
6000
800
5000 700
4000 600
3103.06 500
3000 2307.58 400 346
2094.47 268
2000 300 239
200
1000 100
0 0
2020 2021 2022 2020 2021 2022

Berger Non current Asian non current Berger Non current Asian non current

Total Assets Total Liabilities

20000 18777 7000 6543

18000 16525
6000 5477
16000
14000 12289 5000
4115
12000 4000
10000 2862
8000 6625 3000
5185 2088
6000 4125 2000 1717
4000
2000 1000
0 0
2020 2021 2022 2020 2021 2022

Berger Asian Berger Asian

Comments:- Looking at the Asset side of balance sheet, we can say that Berger paints is investing in
fixed assets whereas Asian paints has sold some of its equipment due to which there is a decline in
non current assets of Asian paints.

On the liability side of the balance sheet, we can see that current liabilities have increased for both the
companies. The reason for that is both companies are holding cash for longer durations and paying
creditors late due to which trade payables have increased. Also, Berger paints is leasing out bigger
operational facilities due to which non current liabilities have increased for Berger paints.

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Excel: Income Statement of Berger

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Excel: Income Statement Asian Paints

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Excel: Horizontal Analysis of Balance sheet of Berger

Comments:- It can be seen that there is a significant change in non current assets as company is
investing in buildings and other plants because of which capital work in progress has increased.Also,
trade receivables has decreased which means company is efficient in receiving payments on time
from its consumers.Also cash has seen a dip because company is investing in plants and equipmants
i.e. Long term assets.

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Excel: Vertical Analysis of Balance Sheet of Berger Paints

Comments: Looking at the non current assets we can assess that the PPE percentage has seen a
significant drop against total assets because company has increased its inventory and is also investing
in plants and equipment which are in their building stage. When we look at the Liabilities section,it
can be clearly seen that total liabilities has increased because company is holding its cash back for
longer durations due to which trade payables has increased.

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Excel:- Horizontal analysis of Asian paints

Horizontal Analysis of Asian Paints

Particulars For 2021 For 2022

Asset
Non-Current Assets
Property, Plant & Equipment -4% -7%
Capital work-in-progress 10% 90%
Intangible assets -17% 3%
Right-of-use assets -2% 10%
Financial assets
i. Investments -6% -44%
ii. Loans
iii. Other Financial assets -19%
Income Tax assets (net) -4% 9%
Other non-current assets 20% 203%
Sub-total of non-current assets 2% -8%
Current Assets
Inventories 11% 69%
Financial assets
i. Investments 635% -32%
ii. Trade Receivables 63% 61.11%
iii. Cash & cash equivalents -66% 144%
iv. Bank Balance other than (iii) -45% 50%
v. Other financial assets
Other current assets
Sub-total of current assets 71% 28%
Total Assets 35% 14%

Equity & Liablities

Equity
Equity share capital 0% 0%
Other equity 28% 11%
Total Equities 28% 10%

Liablities
Non-current liabilities
Financial liabilities
i. Lease liabilities -6% 11%
ii. Other financial liabilities 137% 5%
Provisions 20% 3%
Deferred tax liabilities (net) -6% -23%
Other non-current liabilities -27% -38%
Sub-total of non-current liabilities -2% -1%
Current Liabilities
Financial liabilities
i. Borrowings -100%
a. Lease liabilities 10% 14%
ii. Trade Payables
a. total outstanding dues of micro & small enterprises 17% 5%
b. total outstanding dues of creditors other than (a) 61% 25%
iii. Other financial liabilities 14% 19%
Other current liabilities 115% 77%
Provisions 31% -34%
Current tax liabilities (net) 80% 15%
Sub-total of current liabilities 43% 23%
Total Liabilities 33% 19%
Total Equity & Liabilities 29% 13%

Comments:- Looking at the total assets and total liabilities, both have increased but at a decreasing
rate. Company invested heavily in current investments in 2020-21 but in 2021-22 it is refraining from
investing even though they have a lot of cash in hand. Also, they have increased their inventory

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marginally which is one way they are investing their cash. Current tax liabilities have also increased
but at a decreasing rate which means they are focusing on tax planning efficiently.

