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Organizational Report on Asian paints pvt ltd

BY

Alan Simon

1IA18mba09

Submitted to

VISVESVARAYA TECHNOLOGICAL UNIVERSITY, BELAGAVI

In partial fulfillment of the requirements for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

Under the guidance of

INTERNAL GUIDE EXTERNAL GUIDE

Prof.Sendhil Kumar Mr.Avin Francis

Dept. of MBA General Manager

Department of MBA

Acharya Institute of technology, Soldevanahalli,

Hesaragatta Main Road, Bengaluru

August 2019
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CERTIFICATE

This is to certify that Alan Simon bearing USN 1IA18MBA09, is a bonafide

student of Master of Business Administration course of the Institute 2018-2019

affiliated to Visvesvaraya Technological University, Belagavi. The report on

Organizational Study at Asian Paints. PVT is prepared by Him/her under the

guidance of Prof. Sendhil Kumar ,in partial fulfillment of the requirements for the

award of the degree of Master of Business Administration of Visvesvaraya

Technological University, Belagavi, Karnataka.

Signature of Internal Guide Signature of HOD Signature of Principal

VIVA VOCE EXAMINATION

Name of the Examiners Signature with Date

1.

2.

2
3
DECLARATION

I, Alan Simon hereby declare that the Organisation Study report with reference to Asian Paints. Pvt

is prepared by me under the guidance of Prof. Sendhil Kumar faculty of M.B.A Department, AIT

and external assistance by Mr. Avin Francis, General Manager of Peejay enterprises. I also

declare that the Organisation Study has been carried out towards the partial fulfillment of the

university regulations for the award of degree of Master of Business Administration by

Visvesvaraya Technological University, Belagavi. I have undertaken the Organisation Study for a

period of four weeks.

Place: Bangalore Signature of the Student

Date:

4
Acknowledgement

I wish to express my sincere thanks to our respected Principal, Dr Prakash M R, beloved Dean-

Academics, Dr Devarajaiah R M, and deep sense of gratitude to Dr M M Bagali, HOD, MBA,

Acharya Institute of Technology, Bengaluru for their kind support and encouragement in

completion of the Organisation Study.

I would like to thank external guide Mr. Avin Francis, Area general manager, Peejay

Enterprises, Bangalore, who gave me golden opportunity to do Organisation Study at your

esteemed organization, which helped me to learn various concepts and also thank Internal guide

Prof.Sendhil Kumar, Guide, Department of MBA, Acharya Institute of Technology, Bengaluru

for constant support throughout the Organisation Study.

Finally, I express my sincere thanks to my parents, friends and all the staff of MBA department of

AIT for their valuable suggestions in completing this Organisation Study report.

Place: Bengaluru Alan Simon

Date:30/08/2019 USN: 1IA18MBA09

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TABLE OF CONTENTS

Executive Summary

Chapter 1. Introduction about Industry 11

Chapter 2. Company Profile 16

Chapter 3. McKinsey’s 7S framework and Porter's Five Force Model 24

Chapter .4. SWOT Analysis 32

Chapter .5. Analysis of financial statements 35

Chapter 6. Learning experience 54

LIST OF TABLES

Table Particulars Page Nos.

No.

1 Competitors analysis 20

2 Recent Sales Breakdown 35

3 Impairment Loss 41

4 Balance Sheet 2005-08 42

Balance Sheet 2015-19 43

5 Income Statements 45

6 Liquidity Ratio 47

7 Dupont analysis 49

8 Operating cycles chart 1 51

9 Operating cycles chart 2 52

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LIST OF CHARTS AND GRAPHS

Table No. Particulars Page Nos.

1 Segmentation of Paint 18

2 Mckinsey 7S Framework 24

3 Porters Five Force Model 28

4 Recent Sales Chart 35

5 Asset and Liabilities 44

6 Expense Trends 46

7 EBIT Chart 47

8 Liquidity ratio 48

9 Dupont Analysis Chart 50

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EXECUTIVE SUMMARY

Unlike most other industry, the paint industry was relatively free of regulations. However for a long

time it was perceived to be a luxury item and was subject to high levels of sales and excise taxes.

The high excise duty regime coupled with relatively low costs of investment in setting up a paint unit,

made local manufacture and distribution quite attractive. This lead to the emergence of a very large

number of small manufactures competing mainly in lower segment of the decorative paint market.

Boom in Indian Housing Sector: Increasing urbanization, cheaper housing loans and a shift from

semi-permanent to permanent housing structures have been driving growth in decorative paints

segment, which constitutes 70% of the $2 billion paint industry in India

Strong Industrial growth: An average growth of about 10% in the automobile sector which provides

50% of the revenues in the industrial paints segment. Industrial paints account for 30% of the paint

industry revenue in India

Heavy Infrastructure Spending: New projects in roads, ports and industrial segments increases

revenues from protective coatings for civil applications and road-marking paints to all parts of the

building paints sector, whether interior, exterior, waterproofing or floor coatings.

Increase in manufacturing activities: Over 40% of the industrial sector takes the form of OEM

finishes, which is expected to grow steadily as a result of increasing demand for consumer goods in

India as well as India’s position now as a leading manufacturing hub for the supply of goods to the

Southeast Asian and other world markets.

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Less Seasonality: About 65 per cent of the demand for decorative paints stems from repainting.

Rising aspiration levels, Shift in the perception of paints as having a protective value rather than a

mere decorative have diminished the impact of seasonality

Rise in Income: Lifestyle based spending by Indian middle class is helping decorative segment of

this industry. Contemporary wood finish formulations are replacing the more traditional lacks and

exterior emulsions take over from cement paints.

In this study I have tried to find out the “Consumer Attitude towards Asian Paints”. Consumers have

different perception, by analyzing the responses given by them in the survey I have given some

suggestions. Sample size of the survey is 50.

Responses for the questions were of yes or no type & also their were guarantee of the product

aware of other products were asked, suggestions for improving pricing of the product, online

information given by the company were also included in the questionnaires. Which purpose the

consumer is using the product. By which factor they were influence by the product.

