INTRODUCTION TO KANSAI NEROLAC PAINTS LTD. Kansai Paints Co. Ltd.

, our parent company is the number one paint company in Japan.

It is one of the top paint companies in the world. It has 39 Joint Ventures, subsidiaries and licensees around the world and has recorded a turnover of over 2 billion USD.

The biggest strength of Kansai of course is its unmistakable belief in innovation through R&D. Origin & Evolution of Nerolac It is the second largest coating company in India and market leader in Industrial Coatings. Kansai Nerolac Paints Ltd is a subsidiary of Japan based Kansai Paint Company Limited, which is one of the top ten coating companies in the world. Year 1920, they began as Gahagan Paints and Varnish Co. Ltd. in Mumbai. The journey is marked by moving from strength to strength in every sphere of business be it product introductions through innovation, value engineering and superior technology. 1976: Goodlass Nerolac Paints Ltd. became a part of the Tata Forbes Group on acquisition of a part of the foreign shareholdings by Forbes Gokak. 1999: Kansai Paint Co. Ltd, Japan took over the entire stake of Tata Forbes group and thus GNP became wholly owned subsidiary of Kansai Paint Company Ltd. 2006: On the 11th of July, Goodlass Paints Ltd. name has been changed to Kansai Nerolac Paints Ltd. Corporate Values Vision Values and Culture KNPL have been at the forefront of paint manufacturing over eight decades pioneering a wide spectrum of quality products that change the face of economy and lifestyles of people at large. It is their vision to leverage global technology, for serving our customers with superior coating systems built on innovative and superior products and world class solutions, to strengthen our leadership in Industrial coatings and propel for leadership in Architectural coatings, all to the delight of our stakeholders.

KNPL believes that it is not only the vision of where they wish to go which will form a cornerstone of all their further growth, but also conviction to the fact that the values based proposition has to be ultimate foundation of our business. To this end they consciously have internalized and been practicing these values in all business transactions though human beings:

Innovation Entrepreneurial Responsive Simplicity Team Orientation

SUMMARISED BALANCE SHEET

SUMMARISED PROFIT AND LOSS ACCOUNT

ANALYSIS OF BS & P&L Gross sales for the year aggregated to Rs. 2493 crores reflecting a growth of 26.4% over the previous year. Sales net of excise duty grew by 25.3%. Profit for the year was driven by robust growth in decorative and industrial sales. Overall raw material inflation was very high. Increase in raw material prices was driven by increase in crude oil prices. Depreciation is higher due to full impact of the water based plant at Hosur commissioned in the last quarter of 09-10. Current year's depreciation is at Rs. 49.35 crores as compared to Rs. 44.26 crores of the previous year. Interest was lower at Rs. 0.84 crores as compared to Rs. 1.20 crores of the previous year due to effective cash management. Other income was higher at Rs. 48.83 crores (09-10 Rs. 20.38 crores) due to profit on sale of investments. During the year companys investment in Nipa Chemicals Ltd. was sold to Nihon Parkerizing Co. Ltd., Japan at a profit of Rs. 25.37 crores. Profit Before Tax (PBT) is higher at Rs. 289.13 crores as compared to Rs. 238.61 crores of the previous year reflecting a growth of 21.1%.

RATIO ANALYSIS 1. CURRENT RATIO Current ratio is useful to find out solvency of the company. High current ratio indicates that company will be able to pay its debts within a year. Low current ratio indicates that company will not be able to meet its short term debts . Minimum standard current ratio is 2:1. Current Ratio = current assets/current liabilities YEAR CURRENT ASSETS CURRENT LIABILITIES CURRENT RATIO 1.41 1.49 39799.85 47265.12 2010 56198.61 2011 70428.45

The current ratio for this type of industry should be 2 but KNPL has shown a decline in current ratio since 2007 and it was 2.2 in 2007 ,but such low current ratio is not good for the company and its position in market. 2. QUICK RATIO Quick ratio is also known as acid test ratio. It indicates immediate ability of a company to pay off its current obligations. It is better to have high quick ratios.The standard quick ratio should be 1:1. Quick Ratio= Current assets Inventories Current liabilities