Excel:- Vertical Analysis of Asian Paints:-

Vertical Analysis

Particulars Balance as on March 2020 Balance as on March 2021 Balance as on March 2022
Asset
Non-Current Assets
Property, Plant & Equipment 34% 24% 20%
Capital work-in-progress 1% 1% 1%
Intangible assets 0.41% 0.25% 0.23%
Right-of-use assets 6% 4% 4.19%
Financial assets
i. Investments 9% 6% 3%
ii. Loans 0.00% 0.00% 0.00%
iii. Other Financial assets 2% 3.50% 2.51%
Income Tax assets (net) 1.12% 0.80% 0.77%
Other non-current assets 0.27% 0.24% 0.64%
Sub-total of non-current assets 53% 40% 32%
Current Assets
Inventories 23% 19% 28%
Financial assets
i. Investments 4% 19% 11.53%
ii. Trade Receivables 9% 11% 16%
iii. Cash & cash equivalents 2.74% 0.69% 1.47%
iv. Bank Balance other than (iii) 0.32% 0.13% 0.17%
v. Other financial assets 7% 8% 8.76%
Other current assets 2% 3% 2%
Sub-total of current assets 47% 60% 68%
Total Assets 100% 100% 100%

Equity & Liablities

Equity
Equity share capital 0.71% 0.55% 0.48%
Other equity 69% 68% 67%
Total Equities 70% 69% 67%

Liablities
Non-current liabilities
Financial liabilities
i. Lease liabilities 4% 3% 3%
ii. Other financial liabilities 0.00% 0.01% 0.01%
Provisions 1.01% 0.93% 0.85%
Deferred tax liabilities (net) 2.08% 1.51% 1.03%
Other non-current liabilities 0.03% 0.02% 0.01%
Sub-total of non-current liabilities 7% 5% 5%
Current Liabilities
Financial liabilities
i. Borrowings 0% 0% 0%
a. Lease liabilities 1.05% 0.89% 0.90%
ii. Trade Payables
a. total outstanding dues of micro & small enterprises 0.34% 0.30% 0.28%
b. total outstanding dues of creditors other than (a) 13% 16% 17%
iii. Other financial liabilities 8% 7% 8%
Other current liabilities 0.60% 0.99% 1.54%
Provisions 0.33% 0.33% 0.19%
Current tax liabilities (net) 0.36% 0.50% 0.51%
Sub-total of current liabilities 24% 26% 28%
Total Liabilities 30% 31% 33%
Total Equity & Liabilities 100% 100% 100%

Comments:- Looking at the assets, we can see that companies current assets have increased because
of which fixed assets against total assets have decreased. Trade receivables are increasing YoY which
is not a good sign as,if company fails to recover this amount it will face significant monetary
losses.Coming to the liabilities side of balance sheet we can see that they are maintaining their

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liabilities at the same level and they are also taking advantage of their image in the market to pay to
their suppliers to clear their trade payables. Tax liabilities are increasing but it is only marginally so it
can be ignored.

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Excel: Horizontal Analysis of Berger

Comments:- The variation in increase in COGS is less than Asian paints but still it is increased by
34% which should be managed. Employees benefit expenses is increased as compared to last year but
not to as of Asian Paint. They have significant increase in Other Income source as compared to last
year.

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Excel: Horizontal Analysis of Asian Paints

Comments:- Asian paint has improved as compared to last year but they have increased their COGS
by 50% around. Other income source is increased by 25% as compared to last year. And Employee
benefit is increased by 16% which is better as inflation is raised by 7% this means the salaries
expence for the firm is increased. Deferred tax is increased significantly as compared to last year that
means they managed taxes last year in better way.