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Chapter 1

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INTRODUCTION

An internship is an excellent way to determine if the industry and the profession is the best career

option to pursue. It helps individual to combine theory with practical work experience. It helps

develop professional work habits, provides an understanding of professional cultures, gives an

opportunity to analyze workplace setting, and offers platforms to compare differences in work style.

Objectives of internship

The main objective of the internship course is to facilitate reflection on experiences obtained in the

internship and to enhance understanding of academic material by application in the internship

setting. Internship will provide students the opportunity to test their interest in a particular career

before permanent commitments are made.

• Internship will help the trainees to develop skills and techniques directly applicable to their

careers.

• Internship will provide students with an in-depth knowledge of the formal functional activities

of a participating organization.

• Internship will provide students the opportunity to develop attitudes conducive to effective

interpersonal relationship.

• Internship programs will enhance advancement possibilities of graduates.

Profile of the company

The history of Asian Paints

The company has come a long way since its small beginning in 1942. Four friends who were

willing to take on the world's biggest, most famous paint companies operating in India at that time

set it up as a partnership firm. Over the course of 25 years, Asian Paints became a corporate force

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and India's leading paints company. Driven by its strong consumer-focus and innovative spirit, the

company has been the market leader in paints since 1967.

Asian Paints is India’s leading paint company with a group turnover of Rs 193.50 billion. The

group has an enviable reputation in the corporate world for professionalism, fast track growth, and

building shareholder equity. Asian Paints operates in 16 countries and has 27 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, Asian Paints Berger, Apco

Coatings, SCIB Paints, Taubmans, Causeway Paints and Kadisco Asian Paints.

Asian Paints manufactures wide range of paints for Decorative and 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. It also offers Water proofing, wall coverings

and adhesives in its product portfolio.

Asian Paints also operates through ‘PPG Asian Paints Pvt Ltd’ (50:50 JV between Asian Paints

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. The second 50:50 JV with

PPG named ‘Asian Paints PPG Pvt Ltd’ services the protective, industrial powder, industrial

containers and light industrial coatings markets in India.

Vertical integration has seen Asian Paints diversify into chemical products such as Phthalic

Anhydride and Pentaerythritol, which are used in the paint manufacturing process. The company

has discontinued production of Phthalic Anhydride from end of July 2017.

In the Home Improvement and Décor category, the company is present in the Kitchen and Bath

fittings space and offers various products under Sleek and Ess Ess brand respectively.

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Industry profile

The Indian paint industry is over 100 years old. Its beginning can be traced back to the setting up

of a factory by Shalimar Paints in Calcutta (now Kolkata) in 1902. Until World War II, the industry

consisted of small producers and two foreign companies. After the war, the imports stopped, which

led to the setting up of manufacturing facilities by local entrepreneurs. Still, the foreign companies

continued to dominate the market. Initially British paint companies such as Goodlass Walls (now

Goodlass Nerolac), ICI, British Paints (now Berger Paints), Jenson & Nicholson and Blundell &

Eomite dominated the market.

There are now twelve players in the organized sector of India's paint and coatings market and over

2,000 in the unorganized sector. In 2003-04, the organized sector held 70% share of the

approximately $1.5 billion (Rs 6,800 crore) industry, while the balance was made up of the

unorganized units.

The major players are Asian Paints, Goodlass Nerolac, Berger, ICI and Shalimar. Recently, world

leaders like Akzo Nobel, PPG, DuPont and BASF have set up base in India with product ranges

such as auto refinishes, powder coatings and industrial coatings. Kansai Paints of Japan, which

entered into collaboration with Goodlass Nerolac in 1984, is now the holding company for

Goodlass Nerolac with 64.52%equity holding. PPG has a joint venture with Asian Paints to

manufacture industrial coatings. Jenson & Nicholson and Snowcem India are no longer active

players because of dwindling sales in recent years.

In the 1990s, helped by a growing economy, the Indian paint industry recorded a healthy growth of

12-13% annually. This was mainly due to a drastic reduction in excise from a staggering 40% to

16%. However, the growth was restricted in 2002-03 to single digits. There was a revival in 2003-

04 with a robust growth of 13%.

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The Indian paint industry has two main market segments-industrial and decorative paints. While

industrial paints are used for protection against corrosion and rust on steel structures, vehicles,

white goods and appliances, decorative paints are used in protecting valuable assets like

buildings.

The Indian decorative business has a share of approximately 77% in total sales. In foreign

countries 50-70% of the business is from the industrial segment.

The trends are likely to shift in India too, but at a slower pace, in favor of industrial paints. The per

capita consumption of paint in India is 700 grams versus 19 kg in the U.S. and 2.7 kg and 5.8 kg in

other developing countries like China and Brazil. Because consumption relates to affordability, the

low Indian figure is not a surprise.

Within the decorative segment, the share of exterior paints is 21%, interior emulsions 11%,

distempers 30%, solvent-based enamel paint 36% and wood finishes two percent.

The exterior category, particularly exterior emulsions, is the fastest growing segment at 20% for

the last three years.

The industrial coatings segment includes high performance coatings� with 30% market share,

powder coatings with ten percent, coil coatings� with five percent, marine coatings five percent

and automotive coatings 50%.

While Asian Paints was a clear market leader with a turnover of approximately $420 million (Rs

1,943 crores) in 2003-04, Goodlass Nerolac was second with approximately $220 million (Rs

1,010 crores) during the same period.

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CHAPTER 2

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Company Profile

Asian Paints Limited(APL) is the market leader in the Indian paint industry, commanding a market

share of 38 per cent in decorative paints and 33 per cent overall in the organised sector. Its annual

sales turnover exceeds Rs. 1,300 crore, way ahead of all the competitors in the industry. In profits

too, Asian Paints is far ahead. Asian paints market leadership in the decorative paints segments

can be grasped correctly when we take note of the relative position of the various players in the

industry. Whereas Asian Paints has a market share of 38 per cent, its nearest rival, Goodlass

Nerolac, commands a share of just 14 percent. All others have only less than 10 per cent. Such an

achievement by a company that is wholly Indian in capital, management and technology and in an

industry historically dominated by multinationals is certainly a commendable feat .

