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Bhavan’S Executive Management Programme

Subject:Managerial Economics

Faculty Name:Prof. K Ravi

Case Study on : M/s Asian Paints Limited

Submitted by

Name:Umapati Y Bhat

Reg No:PG121213

Date:10 th Mar’12

Mgl. Economics. Assignment.by Umapati Y Bhat

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INDEX

Sl.No.

Description

Page

1

About Asian Paints Ltd.,

3

2

Data & Sources

4

 

Advertisement Expenses Vs. Net Sales (

 

I

Sales is a function Of Advertisement)

I.1

Excel Results

5

I.2

Interpretation

6

I.3

Graphs / Diagrams

7

I.4

Recommendation

8

I.5

Growth rate & Forecast

9

 

Cobb Douglas Production Function ( Production, Capital and Labour relation

 

II

ships)

II.1

Data Tabulation with log values

10

II.2

Excel Results

11

II.3

Interpretation

12

 

Asian Paints - it's position in paint industry (Industry Type & Market

 

III

Structure)

13

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About Asian Paints:

Asian Paints is India’s largest paint company and Asia’s third largest paint company, with a group turnover of Rs 7700 Crore. The group has an enviable reputation in the corporate world for professionalism, fast track growth, and building shareholder equity.

Asian Paints established in 1942 at Mumbai, today operates in 17 countries and has 24 paint manufacturing facilities in the world servicing consumers in over 65 countries. Besides Asian Paints, the group operates around the world through its subsidiaries

Berger International Limited, Apco Coatings, SCIB Paints and Taubmans. Coatings, SCIB Paints and Taubmans.

Forbes Global magazine USA ranked Asian Paints among the 200 Best Small Companies in the World for 2002 and 2003 ian Paints among the 200 Best Small Companies in the World for 2002 and 2003 and presented the 'Best under a Billion' award, to the company. Asian Paints is the only paint company in the world to receive this recognition.

Forbes has also ranked Asian Paints among the Best under a Billion companies in Asia In 2005, 06 and 07. ong the Best under a Billion companies in Asia In 2005, 06 and 07.

Product Range covers both Decorative and Industrial use. In Decorative paints, Asian Paints is present in all the four s egments Industrial use. In Decorative paints, Asian Paints is present in all the four segments v.i.z Interior Wall Finishes, Exterior Wall Finishes, Enamels and Wood Finishes.

Introduced many innovative concepts in the Indian paint indu stry like - Colour Worlds (Dealer Tinting Systems), Home Solu tions he Indian paint industry like - Colour Worlds (Dealer Tinting Systems), Home Solutions (painting solutions Service), Kids World (painting solutions for kid’s room), Colour Next (Prediction of Colour Trends through in-depth research) and Royale Play Special Effect Paints, just to name a few.

Vertical integration has seen it diversify into products such as Phthalic Anhydride and Pentaerythritol, which are used in the paint manufacturing into products such as Phthalic Anhydride and Pentaerythritol, which are used in the paint manufacturing process.

Reg Joint Ventureswhich are used in the paint manufacturing process. Asian Paints also operates through APPG (50:50 JV

Asian Paints also operates through APPG (50:50 JV between Asian Paints and PPG Inc, USA, one of the largest automotive coatings manufacturer in the world) to and PPG Inc, USA, one of the largest automotive coatings manufacturer in the world) to service the increasing requirements of the Indian automotive coatings market.

Another 50:50 JV with PPG has been proposed which will service the protective, industrial powder, industr ial containers and light industrial been proposed which will service the protective, industrial powder, industrial containers and light industrial coatings markets.

Asian Paints achieved sales Rs 6322.2 Crore with PBDIT as Rs.1232.7Crore ( excluding group companies). 2 Crore with PBDIT as Rs.1232.7Crore ( excluding group companies).

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Data & Sources:

-

http://www.asianpaints.com/applications/financial_result.aspx. Data available for 7 Finacial

Years starting from 2003-04 till 2010-2011. For current Financial Year – past 3 quarter results are available however as the Financial year shall complete on 31 st Mar’12, the same is not considered here for the study. 2002-03 data is obtained from 2003-04 result for Production-Labour- Capital function study.

