Integration (PGDM) INTRODUCTION

ASIAN PAINTS

Asian Paints is India's largest paint company and ranked among the top ten Decorative coatings companies in the world with a turnover of INR 66.80 billion. Asian Paints along with its subsidiaries have operations in 17 countries across the world with 23 paint manufacturing facilities, servicing consumers in 65 countries through Berger International, SCIB Paints Egypt, Asian Paints, Apco Coatings and Taubmans
THE RATIOS USED FOR THE COMPANY ANALYSIS INCLUDECURRENT RATIO P E RATIO INTEREST COVERAGE RATIO EARNINGS PER SHARE PAT/SALES BOOK VALUE/MARKET PRICE TOTAL DEBT/NET WORTH

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Integration (PGDM)

Current Ratio

An indication of a company's ability to meet short-term debt obligations; the higher the ratio, the more liquid the company is. Current ratio is equal to current assets divided by current liabilities. If the current assets of a company are more than twice the current liabilities, then that company is generally considered to have good short-term financial strength. If current liablities exceed current assets, then the company may have problems meeting its short-term obligations. In the case of Asian paints, the ratio is approximately 1, signifying that the company has current asset equal to current liabilities.In 2009 the current ratio is 1.13 which signifies that current assets are more than current liabilities because there has been in increase in the stock. Again in 2010 the current ratio is lower than 1,the current assets are not enough to meet the current liabilities. In the case of Nerolac, the ratio is higher than 1, signifying that the company has enough current assets to meet its short term obligations: Current Liabilities. The ratio also indicates that follows a not so relaxed operating policy. Usually, a ratio of 2:1 is considered apt but in the case of Nerolac it is not so but this not indicate that the company is under any danger of a liquidity crisis. Having a higher ratio means that the funds are locked to that extent, as such the ratio of Nerolac is very apt as it meets its requirements and also ensures that no more of cash is blocked in an unnecessary buffer . Also as is observed the CR has been decreasing over the last 3 years indicating that the company intends improving its operations and reach. Comparing the two companies, Nerolac maintains a more favorable CR than Asian Paints.

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Integration (PGDM)

Interest Coverage Ratio

A calculation of a company's ability to meet its interest payments on outstanding debt. Interest coverage ratio is equal to earnings before interest and taxes for a time period, often one year, divided by interest expenses for the same time period. The lower the interest coverage ratio, the larger the debt burden is on the company, also called interest coverage. When a company's interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be questionable. An interest coverage ratio below 1 indicates the company is not generating sufficient revenues to satisfy interest expenses. In case of Asian Paints , the ratio is well over the standard. This effectively means that the interest obligation of the company is far too less. As such the company has very less interest payable debts. In case of Nerolac , the ratio is well over the standard. This effectively means that the interest obligation of the company is far too less. As such the company has very less interest payable debts. Nerolac has a much favorable Int Cov. Ratio than asian paints. This is because Nerolac has much lesser Interest obligation compared to Asian Paints

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Integration (PGDM)

Earnings Per Share

The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company's profitability. Earnings per share =( PAT-Dividend paid to the preference share holder)/No. of outstanding shares In the case of Asian Paints, the earning per share has been increasing except in the year 08-09 where the earning per share dropped due to the global recession. A considerable increase in earnings per share the following year is observed especially due to boost in the net sales of the company which resulted in greater profitability to the company.

In the case of Nerolac, , the EPS has been increasing except for a lull in 08-09 due
to recession, but has increased substantially in the following year, implying that the company has made increasing profits over the years while keeping the share capital almost constant

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Integration (PGDM) Currently Asian paints has a much better EPS than Nerolac.

P/E Ratio

A valuation ratio of a company's current share price compared to its per-share earnings. In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. In the case of Asian Paints, A higher P/E ratio suggests investors confidence in the future performance of the company. It implies that the company will make higher profits in the future thus decreasing the P/E ratio provided the stock prices remain same. In case of Nerolac, it has a positive ratio indicating that the investors expect growth in the company. There was a decrease in the ratio in 2008-09, due to recession and market fears Asian Paints has a better P/E Ratio than Nerolac, implying that the investors have a higher confidence in the future growth of Asian Paints

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Integration (PGDM)

PAT/Sales

A financial performance ratio, calculated by dividing net income after taxes by net sales. A company's after-tax profit margin is important because it tells investors the percentage of money a company actually earns per dollar of sales. This ratio is interpreted in the same way as profit margin - the after-tax profit margin is simply more stringent because it takes taxes into account. As can be seen, Asian Paints has an un-satisfactory ratio is the years 2007-2008 and 2008-2009 due to recession which had led to the increase in raw material costs as during that time, the worldwide demand for the raw materials needed by the paint industry were high in demand. Hence the procurement costs had also increased which led to a rise in the overall cost of production. Hence the company had a very low profit margin. However, in the year 2009-2010, the raw material costs went down due to which the company could earn a higher profit margin of 15% on their costs. There was a substantial increase in sales(3419 to 5125crores) which led to substantial increase in profit after tax(375 to 774 crores) as against the marginal increase in material costs(1956 to 2840 crores).

In the case of Nerolac, it has a good profit to sales to ratio over the 3 years, it
decreased during FY 08-09 due to recessionary trends but picked up and achieved the level of 9% in the next year. Asian paints has a better PAT/Sales ratio indicating a higher earning percentage of Sales.

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Integration (PGDM)

BV/MP

This ratio states the relation of the book value (Net worth) and the market price value of the company. A ratio of more than 1 indicates that the company is under-capitalised as the market valuation of the company is lesser than the book value and inversely, a lower ratio i.e less than 1, indicates that the company is over-capitalised. As seen in the case of Asian Paints, from the ratio of the three years, the ratio has always been on the lower side. This indicates that there has been a good demand for the stock over the period as the share has been trading at a higher price. The reason for the dip in the stock prices in the year 08-09 is due to apprehension among the investors regarding the performance of the sector due to global slowdown In case of Nerolac, the ratio has always been on the lower side. This may also indicate that the investors have confidence in the future of the company as the share prices discount the future. In a bullish market, almost all companies are over-capitalised. Nerolac is over-capitalised to a higher extent when compared to Asian Paints

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Integration (PGDM)

TOD/NW

This ratio shows the extent to which the company is dependent on Outside Interest bearing funds compared to shareholders funds. The ratio should ideally be less than 1 ie. the amt of funds contributed by oustside loans should be less than the shareholders funds. In case of Asian paints the ratio is less than 1 indicating long term financial stability of the company as it depends on the shareholders funds more than the borrowed funds. This is good as outside influence on the company is very less. In the case of Nerolac, the ratio is well below 1 implying that the company depends on its shareholders more than on borrowed funds. This is good as outside influence on the company is very less. Comparing both companies, Asian paints is well-positioned in terms of long term stability as compared to Nerolac. But this also means that since the company has

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Integration (PGDM) higher owned funds than borrowed, the amount of tax shield that it gets is less. Interest is pre-tax item whereas dividend is post-tax item.

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