Some of the key initiatives undertaken are:

* Initiatives in manufacturing to reduce losses at factory

* Sourcing efficiencies

* Sweat existing assets for better productivity

* Introduction of new technology to drive efficiencies and increase productivity

* Implementation of a new supply chain solution

* Implementation of an ERP solution

Background

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Asian Paints Limited was established in 1942 as a partnership firm by four friends Champaklal H.

Choksey, Chimanlal N. Choksi, Suryakant C. Dani and Arvind R.Vakil to manufacture paints in a

garage in Mumbai (Bombay). From its humble beginnings, the company has moved on to become

the largest paints company in India with a market share of 30 per cent.The company with a

turnover of US$ 535 million on standalone basis and US$ 640 million on consolidated basis

(including turnover of all its subsidiaries) is one of the top ten decorative paints companies in the

world. Its reach and dominance in the Indian market can be gauged from the fact that it is more

than twice the size of its neares competitor in India and it has been the market leader in paints

industry in India since 1968.The company operates in 22 countries and has 29 paint manufacturing

plants in the world which service consumers in over 65 countries.The company operates around

the world on its own and also through its three subsidiaries Berger International Limited,Apco

Coatings and SCIB Chemicals.The company aims to become one of the top five decorative paint

companies in the world and has embarked on an aggressive strategy of expanding its global

operations. The promoters hold the majority stake in the company (46.8 per cent of the equity

stake).The next largest shareholders are the foreign institutional investors (19.5 per cent stake),

followed by Indian public (16.5 per cent stake). Domestic banks, financial Institutions, mutual funds

and insurance companies hold 13.4 per cent stake. Corporate bodies and non-resident Indians

hold the remaining stake.

Vision

“To be the most admired Indian paint and coating solutions company with globally recognized

competencies”.

Mission

“To maximize shareholder value by developing and delivering innovative and best solutions for our

customers, consistently outperforming our peers and providing a dynamic and challenging work

environment for our employees”.


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SEGMENTATION OF PAINT

It is broadly classified into decorative segment and industrial segment.

Decorative - major segments in decorative include exterior wall paints, interior wall paints, wood

finishes and enamel and ancillary products such as primers, putties etc. Decorative paints account

for over 77.3% of the overall paint market in India.

Industrial - three main segments of industrial sector include automotive coatings, powder coatings

and protective coatings. Industrial paints comprising 30% of the market include automotive paints,

high performance coatings, coil coatings, powder coatings, marine paints and general industrial

coatings.

Product details

Asian Paints has clearly demonstrated its commitment to Indian consumers for over 88 years, by
offering its varied range of high performing quality products backed by highest level of customer
service. It offers a wide range of paints for interior and exterior wall coatings.

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Interior wall coating

• Breathe easy

'Breathe Easy' is the only paint which leaves no smell after painting. It has been certified by Green

Label Committee of Singapore Environment & Health Safety Standards as eco-friendly and

healthy. Additionally, it is highly cleanable and resistant to fungus growth. All this and its

impeccable sheen, makes it a truly innovative product in premium interior emulsion segment.

• Rangoli super acrylic emulsion

Rangoli Super Acrylic Emulsion is made of unique forms of co-polymers and pigments available.

These ingredients along with exclusive additives provide an optimum dispersion level. It gives a

rich matt effect and a superior covering when applied for interior walls with stain guard technology.

Exterior wall coating

• Weather coat long life

Weather Coat Long life, a premium plus acrylic paint for exterior walls, with its Elastomeric

property, ensures that the paint film stretches to cover hairline cracks thus ensuring that walls a

look new for longer. The paint is suitable for buildings with hairline crack problems and structures

in high rainfall areas where water seepage occurs through hairline cracks.

Asian metal and wood paints

• Luxol high gloss enamel

Asian Luxol High Gloss Enamel, perfect for all surfaces both interior and exterior, can withstand

any Indian weather condition. Formulated with alkyd and select colorants, it gives a long lasting

glossy finish to every surface it touches.

• Butterfly enamel

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Butterfly Enamel meant only for interior surfaces can be applied on wooden surfaces and select

mild-steel surfaces. It is a solvent based paint which provides maximum level of gloss and

complete customer satisfaction.

COMPETITORS’ ANALYSIS

The following table shows the condensed cash flow statements of Asian Paints and

two of its competitors ICI India and Kansai Nerolac Limited.

The above table shows that Asian Paints clearly has the highest amount of cash inflows from

its operating activities where as the other two companies have very less amounts of inflows

from operating activities. Though ICI India has huge amounts of cash and cash equivalents,

it has the lowest amount of cash inflows from its operating activities. Asian paints also has

more cash outflows from investing activities than the other companies which shows that

Asian Paints is on a huge expansion mode where as the other companies are not. Especially,

ICI India has more cash inflows from investing activities than from its Operating activities

which means that the company is selling more of its assets for cash. ICI India also has more

cash outflows from Financing activities than from the inflows from Operating and investing

activities put together. This shows that the ICI India Ltd Company is not in a healthy

condition when compared to Asian Paints.

Kansai Nerolac has cash flow percentages similar to that of Asian Paints but in smaller

magnitudes. While Asian Paints and Nerolac have net decrease in cash at the end of the year,

ICI India has net increase in cash. Asian Paints has invested heavily in acquiring fixed assets
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which led to net overall outflow of cash whereas for Nerolac it is due to repayment of loans

that the net cash flow is negative. Clearly, Asian Paints cash flows look healthier and helpful

to the company in the future.

Awards of the company

Asian paints as won many awards in the past years and they are:

• 10th annual construction world global award 2012

• Builder information bureau (BIB) 2012 leadership in the paint category

• Reader’s digest gold award-2008 most trusted brand

• Best supplier award -2005

• Fastest growing paint company construction world NICMAR award.