YEAR

2010

2011

CURRENT ASSETS CURRENT LIABILITIES INVENTORIES QUICK RATIO

56198.61 39799.85

70428.45 47265.12

24744.44 .79

35410.25 .74

The trend shown by the company in case of quick ratio in the years 2007-2011 is as shown 2007 - 1.07 2008 - 0.95 2009 - 0.87 2010-0.79 2011-0.74 Thus we see that there is a decline in the quick assets of the company, indicating a problem in the company and this problem has to be solved. 3. Operating Profit Ratio: It indicates profitability of entire business after meeting all operating cost including direct and indirect cost of administrative and distribution expenses. OPERATING PROFIT RATIO = OPERATING PROFIT *100 SALES

YEAR

2010

2011

OPERATING PROFIT SALES OPERATING PROFIT MARGIN RATIO

23860.94

28913.23

185613.14 0.1286

236574.64 0.122

The trend shown by the company for the past years has been as follows:2007-0.12 2008-0.1197 2009-0.1022 2010-0.1286 2011-0.122 Now as shown by the above trend initially there was a drop in the ratio upto 2009 but it has stablised after that and reached its previous levels indicating a better position of business as compared to the recession period which hampered the profits. 4. Net Profit Ratio: It shows the overall efficiency of the business. Higher the ratio indicates higher efficiency of business and better utilization of total resources. NET PROFIT RATIO= NET PROFIT *100 SALES

YEAR

2010

2011

NET PROFIT SALES NET PROFIT MARGIN RATIO

16550.05 185613.14 0.089

20598.45 236574.64 0.087

The trend for NPR for the last five years is as follows-: 2007-0.0788 2008-0.0835 2009-0.0735 2010-0.089 2011-0.087 The trend shows a fall in NPR during 2008 due to recession resulting in decrease in net profit but after that there was a rise in sales and NPR has become constant thereby showing more or less pre recession trend. 5. Return On Net Worth Or Proprietors Funds It measures the productivity of shareholders funds. Higher the ratio indicates better utilization of shareholders funds or higher productivity of owners funds. It helps the investor to compare the earning capacity of company with that of other companies.

RETURN ON NET WORTH= NET PROFIT AFTER TAX EQUITY SHAREHOLDERS FUND X 100

YEAR

2010

2011

NET PROFIT AFTER TAX EQUITY SHAREHOLDERS FUNDS RETURN ON NET WORTH

16550.05

20598.45

77281.70

91616.70

0.214

0.2248

Trend for some years is as follows-: 2007-0.1972 2008-0.1954 2009-0.15 2010-0.214 2011-0.224 Now as this ratio shows the utilization of resources so from above trend we come to know that right now the resources are being utilized properly, there was a dip in 2009 due to excess surplus and reserves thus indicating there was lesser utilization of resources. 6. Fixed Asset Turnover Ratio: It indicates efficiency in the utilization of fixed assets like plant and machinery by management.

FIXED ASSET TURNOVER RATIO = NET SALES COST OF FIXED ASSETS YEAR 2010 2011

COST OF FIXED ASSETS NET SALES FIXED ASSET TURNOVER RATIO

63767.44 170638.36 2.676

67527.75 213873.02 3.17

Trend for some years is as follows-: 2007-5.73 2008-5.79 2009-.5.89 2010-2.676 2011-3.17 Above trend shows that there is decrease in the ratio and indicating that despite sales rise the ratio is falling shows that the company has bought new assets and they have to be put under optimal use till now so there will be an increase in this ratio in future. 7. Total Asset Turnover Ratio It indicates how efficiently the assets are employed . It indicates relationships between the amount invested in the assets and the sales. TOTAL ASSET TURNOVER RATIO = NET SALES TOTAL ASSETS

Trend for some years is as follows-: 2007-1.93 2008-1.97 2009-.1.89 2010-1.93 2011-2.15 KNPL shows a stable trend with respect to this ratio.

