Asian Paints’ Case Study and analysis 2022: Asian Paints is the largest and leading Indian paint company. In this article, we will look into the fundamentals of Asian Paints, focusing on both qualitative and quantitative aspects. Here, we will perform the SWOT Analysis of Asian Paints, Michael Porter’s 5 Force Analysis, followed by looking into Asian Paints’ key financials. We hope you will find the Asian Paints’ case study helpful.
Disclaimer: This article is only for informational purposes and should not be considered any kind of advisory/advice. Please perform your independent analysis before investing in stocks, or take the help of your investment advisor. The data is collected from Trade Brains Portal.
About Asian Paints and its Business Model
Asian Paints is India’s 1st largest, Asia’s 3rd largest and the world’s 9th largest paint company. It has been setting a high standard of operational efficiency, management, world-class innovation and technological vision for the last 7 years.
The paint industry is divided mainly into two segments viz. Decorative and Industry. The Decorative segment includes household paints (interior wall finishes, exterior wall finishes, enamels and wood finishes) and is undeniably dominated by Asian Paints in India. The Industry segment includes industrial paints, automotive coatings, OEM paints, powder coatings etc., in which Asian Paints comes at 3rd place after Kensai Nerolac and Akzo Nobel.
The decorative segment is less technology-dependent due to which some unorganized players also eat up a small fraction of the market share. However, the industry segment is highly technology-dependent and entirely have organized players.
Asian Paints holds a global presence by operating in 15 different countries and owning 26 paint manufacturing plants across the globe. In India, it has a robust distribution network of suppliers. To improve its margins and operational efficiency, the company chose dealers over distributors.
Currently, the company has 70,000+ shopkeepers across the nation. It has also been enhancing its dealers for the past 40 years. Asian Paints has a phenomenal supply chain as it carries out around 2.5 – 3 lakh deliveries per day and its trucks visit the dealers around 4 times a day.
Asian Paints’ Industry Analysis
The paint industry runs parallel to the GDP and economy. Considered as discretionary spending, as the GDP increases so does the spending capacity of the people. In the past, this industry has seen double-digit growth in terms of both, value and volume, and this is why it has always traded at premium valuations in emerging economies.
For the last two years, there has been a constant rise in the market share by organised players. Currently, the ratio is around 70:30 between organised and unorganised players, and with the technological innovation and proper GST implementation, this market share is expected to rise to 85% in the next couple of years.
The paint industry of India is expected to witness a phenomenal rise in the coming years considering India’s latest per capita consumption (of around 4.1kg) as compared to that of the world (15kg.) This data provides a vast scope for the paint industry to grow in India.
The paint industry is a raw material intensive industry. Especially in the case of India, most of the raw materials are imported from other countries. With the government imposing import bans and promoting the self-reliant mission, the supply is expected to come from within the country in the coming years, which will be a boon to this industry and it will see a tremendous rise in operational margins.
Michael Porter’s 5 Force Analysis of Asian Paints
1. Rivalry Amongst Competitors
- The 65% paint industry is dominated by the organized sector which includes 4 companies (Asian Paints, Berger Paints, Kansai Nerolac and Akzo Nobel). As it is a raw material intensive industry, the distribution network plays an important role; hence a very tough competition is observed among the competitors.
2. A Threat by Substitutes
- In earlier days, limewash was used as an alternative to paints. However, in the modern era, the trend is entirely getting shifted to paints. Hence, the threat to substitutes is very low.
3. Barriers to Entry
- The Industry segment is totally governed by technological developments, which limits the entry of unorganized players owing to the high R&D expenditure.
- Established players have a well-developed and trusted distribution system, which will be very difficult for a new entrant to break.
4. Bargaining Power of Suppliers
- Paint manufacturing requires more than 300 raw materials, of which the maximum is imported. Titanium oxide, which constitutes 25% of the raw materials, is facing a shortage of supply. 50% of the same is crude-based products which see high volatility in prices. Hence, the bargaining power of suppliers is very high in the paint industry.
5. Bargaining Power of Customers
- With almost similar products offered by 4 different companies of an industry, it becomes price-sensitive; hence, customers enjoy high bargaining power.
- The industry segment attracts technologically enhanced companies with a robust supply chain, which is not offered by many; hence, customers do not possess much bargaining power in this segment.
Asian Paints’ SWOT Analysis
Now, moving forward in our Asian Paints case study, we will perform the SWOT analysis.
- Right after setting foot in the paint industry, Asian Paints chose dealers instead of distributors and wholesalers. This decision has turned out to be a boon for the company as the distributors demanded a 20% margin whereas now only 3% margin goes to the suppliers.
- Technological Development is the sector where Asian Paints have been investing for decades. Asian Paints bought a supercomputer worth 8 crores in 1970, which is ten years before ISRO did it. It collects almost double the data than its competitors and forecasts the trend with more than 97% accuracy.
- The penetration of Asian Paints in the industry segment is far too low, and it faces stiff competition from already strong Kansai Nerolac and Akzo Nobel.
- Despite being the 9th largest paint company in the world, the global business of the company is far below average with the exception of Bangladesh, Nepal and UAE.
- Asian Paints states that they aim to enter the list of top 5 paint companies of the world. This could be achieved by focusing on the emerging economies of the world.
- Considering the market share, Asian Paints has an opportunity to increase its market share in the industry segment as it requires world-class technology which the company can very easily afford.
- Government policies (like the extension of CLSS), rapid urbanization and easy availability of home loans will increase the demand for paint. With its strong distribution network, innovative products and total home solutions, Asian Paints can be hugely benefitted.