Achievements/ recognition:

• Asian Paints was included in Forbes Magazine's – Asia's Fab 50 List of companies in 2011,

2012 and 2013.

• Asian Paints was ranked 13th amongst the top paint companies in the world by Coatings

World – Top Companies Report 2013 (July 2013 Issue).

• In March 2012, Asian Paints was presented the Asian Centre for Corporate Governance &

Sustainability Award for the Best Governed Company in 2011.

• Mr. P M Murthy, the then MD & CEO, Asian Paints received the 'CEO of the Year' award

from Business Standard, one of India's leading business dailies (March 2011).

• Asian Paints receives the Best Audit Committee Award from the Asian Centre for Corporate

Governance & Sustainability (Feb 2011)

• Asian Paints is the 10th largest decorative paint company in the world.

• Awarded the 'Sword of Honour' by the British Safety Council for all the paint plants in India.

This award is considered as the pinnacle of achievement in safety across the world.

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• Forbes Global magazine, USA ranked Asian Paints amongst the 200 'Best Small

Companies of the world' in 2002 and 2003 and amongst the top 200 'Under a Billion Firms'

of Asia in 2005.

• Ranked 24th amongst the top paint companies in the world by Coatings World – Top

Companies Report 2006.

• The Asset – one of Asia's leading financial magazine ranked Asian Paints amongst the

leading Indian companies in Corporate Governance in 2002 and 2005.

• Received the Ernst & Young 'Entrepreneur of the Year – Manufacturing' award in 2003.

• Rated Best Employer by BT–Hewitt survey, 2000 Bluest of the blue chips by Hindu

Business Line; Most admired company to work for by ET–BT survey, 2000

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Chapter 3

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Mc Kinsey’s 7S framework and Porter's Five Force Model

MCKINSEY’S 7S MODEL OF ASIAN PAINTS

STRATEGY:

Asian paints.ltd. aims to be the ‘supplier of choice’ for its entire customer base. To achieve this we

invest in Research & Development, Technology Enhancement and Quality to ensure the

superiority of our offerings in all aspects. We have already commenced on the journey to going

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beyond being a mere paint supplier to our consumers to becoming a complete solution provider for

all their General needs.

SHARED VALUES:

Transparency by classifying and explaining the Company’s policies and actions to those towards

whom it has responsibilities, i.e. maximum possible disclosures without hampering the Company’s

and shareholders’ interests.

Professionalisation ensures that the management teams at all levels are qualified for their

positions, have a clear understanding of their roles and are capable of exercising their own

judgement, keeping in view the Company’s interest, without being subject to undue influence from

outsiders.

Trusteeship brings into focus the fiduciary role of the management to align and direct the actions

of the organization towards creating wealth and shareholder value.

Corporate Social Responsibility ensures the promotion of ethical values and setting up exemplary

standards of ethical behaviour in our conduct towards our business partners, colleagues,

shareholders and general public, i.e. abiding by the laws, showing mutual respect and acting with

honesty and responsibility. Corporate social responsibility ensures that the Company contributes

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to society’s overall welfare by undertaking not -for-profit activities, which could benefit all or any of

its stakeholders in society.

Safeguarding Integrity ensures independent verification and truthful presentation of the Company’s

financial position. For this purpose, the Company has also constituted Audit Committee, which

pays particular attention to the financial management process.

STYLE:

At Asian paints .ltd., corporate governance is all about the processes, which involve direction and

control of affairs of the Company in a fashion that ensures optimum returns for the stakeholders.

Corporate governance is a broad framework, which defines the way a corporate body functions

and interacts with its environment. It is a combination of voluntary practices and compliance with

laws and regulations leading to effective control and management of the organization. The

company is open, accessible and consistent with communication and shares long-term

perspective and firmly believes that good Corporate Governance practices underscore its drive

towards competitive strength and sustained performance. Thus, basic Corporate Governance

norms have been institutionalized as an enabling and facilitating business process at the Board,

Management and operational levels.

STAFF:

Human resources play a crucial role in the development process of the present economy. Though

the exploitation of natural resources, availability of physical and financial resources and

international aid play prominent roles in the growth of modern economies, none of these factors is
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more significant than efficient and committed manpower. Recruitment is done through

advertisement and employment exchange. Candidates are called for interview and final decision is

with the chief executive. As of now there are no major constraints in attracting the right talent since

the organisation is a reputed one and the compensation package is really attractive. Asian

provides training for both managers and workers. Training program for managers consists of both

internal and external program. The workers undergo internal training programmes conducted by

experts. External training is done by deputation to professional training centers.

SYSTEM:

The system department is responsible for computerisation of different departments of ATL. The

main function of this department, operates and co ordinates all systems in the organization. The

simple structure of department facilitates speedy communication flow with in the department.

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Porter's Five Force Model

Porter Five Forces Analysis of Asian Paints Ltd International Business Division

Degree of Rivalry among competitors:

We can say that the industry has a high level of rivalry among competitors since the market is

fragmented and there are a large number of dealers existing separately with their particular

organisation designs. The truth that no big firm has actually entered this Porters Analysis of Asian

Paints Ltd International Business Division case service adds to the high level of degree of rivalry

among industry players.Since the services being provided are primarily similar, the lack of

distinction provided by industry players more increases the degree of rivalry amongst industry

players.
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Threat of new entrants:

The market has a high danger of brand-new entrants because it does not need high financial

investment in innovation to get in the market. The purchase of products and products is relatively

simple therefore little players can easily enter the market. Without any economies of scale being

seen in the market due to the absence of larger gamers, the market provides extremely low

barriers to entry. Furthermore, there is no exceptional skill needed in Painting, if we take a look at

business models being utilized currently which further decreases the barriers of entry.

Threat of substitutes:

The threats of substitution may be low provided the reality that Painting does not particularly have

substitutes. While the idea might have different types of paints Porters Analysis of Asian Paints Ltd

International Business Division such as wood finishes and Enamel and putty Porters Analysis of

Asian Paints Ltd International Business Division, however the overall concept of Paints does not

have substitutes.