Data

for

this

study

is

down

loaded

from

company’s

website

Figures are converted to single numbering forms i.e in Crore as prior to 2007 fin. Results are in Millions and later in Crores.

Sales as a function of advertisement expenditure Table 11 Sales Revenue and Advertisement Expenses in Crore

Currency INR

Sl.NO

Financial

Advertisement

Net Sales

Year

Expenses 'X"

Revenue "Y"

 

1 200304

68.24

1696.65

 

2 200405

69.92

1941.52

 

3 200506

90.97

2319.16

 

4 200607

110.98

2821.29

 

5 200708

164.85

3419.06

 

6 200809

197.05

4270.05

 

7 200910

244.25

5125.08

 

8 201011

282.35

6322.24

Production as a function of two variable Capital & Labour Table 21 Production, Capital and Labour in Crore

Currency INR

Sl.NO

Financial Year

Production in MT

Capital in Crore

Labour in Crore

1 200304

 

352381.00

531.54

101.56

2 200405

 

416082.00

572.22

117.93

3 200506

 

417233.00

622.28

128.98

4 200607

 

486896.00

744.07

154.96

5 200708

 

559586.00

928.50

194.67

6 200809

 

602922.00

1094.47

238.90

7 200910

 

726437.00

1557.22

260.84

8 201011

 

849056.00

1975.32

300.45

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SUMMARY OUTPUT

   

Regression Analysis – Using Excel for Sales v/s Advertisement

 

Regression Statistics

   

Multiple R

0.993146664

R Square

0.986340296

Adjusted R Square

0.984063679

Standard Error

206.5552154

Observations

8

ANOVA

               
 

df

 

SS

MS

F

Significance F

     

Regression

1

 

18484558.52

18484558.52

433.2481852

8.00592E07

     

Residual

6

 

255990.3421

42665.05701

         

Total

7

 

18740548.86

           
 

Coefficients

Standard Error

t Stat

Pvalue

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept

438.3904961

 

163.7638278

2.6769678

0.0366841

37.6748459

839.1061463

37.6748459

839.1061463

Advert. Expenses 'X"

19.8662354

 

0.9544369

20.8146147

0.0000008

17.5308125

22.2016582

17.5308125

22.2016582

RESIDUAL OUTPUT

     

Observation

Predicted Net Sales Revenue "Y"

Residuals

1

 

1794.10

97.46

2

 

1827.38

114.14

3

 

2245.68

73.47

4

 

2643.17

178.13

5

 

3713.34

294.28

6

 

4353.03

82.98

7

 

5290.72

165.64

8

 

6047.62

274.62

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Interpretation – Sales as a function of Advertisement

RSquare: InReferring to Regression results, R Square value is 0.9863 =98.63% which means that 98.63% of the total variation in firm’s sales is accounted for by the variation in the firm’s advertising expenditure.

Hypothesis:

Null Hypothesis : There is no significant influence of advertisement on Net Sales. There is no significant influence of advertisement on Net Sales.

Alternative Hypothesis: There is significant influence of advertisement on Net sales. There is significant influence of advertisement on Net sales.

t

cal = t stat = 20.814 (from the regression result for independent variable.

t

tab = 2.447 (from the T Distribution table based on deg of freedom 5 and probability 0.05 and )

Since t cal value 20.814 well exceeds t tab value 2.447 for the 5% level of significance with 6 df, we reject the Null Hypothesis that is that there is no relation between advertisement and sales and we accept Alternative Hypothesis that there is statistically significant relationship between advertisement and sale at the 5% level. That means we are 95% confident that such relationship exists. In other words that the Advertising Expenses – independent Variable has High Significant influence on the Sales – dependent variable.

The linear equation of Net Sales and Advertisement expenses can be represented as S = a0 + a1(advertisement) Where S is Net Sales Revenue (Dependent variable) a 0 is Intercept calculated thru Regression using XL tool = 438.390 a1 is Slope i.e. co-efficient of Advertisement expenses = 19.86 Advt is Advertisement Expense (Independent variable)

Replacing the appropriate values from Data Analysis obtained from Excel sheet in previous step, the equation is

=a0 +a1(advt) S=438.390 + 19.86 (adv)

Sales revenue shall increase by 438.390+19.86 times advertisement Expenses.

