NMIMS Orientation Session 1 (Finance) - Kushaagra Jain

BURGER PAINTS Financial Report Analysis

Introduction: We get the following insights:

1. Move from the traditional model of racing towards being the innovator and first mover to
the highly efficient Toyota Production System (TPS), first introduced by Taiichi Ohno
(With backing from Eiji Toyoda) which highly focuses on the philosophy of the complete
elimination of all waste in pursuit of the most efficient methods.
2. Additionally, they want to focus on customer responsiveness to their products to
dominate highly “Customer is King” style market.

Tackling the Pandemic: Focuses on highlighting the efforts made by the company to keep the
surrounding dis-infected, implementing various checks and compliances to ensure employee
safety and providing insurance to their daily-wage workers to secure their families. Like any
other big corporation, this move helps boost brand image and employee confidence.

Introduction of sanitation focused products: With the global pandemic creating new
opportunities for sanitation products, they introduced their own line of sanitizers, floor cleaners
and dis-infectant paints to get a slice of the metaphoric pie. Thus, ensuring a new avenue to
supplement their pandemic struck sales.

Informing the stakeholders of their current focuses:

1. Strengthen Talent Base: Focus on on-boarding of new talent through campuses and
strengthening of the pipeline will ensure increased future hiring opportunities.
2. Expansion Plans: In the pursuit of ramping up production capacity the construction of a
new plant in the town of Sandila will be completed by 2022. This shows their confidence
in being able to grasp a bigger share of the market thus boosting investor confidence.
3. Integration of technology: Like most big companies, they are attempting to digitalize
their supply chains. This will positively affect the overall turn-around time from the receipt
of raw materials till final payment realization.

Mergers and acquisitions: Acquired 95.53% equity of STP Limited which used to be a
competitor in a few of the company’s product segments. This re-enforces their previous plan to
ramp-up the production capacity and thus lines up with the company strategy.

CSR: Training unskilled and semi-skilled workers to use their products and thus creating small
entrepreneurs which in theory shall be fiercely to the company and help boost future business.

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NMIMS Orientation Session 1 (Finance) - Kushaagra Jain

Digitization: Allowing customers to book appointments on the burger application and get their
homes painted while ensuring safety norms and utilizing platforms such as Aarogya Setu to
share painter’s information to build trust. The application also has a feature that allows the
customer to visualize the paint’s colour and texture virtually using a 3D format. This will help in
quicker conversions and client satisfaction in times where physically selecting the paint is not
possible.

Awards and Accolades: It won various awards which helps improve brand image.

Leadership: The company is spearheaded by Mr. Kuldip Singh Dhingra as the Chairman of the
Board of Directors. He’s also the promoter of the business and is part of the 4th generation
member of a family which has been in this business since 1898. He’s succeeded by a board of
directors which has an experience portfolio of myriad types of businesses. Since the board is
headed by the promoter, the decision-making must be centralized and un-equivocal.

Trends over the years: All growth indications over a 5-year period from 2015-16 to 2019-20
show a positive trend for instance revenue from operations, operating profits, profit after tax and
market capitalization. With a constant rise in the said indicators, the company is set to tackle the
pandemic head-on.

Financial Ratios (Standalone): Following are my insights:

1. Debtor’s turnover: It is used to measure how effective a company is in extending credit
as well as collecting debts. It is an activity ratio which measures how efficiently a firm
uses its assets. It can be calculated by dividing net sales by net average receivables.
We can see that the ratio rose from 9.41 to 10.05 this year, a higher ratio implies either
that a company operates on a cash basis or that its extension of credit and collection of
accounts receivable is efficient. Therefore, we can conclude that the company’s liquidity
in terms of receivables realization has improved.
2. Inventory Turnover: It is a measure of the number of times inventory is sold or used in
a time period most commonly taken as a year. It is calculated to see if a business has
surplus of inventory in comparison to its overall sales for the period. Inventory turnover is
calculated by dividing the cost of goods sold by the average inventory (at cost as were
using COGS). We can see that the ratio dropped from 3.27 to 2.91 which indicates that
the turnover is faster than before which implies a shorter turn-around time for business
cycle. Also, items that turn over more quickly increase responsiveness to changes in
customer requirements while allowing the replacement of obsolete items. This is in line
with the vision projected by the company in their introduction.
3. Interest coverage ratio: It is a measure of a company's ability to honor its debt
payments. It may be calculated as either EBIT or EBITDA divided by the total interest
expense. We can see that the ratio rose from 21.53 to 28.71 which either indicates the
company’s enhances capability to cover their interest payments or a drop in their overall
interest-based liabilities causing the interest payments to fall and thus bringing down the