Bargaining power of suppliers:

The bargaining power of the supplier is rather low offered the reality that there are a large number

of providers in the paint market. With the absence of vendor agreements and consumer

commitment, the provider has a low private power.

Bargaining power of buyers:

With the industry having a large number of providers using services with their respective rate,

quality and individuality, the customer can quickly change in between suppliers. Since brand name

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changing is not done at a high cost to the customer, the market has a high bargaining power when

it comes to the purchaser.

Buyers are not devoted to any specific brand name while at the same time the choice of paint

appliance at homes likewise exists which involves almost no financial cost to the purchaser. This

more increases the bargaining power that the purchaser has in the industry.

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Chapter 4

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SWOT Analysis

SWOT ANALYSIS OF ASIAN PAINTS LTD

Strength :

➢ NO.1 Player in decorative paints and 2nd in industrial paint segment.

➢ Wide range of products with around 8500 colors.

➢ Geographically well spread giving the company logistical advantage.

➢ International presence giving opportunity to reap benefit from

international growth.

➢ wide distribution network i.e. 19,000 dealers.

➢ Highest manufacturing capacity.

➢ Strong finanacial helps the company to invest in marketing and brand

recall activities.

weakness :

➢ Low share from the industrial paint segment.

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opportunity :

➢ High growth in both decorative paint and industrial paint.

➢ Potential in overseas markets.

Threats :

➢ Growing industry and low capital intensive nature of business will attract

competition.

➢ Setting up Greenfield project and buyout are viable options for

international players to enter the domestic market. ➢ Industry growth

depends on two factors

(a) Repaint activity and (b) Construction. Any slowdown in any of the two will

have

direct impact on the company sales.

➢ Aggression from existing players ➢ The external environment saw an entry of a lot of

multinationals trying to

attack us on various segments

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Chapter 5

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Analysis of financial statements

RECENT SALES BREAKDOWN OF ASIAN PAINTS’ PRODUCTS

The following table gives the sales break down of different products of the company in the

year 2007 – 08.

FUTURE PLANS

It has set itself a stiff target to acquire 60 percent plus market share in the domestic market

and has plans up its sleeve to make inroads in the international market. To achieve its goals,

Asian Paints plans to launch a range of new products across all segments, backed by a

35
further strengthening of distribution network. Asian Paints is boosting capacity in a bid to

grab a larger share of the incremental demand, along with focused marketing strategies to

make its products the preferred paint. The company is expanding its capacity by 40% to

494,000 tons per annum in 2009-10 at capital expenditure of Rs 3 billion. The company also

plans to focus on increasing the revenue by reducing losses from its South East Asian

operations.

AUDITOR’S REPORT

Role of an independent auditor:

Generally speaking the role of an Independent Auditor in Indian business milieu is to

conduct an audit in accordance with the auditing standards generally accepted in India.

These standards require that the auditor plan and perform to obtain reasonable assurance

about whether the financial statements are free of material misstatements. An audit includes

examining on test basis, evidence supporting amounts and disclosure in the financial

statement. An audit also includes assessing the accounting principles used and significant

estimates made by the Management, as well as analyzing the overall financial presentation.

On Approval of the shareholders Asian Paints Limited has appointed Joint Auditors of the

company.

The Auditors and their report:

The company has been quite consistent in hiring the services of SHAH & COMPANY

as the as an independent auditor till the annual report of year 2006-07. There has been a

change in the Auditors of the company in the year 2007-08 with the appointment of BSR &

ASSOCIATES AND SHAH & COMPANY as Joint Auditors with the approval of the

shareholders at the Annual General Meeting held on 27 June, 2007. A passing look at last 4

years report would suggest that every year the auditors arrive at a similar assessment in

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terms of audit practices. Both, in the auditors report to the members and auditors report on

the annual financial statement, the independent auditors remain very satisfied consistently

over the years. Both the documents in terms of compliance to accounting standards over the

years read the same. The only changes that occur in report to members is in terms of

disputed dues in respect of sales tax, wealth tax, income tax, service tax, customs duty,

excise duty and cess unpaid as at the last day of the financial year. The report gives a very

unbiased and objective assessment of the financial health of the company. The Independent

Auditors opinion can play a very important role in our assessment. A true and fair reflection

of the company makes us confident of our analysis.

DIRECTOR’S REPORT, ANALYSIS AND ITS IMPACT

The report begins by outlining the financial summary of the company and specifically

highlights the growth in the areas of net sales, operating income, operating profit and PAT.

While Asian Paints Limited made a profit of Rs 525 Crores, the group’s consolidated profit

was Rs 559 crores. The profit was disposed off by distribution of dividend, transfer to

General reserve and C/F to balance sheet. The company therefore instills confidence in the

shareholders and investor community. A dividend of Rs 17 per equity share is proposed to

be distributed. The report is followed by Management discussion and analysis. Health of the

economy is a matter of concern and the medium term outlooks for growth seems good, albeit

a little lower than the past because of volatile commodity prices. The director goes on to say

that in the year under review, the company benefited immensely from a strong rupee and a

good supply situation, resulting in soft prices for the raw materials. The future of the

company seems bright because of its strong commitment to growth. The international

business unit of the company has performed well by showing growth in all the regions

except East Asia and South Pacific region.

Director’s report brings out that the company is conscious of its environmental impact.

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Its CSR initiatives, HR practices and environmental responsibility will enhance its goodwill

and bring visibility. Focus on use of IT to achieve efficiency and R&D for new products will

add to the profitability in the times to come. All its assets are adequately insured. The report

makes a thorough analysis of current industry problems and prospects. The report has rightly

assessed the growth outlook for the economy at 7.5 to 8% in 2008-09. However the lower

growth is likely to be neutralized by an impetus in consumer demand due to IT slab changes,

implementation of sixth pay commission, farmer loan waiver and a normal monsoon. It also

brings out significant challenges for reducing losses in South East Asia Region in the form

of price controls. The company is also seized of the risks in the macro-economic conditions

in the global economy that might have an adverse impact on its operations. All these aspects

will be taken into consideration in assessing the financial health of the company.