YEAR

2010

2011

TOTAL ASSETS NET SALES TOTAL ASSETS TURNOVER RATIO

88280.17 170638.66 1.93

99865.10 213873.02 2.15

8. Debt Equity Ratio: Tells us about the security of creditors i.e lower the ratio more secured are the creditors and vice versa. DEBT EQUITY RATIO= DEBT = 0.09

EQUITY

10. Interest Coverage Ratio This indicates earning capacity of the business to pay its interest . Higher the ratio business can easily pay the interest INTREST COVERAGE RATIO=PROFIT BEFORE INTEREST&TAXES INTEREST

11. Inventory Turnover Ratio 12. Average Raw Material Holding 13. Average Finished Goods Held 14. Number of Days In Working Capital 15. Earnings Per Share

7.17 34.07 44.63 39.06 38.22

SIGNIFICANT ACCOUNTING POLICIES DEPRECIATION Depreciation is a method of allocating the cost of a tangible asset over its useful life. Businesses depreciate long-term assets for both tax and accounting purposes. Depreciation is provided on the written down value method at the rates prescribed in Schedule XIV to the Companies Act, 1956. The rates of depreciation prescribed in Schedule XIV to the Companies Act, 1956 are considered as the minimum rates. If the managements estimate of the useful life of a fixed asset at the time of acquisition of the asset or of the remaining useful life on a subsequent review is shorter than that envisaged in the aforesaid schedule, depreciation is provided at the higher rate based on the managements estimates of the useful life / remaining useful life. Pursuant to this policy, in respect of colour dispensers the rate of depreciation applied is 45 per cent, which management considers as being representative of the useful economic life of such assets. Leasehold land and leasehold improvements are amortised over the primary period of lease.

Purchase cost and user licence fees for major software are amortised over a period of three years.

INVENTORIES

The raw materials, work-in-process goods and completely finished goods that are considered to be the portion of a business's assets that are ready or will be ready for sale. Inventory represents one of the most important assets that most businesses possess, because the turnover of inventory represents one of the primary sources of revenue generation and subsequent earnings for the company's shareholders/owners.

Possessing a high amount of inventory for long periods of time is not usually good for a business because of inventory storage, obsolescence and spoilage costs. However, possessing too little inventory isn't good either, because the business runs the risk of losing out on potential sales and potential market share as well.

Inventory management forecasts and strategies, such as a just-in-time inventory system, can help minimize inventory costs because goods are created or received as inventory only when needed.

Inventories Stores and spare parts .....................................................................................................194.56 Stock in trade Raw materials [Including in-transit Rs. Nil (2009-2010 Rs. 113.30 lacs)]........................... 11670.12 Packing materials .....................................................................................................446.68 Stock in process .......................................................................................................2420.57 Finished products .................................................................................................20678.32 Total........................................................................................................................35410.25 (a) Stores and spare parts are valued at cost less amounts written down. (b) Stock in trade comprising of raw materials, packing materials, stock in process and finished goods are valued at the lower of cost and net realisable value after making such provisions as required on account of damaged, unserviceable, inert and obsolete stocks. The comparison of the cost and net realisable value is made on item by item basis.

(c) Cost has been arrived at on the basis of weighted average method. (d) The net realisable value of stock in process is determined with reference to the selling prices of related finished goods. Raw materials and other supplies held for use in production of inventories are not written down below cost except in cases where material prices have declined and it is estimated that the cost of finished products will exceed their net realisable value. In such cases, the materials are valued at replacement cost.

Revenue Recognition

An accounting principle under generally accepted accounting principles (GAAP) that determines the specific conditions under which income becomes realized as revenue. Generally, revenue is recognized only when a specific critical event has occurred and the amount of revenue is measurable. For most businesses, income is recognized as revenue whenever the company delivers or performs its product or service and receives payment for it. However, there are several situations in which exceptions may apply. For example, if a company's business has a very high rate of product returns, revenue should only be recognized after the return period expires.

(a) Sales are recognised in accordance with Accounting Standard 9 viz. when the seller has transferred to the buyer, the property in the goods, for a price, or significant risk and rewards of ownership have been transferred to the buyer. (b) Sales are inclusive of excise duty, processing charges, sale of scrap and income from services and are net of trade discount and product rebate. (c) Dividend income is accounted when the right to receive payment is established and known. (d) Interest income is recognised on the time proportion basis.