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Net Sales Revenue in Crore V/s Advertisement expenses Representation by Scatter Diagram:

By taking Sales Revenue and Advertisement Expenses in Crores

taking Sales Revenue and Adve rtisement Expenses in Crores Sales Revenue in Crore on” Y “

Sales Revenue in Crore on” Y “ axis Adertisement Expenses in Crore on “X” axis By Taking Log Values for Sales Revenue & Advertisement Expenses

Log Values for Sales Revenue & Advertisement Expenses Sales Revenue Log Values on” Y “ axis

Sales Revenue Log Values on” Y “ axis Adertisement Expenses Log Vales on “X” axis We can observe a high influence of advertisement on sales revenue.

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Recommendation:

1. Going by the above study, regression analysis, we got R Square value as 98%. It means the 98% variation in sales is explained / related by variation in it’s advertisement expenditure. Hence It is recommended to increase the advertisement expenditure to an optimum scale as required to reach sales growth rate.

2. As the RSquare value covers 98% variation of sales in relation with advertisement, in the mean time Tcal is greater than t Tab we are convincingly recommending to increase advertisement expenses by 438.39+19.86 (advt) to achieve desired sales revenue.

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Growth Rate & Forecast:

Sl.NO

Financial

Advertisement

Net Sales

Sales

Advt

Year

Expenses

Revenue

Growth

Exp

rate

Increase

Rate

1

200304

68.24

1696.65

   

2

200405

69.92

1941.52

14.43%

2.40%

3

200506

90.97

2319.16

19.45%

23.15%

4

200607

110.98

2821.29

21.65%

18.03%

5

200708

164.85

3419.06

21.19%

32.68%

6

200809

197.05

4270.05

24.89%

16.34%

7

200910

244.25

5125.08

20.02%

19.32%

8

201011

282.35

6322.24

23.36%

13.49%

9

201112

310.59

6608.47

4.53%

10.00%

9

201112

324.70

6888.88

8.96%

15.00%

9

201112

338.82

7169.39

13.40%

20.00%

9

201112

352.9375

7449.70

17.83%

25.00%

9

201112

381.1725

8021.73

26.88%

35.00%

Forecast Using S=a0+a1(advt.) Advertisement expense is 310.585

=438.39+19.866(310.585)

=438.39+6170.08

=6608.47Crore

Advertisement Expenses is 324.70Crore

=438.39+19.866(324.70)

=438.39+6450.49

=6888.88Crore

Advertisement Expenses is 338.82Crore

=438.39+19.866(338.82)

=438.39+6730.99

=7169.388Crore

Advertisement is 352.93Crore

=7449.697Crore

Advertisement is 381.172

=8021.739Crore

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Production as a function of two variable Capital & Labour Table 21 Production, Capital and Labour in Crore

 

Log Values

 

Financial

Production

Capital in

Labour in

     

Sl.NO

Year

in MT

Crore

Crore

Production Q

Capital K

Labour W

 

1 200304

352381.00

531.54

101.56

12.77247

6.27578

4.62061

 

2 200405

416082.00

572.22

117.93

12.93864

6.349524

4.770091

 

3 200506

417233.00

622.28

128.98

12.9414

6.433397

4.859626

 

4 200607

486896.00

744.07

154.96

13.09581

6.612135

5.043148

 

5 200708

559586.00

928.50

194.67

13.23495

6.83357

5.271306

 

6 200809

602922.00

1094.47

238.90

13.30954

6.998026

5.476045

 

7 200910

726437.00

1557.22

260.84

13.49591

7.350657

5.563907

 

8 201011

849056.00

1975.32

300.45

13.65188

7.588486

5.705281

Excel Results – Cobb Douglas Production Function

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SUMMARY OUTPUT

   

Regression Results using XL– Cobb Douglas Production Function:

Regression

 

Statistics

Multiple R

0.994570807

 

R Square

0.98917109

Adjusted R

   

Square

0.984839526

Standard Error

0.036956711

Observations

8

ANOVA

           
         

Significance

df

 