REVENUE RECOGNITION POLICY

Revenue from sale of goods is recognized on transfer of all significant risks and rewards of

ownership to the buyer which is on dispatch of goods. Sales are stated gross of excise duty

as well as net of excise duty; excise duty being the amount included in the amount of gross

turnover. The excise duty related to the difference between the closing stock and opening

stock is recognized separately as part of ‘Material Cost’. Dividend income is recognized

when the right to receive payment is established. Interest income is recognized on the time

proportion basis.

Analysis:

We feel that the revenue recognition policy has not changed over the last 4 years. It has

been consistent with the policies prescribed by the regulator (AS – 9). These policies are

consistent with the way the company carries out its business because most of the

revenues are generated by selling paints and varnishes. As most of the sales are by

tangible goods, it is easier for the company to recognize its revenues and for the auditor

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to verify them. The company has little scope to play with the accounts as it has to

recognize the revenues generated from total sales of its goods.

A major part of Asian paints revenues are generated by sales of paints. Asian paints also

have revenues generated from services which form a very small part of its total revenue.

The following revenue recognition policy was mentioned in the year 2004 – 05.

“Revenue from rendering of services is recognized by reference to the stage of

completion of the transaction at the balance sheet date determined by services performed

to date as a percentage of total services.” Where as, in the year 2007 - 08 it was changed

to “Revenue from service is recognized on rendering of services to customers”. There is

no mention of the revenue recognition policy used during the years 2005 – 06 and 2006 –

07 in the annual report of the company though it has revenues generated from services.

We feel that the company has been following the standards prescribed by the regulator

and it has been less conservative in recognizing its revenues from goods. But the

company has changed its stance from the year 2004 - 05 to 2007 – 08 in recognizing the

revenues from services. It has tried to be more conservative in reporting the revenues

from services in the last year where as it appeared to be less conservative about this in

the year 2004 – 05.

ACCOUNTING POLICY FOR TANGIBLE & INTANGIBLE ASSETS

The ICAI issued Accounting Standard AS-10, AS-19 and AS- 26 explains the

significance of tangible and Intangible Assets such as land, buildings, plant and machinery,

vehicles, furniture and fixtures and Leases in preparation of financial reports of a company.

These accounting standards also provide an insight in to the norms of standard accounting

treatment for various aspects of tangible and intangible assets mainly:

v Identification

v Measurement

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v Valuation

v Revaluation

v Retirements and Disposals

v Impairment

We decided to have a thorough discussion based on above mentioned points

for improving our understanding of these accounting standards and there by analyzing the

accounting policy for valuation of tangible and intangible assets. The financial statements for

Asian Paints have been prepared by taking the historical cost convention on accrual basis of

accounting; management displays conformity with GAAPs to make estimates and

assumptions for the reported amount of its tangible and intangible assets.

Fixed Assets

For fixed assets Asian Paints uses at the cost of acquisition or construction less

accumulated depreciation. The cost of fixed assets includes taxes (other than those

subsequently recoverable from tax authorities), duties, freight and other incidental expenses

related to the acquisition and installation of the respective assets. Interest on borrowed funds

directly attributable to the qualifying assets up to the period such assets are put to use is

included in the cost. Know-how related to plans, designs and drawings of buildings or plant

and machinery is capitalized under relevant asset heads.

Lease

Leasehold land and major leasehold improvements are amortized over the primary

period of lease. Purchase cost, User license fees and consultancy fees for major software are

amortized over a period of four years. Acquired Trade Mark is amortized over a period of

five years.

Assets taken on lease: Lease rentals on assets taken on lease are recognized as expense in

the Profit and Loss Account on an accrual basis over the lease term.

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Assets given on lease: The Company has provided tinting systems to dealers on an

operating lease basis. Lease rentals are accounted on accrual basis in accordance with the

respective lease agreements.

Goodwill

Goodwill is initially recognized as an asset at cost and is subsequently measured at cost

less any accumulated impairment losses. For the purpose of impairment testing, goodwill is

allocated to each of the Group’s cash-generating units expected to benefit from the synergies

of the combination. An impairment loss recognized for goodwill is not reversed in a

subsequent period.

Impairment loss

An impairment loss is recognized whenever the carrying amount of asset exceeds its

recoverable amount. Asian Paints reported impairment losses of Rs 41.86 Crores in 2007-08,

a decline of 5.27% from previous fiscal. Company reported impairment losses in following

assets

Normally an assessment is done to determine whether there is any indication of

impairment of the carrying amount of the Company’s fixed assets. Company explains that if

any such indication exists, an asset’s recoverable amount is estimated. A reversal of

41
impairment loss is recognized in the Profit and Loss Account. After recognition of an

impairment loss or reversal of an impairment loss as applicable, the depreciation charge for

the asset is adjusted in future periods to allocate the asset’s carrying amount, less its residual

value (if any), over its remaining useful life.

BALANCE SHEETS

A quick overview of vertical from of balance sheet clearly shows an increasing trend in total

current assets and total assets from 2005-2008

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Total assets have shown an increasing trend over the years that can be attributed to the

acquisition and installation of fixed assets over successive years & an increase in long term

investments.

Balance sheet 2015-2019:

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Chart 1: Asset Trend

Similarly there is an increasing trend for total current liabilities and other long term

liabilities. Following graphs clearly illustrates the trend in various financial parameters:

Chart 2: Liabilities & Shareholder Equity Trends

INCOME STATEMENTS

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The net sales figure comprises sale of products/services, income from hire

purchase and loan contracts and other miscellaneous incomes. This figure is net of discount

& excise duty. It can be noted that the sales figure has been growing consistently over the

years. With the increase in income level of the overall population and growing consumer

culture, the Paint industry is expected to show a steady growth both in terms of personal

requirements as well as industrial demand.