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Excel: Vertical Analysis Berger

Berger is investing 80% of the revenue of operation in COGS if the firm do not improved its
efficiency it may reach to run-down time. The frim is trying to manage expenses at other sections like
financial costs and taxes it is not sufficient.

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Excel: Vertical Analysis of Asian Paints

Asian paint is investing more than 75% in COGS. Also the gross profit of firm is declined due to
increase in COGS cost this year compared to previous year. They have managed tax slightly better
than last year. But the exceptional item involvement further impacted the decrease in profit. The
interest paid by the firm is slightly lesser which indicate they might have repaid some debt, but as
debt ratio is constant the increase in debt is proportional to the increase in shareholder equity.

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 Ratio Analysis :
Excel: Liquidity Ratio of Berger

Excel: Solvency Ratio of Berger

Excel: Efficiency Ratio of Berger

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Excel: Profitability Ratio of Berger

Liquidity Ratio: The liquidity ratio of Berger is declined as compared to last year. The current ratio
should be 1:1 ideally and Berger has near to it this is good sign. For working capital ratio ideally 2:1
should be maintained and Berger has 1.3:1 which means they have room of improvement.

Solvency Ratio: The debt of the company remained almost constant and the Interest coverage ratio is
healthy which demonstrate the firm has enough to repay interest on its debts. But not as better as
Asian paints.

Efficiency ratio: The efficiency of the firm has a room for improvement we can see that in financial
statement as well that they purchased inventories but not utilised it optimally. High DSI and High
account receivable turnover ratio shows that the firm is not able to recollect its receivables. It is also a
possibility that they have entered sales as Bill and Hold and not able to sale it in actual market. DSO
lies within acceptable range as the company has policy to collect its receivables in range of 30-90
days. Account payable turnover has improved from last year but has a lot to improve.

Profitability Ratio: As we can see that firm has invested a lot in COGS that is impacting gross
profitability ratio as well. The firm is earning around 20% which is a drop from last year. The firm is
showing a decline in performance in terms of profitability. Company is spending a lot on raw material
and salaries other COGS costs which are not managed efficiently. All other profitability measuring
ratios are declined which resulted in loss of trust of investors in the firm. Also, Berger paints is
investing in buildings and equipment as mentioned in the annual report which is affecting their Return
on Asset. They should try to maintain their return on assets by limiting their current assets.

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Excel: Liquidity Ratio of Asian paints

Excel: Solvency Ratio of Asian paints

Excel: Efficiency Ratio of Asian paints

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Excel: Profitability Ratio of Asian paints

Liquidity Ratio: The liquidity ratio of Asian paints is improved as compared to last year. The current
ratio should be 1:1 ideally and an Asian paint has near to it this is good sign. For working capital ratio
ideally 2:1 should be maintained and Asian paints has 2.3:1 which means they can invest a bit of their
capital to earn profit.

Solvency Ratio: The debt of the company remained almost constant and the Interest coverage ratio is
healthy which demonstrate the firm has enough to repay interest on its debts.

Efficiency ratio: The efficiency of the firm has a room for improvement we can see that in financial
statement as well that they purchased inventories but not utilised it optimally. High DSI and High
account receivable turnover ratio shows that the firm is not able to recollect its receivables. It is also a
possibility that they have entered sales as Bill and Hold and not able to sale it in actual market. DSO
lies within acceptable range as the company has policy to collect its receivables in range of 30-90
days. Account payable turnover has improved from last year but has a lot to improve.

Profitability Ratio: As we can see that firm has invested a lot in COGS that is impacting gross
profitability ratio as well. The firm is earning around 23% which is dropped even further from last
year. Company is spending a lot on raw material and salaries other COGS costs which are not
managed efficiently. All other profitability measuring ratios are declined but still the investors are
ready to pay higher prices expecting firm to grow in future. This may show that the firm is
overvalued.

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