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NMIMS Orientation Session 1 (Finance) - Kushaagra Jain

divisor of the formulae. Either way, a higher interest coverage ratio is always a welcome
sight as it boosts lender confidence.
4. Current Ratio: It is a liquidity ratio that indicates whether a firm has enough resources
to meet its short-term obligations. It is calculated by dividing a firm's current assets with
its current liabilities. Acceptable current ratios vary from industry to industry and with no
in-depth knowledge of the paints industry, the only inference I derive based of a fall in its
current ratio from 1.60 to 1.49 can be one which is linked to the debtor’s turnover and
interest coverage. Generally, a creditor would consider a high current ratio to be better
than a low current ratio but we saw a rise in debtor turnover which may indicate that the
debtors honour their debts faster or the company having greater advance payments and
immediate payment transactions both of which are great for the company. Similarly, the
interest coverage ratio quells any creditor doubts by showing enhanced interest payment
capabilities. The only adversity that can be pointed out is the liquidity of the company.
5. Debt Equity Ratio: It is a financial ratio indicating the relative proportion of
shareholders' equity and debt used to finance a company's assets. Generally speaking,
a high ratio may indicate that the company is much resourced with (outside) borrowing
as compared to funding from shareholders but we can see that not only was this ratio
low at 0.09 but also, the company reduced it further to 0.08. This can be considered as a
move by the company to become a “Zero Debt Company” which is a highly coveted title
and makes it very attractive for investors. At the same time, it may not align with the
company’s expansionist ideal as not taking up new debt will stunt their production
infrastructure development capabilities.
6. Operating Profit Margin % & Net Profit Margin %: They are ratios of operating and
net profit to net sales respectively. They are indicators of profitability and are often used
to compare the profitability of companies and industries of differing sizes. We can see
that Operating Profit Margin % grew from 16.61% to 19.48% and Net Profit Margin %
grew from 7.90% to 12.28%, these are a good sign of increasing profitability and a very
attractive matrix for the stakeholders and potential investors.
7. Return on Net Worth (RONW): It is a measure of the profitability of a business in
relation to the equity. It is popularly called ROE (Return on Equity) and can also be
thought of as a return on assets minus liabilities. It measures the amount of money
generated against each unit of money invested by the shareholders. It is calculated by
dividing the Net Income by the equity of the company. We can see a sharp rise in in the
RONW from 19.44% to 28.08% which indicates a healthy rise in profitability having the
effect of heightened shareholder confidence and huge interest by potential investors.

Employee Stock Option: Company shares were issued to the CEO, CFO and CS of the
company which implies that the company wants to retain the existing executive talent by making
them shareholders who have direct interest in the company’s wellbeing and profitability.

Shareholding: More than 50% of the company’s shares are held by the promoters.

Directors Report (Standalone): It opens with a table showing the rise in revenue, PBT & PAT
and thus builds on the great financial performance during the year. They give a brief overview of

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NMIMS Orientation Session 1 (Finance) - Kushaagra Jain

the paints industry in India and abroad along with the speculations regarding the impact of
covid-19 lockdown and their hopes of how the government may extend a helping hand with tax
reforms. Further, they talk about their operations while highlighting their steady and impressive
CAGR of EBIDTA was 16.8% over the last five years. Overall, they reflect on how they tackled
with raw material pricing & acquisition and various other hurdles and still came on the top.
They talk about revenue growth in their focus and outlook for 2020-2021 and how they could’ve
had a much better start if not for the pandemic as they had a great upward trend for revenue
growth. They highlight their hopes of industries getting a stimulus package by the government
that’ll help boost their operations and supply chain.
To conclude, they talk about how they answered the existing demand for sanitizers (implying
that the government reached out to big businesses like theirs) and has entered the home
hygiene segment with their hand sanitizers, dis-infectant paints etc.
Overall, the company has shown strong financial performance with its ability to adapt to any
circumstances as demonstrated by entering into a new segment. Such confidence and proof of
great execution builds investors’ trust.

Standalone Balance Sheet Analysis (All numbers will be in INR crores):

Non-current Assets: Notable changes include a rise in value of freehold buildings from 356.07
to 467.91 i.e. a 31% increase along with a rise in investment assets which rose due to the
acquisition of STP Ltd. shares by 125.20.
Current Assets: Notable changes include:
1. Financial Asset investments: They fell from 245.51 to 179.35. This is largely
attributable to their withdrawal for various mutual funds. At the same time, they freshly
invested in various other MFs with smaller amounts. This may reflect the company’s pro-
active approach towards managing their investments based on market trends or it may
suggest their fickle nature which shows vulnerability to market rallies and crashes. No
final conclusion can be drawn without the growth data for the given MFs.
2. Cash and Cash equivalents more than doubled from 27.24 to 55.66. This was due to
rise in cash reserves and a short-term maturity deposit. Not enough data to derive any
insights.
3. Bank and bank balances fell from 104.53 to 69.89. Deposits with maturity between 3 to
12 months was the primary reason for change. Again, not enough data to derive any
insights.
Other Equity: They rose from 2257.68 to 2527.92. This can be attributed to the increase in
income for the year from 433.80 to 692.53 which is a good sign for investors as it led to higher
dividend payout as well as a higher amount being transferred to the reserves for future growth.
Financial Liabilities (Deposits): Rise in deposits from 11.94 to 25.88. No insights.
Deferred Tax Liabilities: Fell from 51.43 to 29.14. They arising out of temporary differences
between tax and book written down values of depreciable assets.

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NMIMS Orientation Session 1 (Finance) - Kushaagra Jain

Provisions: Rose from 18.67 to 29.99. They rose due to both provision for gratuity and leave
encashment. This move indicates that the company expects or has planned some employee
exits.

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