Table: Income Statement

Cost of sales has shown an increasing trend over the years due to increased

production and hence increased consumption of raw material and components & other

related production costs. Other expenses include product development expenditure which

has been shown an increase followed by subsequent decrease over the last four years. The

increase in the net value of other expenses can be attributed to the increase in depreciation

expenses. Depreciation is calculated on a straight line basis and the value has shown a rise

because of additions in depreciable fixed assets over the years

The interest expense in 2008 has shown a fall in the period 2007-2008 as compared to the

previous year.

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Chart 3: Cost of sales and other expenses trends

Expenses

Cost of Sales Other Expenses Interest expense Income tax

An overall comparison of EBIT, Net Income and Income tax expense:

Income taxes have shown a steady increase proportionate with the EBT except for

the year 2007 when the company had to shell out more taxes as deferred taxes along with the

current tax expenses.Net income has been steadily increasing over the last four years.

However the growth has declined in the last year because of a decline in the growth of sales.

Chart 4: EBIT & Net Income trends

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RATIO ANALYSIS

Liquidity, efficiency & solvency Ratios:

Liquidity ratios are a set of financial metrics that is used to determine a company's ability to

pay off its short-terms debts obligations. We have used only the sum of cash and equivalents

divided by current liabilities because they feel that they are the most liquid assets, and would

be the most likely to be used to cover short-term debts in an emergency. Liquidity ratios

measure the availability of cash to pay debt.

Table: Liquidity Ratios

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Generally higher value of the ratios means the larger the margin of safety that the company

possesses to cover short-term debts. Common liquidity ratios include the current ratio, the

quick ratio and the operating cash flow ratio.

Chart 5: Liquidity Ratios

Chart 6: Liquidity Ratio

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DuPont Analysis:

DuPont analysis was first used as a method of performance measurement by the DuPont

Corporation in the 1920s. With this method, assets are measured at their gross book value

rather than at net book value in order to produce a higher return on equity (ROE). It is also

known as "DuPont identity".

ROE = (Profit margin)*(Asset turnover)*(Equity multiplier)

= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)

DuPont analysis tells us that ROE is affected by three things:

v Operating efficiency, this is measured by profit margin

v Asset use efficiency, which is measured by total asset turnover

v Financial leverage, which is measured by the equity multiplier

Table: DuPont Analysis

Chart 7: DuPont Analysis

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CASH FLOW ANALYSIS

The major chunk of cash in flow to the company in the last 4 years has been from the

Operating activities indicates the good health of the company in its operations. There is no

net inflow of cash for the company from investing and financing activities in the last 4 years.

The company has consistently been buying and selling investments which generated net cash

outflows in the last four years.

The company has consistently been acquiring new assets over the last four years

which indicates that the company is in expansion mode. The company acquired fixed assets

worth 258Crore in the year 2007 -08 which is significantly higher when compared to the last

3 years. This indicates that the company has begun a massive expansion this year. Asian

Paints has a net decrease in the cash and cash equivalents at the end of 2007-08 owing to the

heavy cash outflows in form of investments.

The company also has only net outflow from financing activities over the last four

years which indicates that the company is self sufficient and it has been repaying its old

loans which is why the company has net outflow of cash from financing activities. The

company has lesser cash outflow in the year 2007-08 when compared to the previous year

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due to considerable reduction in the amount of dividend paid.

The analysis of cash flow statements for the last 4 years indicate that the company is in a

maturing phase and the cash generated from its operating activities are sufficient to cater to

its investing and financing activities. The continuously increasing cash flows from the

operating activities indicate that the cash flows of the company are very healthy.

OPERATING CYCLE

The following tables show the operating cycle calculations for the company

DIO (Days inventory outstanding) is obtained by dividing the average inventory by cost of

sales per day. The DIO has more or less remained in the same range over the last four years.

Compared to the other figures like DSO and DPO this number is a bit on the higher side

which means that the inventory has remained unused for nearly 60 days. The company has

some of its cash lying unused for many days which may not be a very good sign.

DSO (Days Sales Outstanding) is obtained by dividing the average Accounts receivable bynet

sales per day. This number is very low compared to DPO which indicates that thecompany is in a
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strong position in the market and is able to get back its accounts receivableswithin 25 days. This

number also has remained more or less stable over the years indicatingthe strong position of the

company in the market.

Operating Cycle = DIO + DSO – DPO

The operating cycle of the company has been fluctuating in the range of 46 and 55 in the last

4 years and there is no clear observed trend.

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Chapter 6

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WORK EXPERIENCE

My internship took place in Asian paints, one of the top 5 companies in paint industry. It has well

established operations and supply chain network spanning throughout the country with 7

manufacturing facilities, 85 depots, several regional and area offices with 2500 employees and

over 1500 dealers. I took up internship in the field of marketing. This helped me to know the

customers more and build a good relationship with them. First day at office I was nervous but as I

met my Sir, I was relieved because he was a kind man and he welcomed me with a smile. He

made me choose a topic for my internship and he asked me to start working on the topic. My topic

was consumer behavior towards Berger paints.

First week at work sir asked me to know about the company and how it works. So he asked an

employee to show me around the go down and learn how the distribution works in and around the

company. Employees name was Mr.AVIN FRANCIS; AVIN explained to me about the depot in

Bangalore, the main depot is in K.R.market. Then I got to know about variety of paints available in

market. It is divided into two interior (bison, rangoli, easy clean, silk) and exterior (weather coat all

guard, weather coat smooth). The first week I spent my time in the go down and it was a good

experience, got to know more about paints and how does it function.

They also gave me a brief explanation about how the distribution works. The dealer if required of

stock must make the order through call center or the concerned depot. Once the call center

receives an order it is passed to the depot. Depot receives the order in CRM software (customer

relationship management) and then it is sent to the system of the concerned depot, the depot

makes a pick list and sends it to the go down, here the in charge officer checks if the stock is

available and makes a mark against the availability of the stock. Once this is done they send the

information back to the system, they prepare an invoice of the order and sends it to the dealers

thereafter the stock is delivered to the respective dealers. This information was very new to me

and I learned the distribution method happening in the company. The company employee was very

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kind towards giving such information and that made me more comfortable in my work place. They

were ready to give answers to my questions and it made me feel one among them.