SS

MS

F

F

Regression

2

 

0.623797038

0.311898519

228.363496

1.22029E05

Residual

5

 

0.006828992

0.001365798

   

Total

7

 

0.63062603

     
           

Upper

Lower

Upper

 

Coefficients

Standard Error

t Stat

Pvalue

Lower 95%

95%

95.0%

95.0%

Intercept

9.066486

 

0.206207

43.967830

0.000000

8.536413

9.596559

8.536413

9.596559

Capital K

0.387248

 

0.129151

2.998417

0.030154

0.055255

0.719240

0.055255

0.719240

Labour W

0.286282

 

0.155002

1.846964

0.124032

0.112162

0.684727

0.112162

0.684727

RESIDUAL OUTPUT

 

Observation

Predicted Production Q

Residuals

 

1 12.81956718

 

0.047098922

2 12.89091779

0.04771984

3 12.94902977

0.00762967

4 13.07078478

0.025021044

5 13.22185275

0.013099754

6 13.34415086

0.034607746

7 13.50586019

0.009953149

8 13.63843157

0.013448849

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Interpretation – Cobb Douglas Production Function

RSquare: InReferring to Regression results, R Square value is 0.989 =98.9% which means that 98.9% of the total variation in firm’s goods produced is accounted for by the variation in the firm’s capital and labour deployed.

Hypothesis:

Null Hypothesis : There is no significant influence of C apital – K and labou r-W on Production There is no significant influence of Capital – K and labour-W on Production

Q.

Alternative Hypothesis: There is significant influence of Capital & Labo ur on Net goods There is significant influence of Capital & Labour on Net goods

produced.

Fcal = 228.36 (as per our excel analysis)

Ftab = 5.79 (from F distribution table of 5% Significance, taking numerator as 2 and denominator as 5)

Since Fcalculated value F Statistic 228.36 >exceeds critical value of F distribution with 2 and 5 df, we reject the null Hypothysis and accept alternative hypothesis that there is statistically significant relation between independent and dependent variables

Labor W Coefficient = 0.28

It Indicates that with 1% increase in labour, Quantity of goods produced (roduction) will increase by

0.28%%

Kapital Coefficient = 0.38

It Indicates that with 1% increase in Capital, Quantity of goods produced (roduction) will increase by

0.38%%

Since Capital Coefficient > Labour Coefficient, we conclude that the organization is a Capital intensive.

Coefficient of Labor & Capital = alpha + beta = 0.28 + 0.38 = 0.66 which is less than 1, hence we can say that the industry is on decreasing return to scale.

Cobb Douglas Production Function

Q = ln A + a In K + b ln L

= 9.06 + 0.28+ 0.38

= 9.72

Company needs to imprrove on production technology process technology and back hand integration to bring on return to scale side.

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Market Structure Analysis:

Market Structures are-

Perfect Competiton

Monoplistic Comptn.

Monopolistic Comptn.

Oligopolistic Comptn

Asian Paints is 13 th largest in the world in paints industry, 3 rd largest in Asia and largest in India.

In India even though there are many small brands in paints, howver few branded competition namely – Kansai Nerolac, Berger Paints, Akzo Noble and Shalimar Paints who have recognisible imprints in market. Among all Asian Paints is showing over 20% annual growrth rate since 2005 and is one of the company identified as “Future Prospective”. ( source Stock shastra .com). Fewer sellers, many buyers applies here.

Asian Paints is 13 th in international market with considerable global presence in developing countries, middle easta nd African countires. Revnue wise they stand globally at 13 th with 1.9Bln against the world’s largest paint company Akzo noble with sales revnue of 13Bln UD.

From our study we found Asian paints is Capital intensive industry and has lost of assests in terms of plant and machinery. It is having barriers to resource mobility and needs reasonably long time planning for building capacities / making adjustments

Products are homogeneous as well as differentiated. But BRAND NAME carries weightage in market.

Asian paints has Price Leader ship – they cansell their goods at marginally higher prices over competition as they have established tehir brands well ahead of others.

Also Asian paints has Scal of production and they can continue to produce till P=AVC.

Thus Asian Paints is categoriesd as OLIGOPOLISTIC.

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