- With new players like Indigo Paints and already established players, Asian Paints faces stiff competition. In the global market too, the world-class technologically innovative players dominate the market share.
- As most of the raw materials for manufacturing paint are imported, the company may face operational disruption during circumstances like a pandemic, country tensions, etc.
Asian Paints’ Management
The visionary founder of Asian Paints, Mr Chamaklal Choksi laid the stone of efficient management in the company. From its incorporation to this date, Asian Paints has been setting standards in management qualities, and this is one of the reasons it has been one of the biggest wealth creators of all time in India.
Being a visionary and understanding the importance and future of technology, Mr Choksi bought a supercomputer worth Rs 8 Crores, back in 1970 before ISRO (after 10 years) and IIT Bombay (after 21 years) did, to collect various data, forecast the sales, efficient changes and customer interest. This custom of pure management is still going on in the company.
The newly appointed MD and CEO Mr Amit Syngle owns just 600 shares of the company (the previous one, Mr KBS Anand owned mere 270 shares). The board of Asian Paints enjoys broad expertise and vast experience.
Financial Analysis of Asian Paints
- 85% of the company’s revenue comes from the decorative segment. In FY20 company launched various value for money emulsions which helped the company to gain more market share.
- 2.5% of the company’s revenue is incurred from the Industrial coating Business. The company is a market leader in auto refinish segment and stands at the second position in the OEM segment.
- 2.5% of the total revenue constitutes from the home improvement business. Recently, the company is trying to enter complete home solutions like sanity ware, kitchen and living area under the brands ap royal bathrooms.
- International Business accounts for 11% of the total revenue generated by the company, and in FY20, the company improved the product value proposition in the key markets like Egypt, Bangladesh, Sri Lanka etc.
- 42% market share of the Indian Paints Industry is dominated by Asian Paints, which makes it a leader of the industry, followed by Berger Paints (12%), Kansai Nerolac (7%), Akzo Nobel (5%) and Indigo Paints (2%). 33% of the market share is acquired by other small and unorganised players.
- Asian Paints beats its competitors in profitability with an NPM of 10.42. [Berger Paints (9.51) and Kansai Nerolac (5.64%); Source: Trade Brains Portal]
- The company has seen steady rise in revenues and net profits over the years.
Asian Paints’ Financial Ratios
1. Profitability Ratios
- Asian Paints has EBIDTA Margin of 13.97%, which is constantly rising from the last few years and it is the highest among its peers. The recent decline from 19.08% in FY21 to 13.97% in FY22 is mainly due to rising crude prices.
- Asian Paints has been constantly delivering a massive RoE of above 25% for a lot of years. The current RoE stands at 22.95%.
- For the FY20 the RoCE is standing at a massive 30.65%. However, there has been a decreasing trend in RoCE for the last couple of years mainly due to rising balance of reserves.
2. Leverage Ratios
- Current Ratio for the FY22 is 2 for the company, which has seen continuous improvement for the last couple of years. Current Ratio above 1 is considered healthy.
- The Company is almost debt-free with Debt-to-Equity ratio of a mere 0.06. It means the company is funding additional projects from the equity.
- The quick ratio of the company is 0.96 for the latest financial year. Although liquidity has not improved in the last few years, it has maintained a threshold requirement.
|Quick Ratio||Current Ratio||Interest Coverage Ratio||D/E|
3. Efficiency Ratios
- Asset turnover Ratio has seen a continuous fall from FY 16(1.83). Currently, the ratio is 1.25. However, there has been a similar fall for the entire peers of the industry and Asian Paints still has a better figure than the peers.
- The inventory turnover Ratio for the FY22 is 3.05, which is the highest among the peers. However, an entire industry has seen a fall in this ratio from the last few years.
- The number of payable days has decreased from the previous fiscal year (119 to 96), which shows the supplier’s bargaining power over the company, whereas the receivable days are continuously increasing from the last few years indicating stiff competition.
|Asset Turnover Ratio||Inventory Turnover Ratio||Receivable Days||Payable Days|
Shareholding Pattern of Asian Paints
- Promoters hold 54% of the company with around 10.67% of pledging. Promoter holding has been constant for the last few quarters and pledging of shares has also reduced from 12.53% in December 2019 to 11.08 % in March 2022. Nevertheless, pledging above 10% is an alarming sign.
- A constant increasing trend has been seen in the case of FII holding for the last few quarters (barring present quarter) with a shareholding of 19.45% in March 2022.
- DIIs own nearly 7.62% of the company. However, a constant decreasing trend has been seen in the DII shareholding in Asian Paints for the last few quarters.
- Public Holding has been more or less the same in Asian Paints of around 19-20%.
In this article, we tried to perform a quick Asian Paints’ case study. Although there are still many other prospects to look into, however, this guide would have given you a basic idea about Asian Paints.
What do you think about Asain Paint fundamentals from the long-term investment point of view? Do let us know in the comment section below. Take care and happy investing.
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Eventthough fundamental is strong as only 3 organised players are in present roof , but looking to new entrants like Grasim , J.K.Paints , JSW Paints , Indigo Paints , Joutoun etc coming year market share pattern will change , so Asian require to move ahead to backwards integration like to entrer into TiO2 manufacturing and Binder plant etc
Asian is omnipresent in Decoratives! They r into resin manufacturing. They need to takeover a TiO2 plant & a pigment plant . They also need to tap the DIY market for the urban sector as day by day labour is costly. Tools for DIY & user friendly systems r the need . Their R& D & network is very strong! They need not fear the new entrants, as they are very well established! But hope their succession plan is strong!
It is useful and gives insights about the paint industry and the current trend.