They also gave me information on how painting takes place. They told me that painting takes place

in five steps. The first step is making the wall smooth so there is no difficulty in painting process;

they make use of sand paper for this. Second they give a premier coating which is left to dry for 8

hours. Third they give two layer coating of patty, then again premier coating. Last is the final

coating which is of two layers.

Second and third week I spent my work in consumer survey. Sir asked me to deal with customers

and to know their reviews about the company. I had to meet 50 customers talk to them and get

their view. This was interesting and helped me to develop my communication skills. Each customer

gave different opinion and told their views about the company.

The main aim of the study was to understand the customers paint purchase preferences and to

analyze the role of influencers in purchase decision and the dealers selling preference/brand

preference. Therefore this survey helped me to know more about the company and their problems.

During my survey I learned about customer behavior and this also developed my communication

skills. It helped me to interact more with the customers and helped me gain more knowledge about

the company. The survey not only helped me to communicate with the customers but also with the

dealers. They gave me information on how they sell their products and convince the customers. I

also learnt that the company provides with different schemes, dealers have to try and achieve

points through selling the products this in turn gives them rewards. I feel this is a great way to

market and sell their products. This will encourage the dealers to sell more goods and earn more

rewards; company in turn gets more profit.

This survey taught me many things and one of it is customer relation. All companies need to have

good relationship with their customers and dealers so it will help them to develop the company and

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improve their products. Customers will develop a trust with the company and they will not hesitate

to purchase their products.

The last week of my internship was at my office where I spent time in looking through the

customers accounts. It showed me how the customers earn their points. When I was looking

through the accounts, I realized that every customer is given a target to meet. If they don’t meet

their target they don’t get the specified points. Points are very important for the dealers so they get

various rewards which they can enjoy. By this I end my internship and bid goodbye. This internship

was very helpful to me because it helped me to improve my skills and help to know about the office

environment. This was a good experience for me because all this is new to me. It gave me a basic

idea on how a company works and how it develops in the market.

Conclusion

Findings

Threats of new entrants for dealers in paint industry. The reason is that it is hard to exist in the

market due to intense market competition. The dealers prefer to sell better quality brands that are

fast moving and have got better customer pull. Dealers hold a good opinion about the quality of

Asian paints in comparison with the major market share holder Burger paints. But the dealers are

of the opinion that Asian paints are the most preferred brand for the customers. A large portion of

the respondents’ dealers takes effort to collect customers feedback and understands the

importance of retaining customers. Majority of dealers believe they have got some influence in

altering customers purchase Threat of new entrants is greater for dealers in paint industry. The

reason is that it is decision but only to a limited level.

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Majority of customers are of the habit of painting their house within 1 to 5 years. Out of that a good

percentage of customers prefer to paint within 3 to 5 years, for whom durability will be an important

factor of concern. The major source of brand awareness is television and friends/family. Hence the

company can focus on these while formulating advertising and promotional programs.

Asian needs to focus on including recall cues and elements in advertisements. Customers are not

able to recall the product name and advertisement of Berger paints as much as they can for Asian

paints.

For majority of customers color shade options and durability are the most important considerations

while making a purchase decision, then comes the price. They tend to do internal information

search and review of past experience before taking purchase decision. The brand awareness and

own experience are the most important factors considered in purchase decision. Customers tent to

avoid dealers suggestion in a view that their motive is to gain profits only but a small portion of the

customers tend to accept painters/contractors suggestion upon consideration that they have

experience with most of the paint brands. The customers prefer to purchase the paint personally

from authorized company dealers. Celebrity endorsements haven’t influenced customers purchase

decision. There is lack of awareness about the company’s painting services among end

customers.

Most of painting contractors used to purchase regularly from regular dealers. This allows the

company for introducing trade promotions concentrating on contractors and their regular dealers

and gives ease of distributing rewards. Most of the contractors recommend paint brands to their

customers. But they are conscious about suggesting a good quality and economical brand in view

of customer retention. Quality and coverage are the factors that contractors consider while

recommending a paint brand for their customers. The contractors are satisfied with their

experience with Berger paint in terms of company support, coverage, range availability, overall

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marketing and brand acceptance level by the customers and they are willing to continue the

usage.

Recommendations and conclusion

The perceived strength of Asian paints in Bangalore market in terms of quality is coverage,

durability and range availability. Asian paints is perceived to be proving quality products almost as

equal as Burger paints products. It is the promotional activities that make Asian the most

acceptable brand in Karnataka market. As the perceived quality of Asian paints is equal lent to

that of Burger paints it can attempt to capture Burger paints market share on promoting the brand

properly to customers, dealers and contractors. Asian has to focus on building a strong brand

image and advertisement strategies.

Asian has to concentrate on building a strong brand image along with delivering quality products,

so as to capture more market share in the Burger dominated market. Asian paints should do more

promotions to increase the preference for the brand. It has to focus more on creating impactful

advertisements with good recall cues. They can also focus on newspapers and personal referrals

for increasing customer’s base.

For customers, spokesperson in the advertisement is not as important as how the advertisement is

being presented. Hence Asian advertisements need to focus on the clarity and simplicity of

information that is being conveyed through it.

As 58% of the sample shows a positive attitude towards company personnel’s visit, company can

avail this opportunity. The company has to employ aggressive and efficient sales personnel with

better product knowledge for this job who have the ability to influence customers.

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Company need to actively promote the painting service to reach the unaware category of

customers. Asian can inform a person about its painting services through advertisements, which

had got a long reach.

The company has to focus on durability and warranty in case of the painting services. They have

to provide quality service at affordable price.

Promoting the brand to the contractors and providing them good margins can help in converting

Burger and other competitors exclusive dealers to Berger exclusive dealers.

This can help Asian to dip into Burger paints market share as Burger doesn’t focus on making its

dealers happy as much as they focus on media promotions.

The dealers want to make profit on selling those brands having demand –‘good quality plus

profitable’ brand. Hence the company should not compromise in providing quality products and

has to focus on providing better pre-sale and post-sale services.

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