SPEAKER: MR. ANKIT GOEL | DEEP POLYCHEM | HOW TO MANAGE THE FUNDS & EXPENSES.
Why does revenue not always mean success? Mr. Ankit Goel of Deep Polychem unpacks AMEL Paints Real Business Health.
New Delhi- The event started with an insightful session, Ankit Goel, the founder of Deep Polychem Pvt. Ltd., just broke down the performances of a business in parts, step-by-step, clearer. AMEL Paints, a new entrant in the paint industry- how figures are frequently deceptive when assessing the true health of a business. At first look, AMEL Paints might seem profitable given its reported ₹10 crore in revenue and ₹1 crore in profit for FY 2024–2025. The true picture, however, is more complex, according to Goel.
The Illusion of Profit
At first, AMEL Paints ran its business out of a 2,000-square-yard plot in Delhi’s Udyog Nagar, where rent is about ₹12 lakh a month. Goel contends that by failing to account for the opportunity cost of its prime real estate, the company was experiencing an economic loss even though it reported a ₹1 crore profit.
The business started to report an economic profit of ₹75 lakh after relocating to the outskirts of Delhi, where the rental value fell to ₹25 lakh annually. Goel, however, advised entrepreneurs to account for all unforeseen expenses.
Goel added another layer: AMEL Paints is a proprietorship, so the founder, Mr. Ankit (fictitious), does not currently receive a salary from the company. Previously, he made ₹5 lakh a month in a government job. When your account for his lost salary, the real profit drops significantly.
Add to that a working capital, plant, and machinery investment of ₹2 crore. An annual return of ₹40 lakh should be anticipated at a standard cost of capital of 20%. The Return on Equity (RoE) is only 7.5% with a net profit of only ₹15 lakh. “The company is underperforming from this perspective,” Goel said.
Expense Ratios & Their Significance
Goel highlighted the significance of important cost ratios, noting that they vary depending on the type of product. R&D and marketing costs for commodity products should be kept to a minimum.
Developing new high-margin products for the market may inevitably require increasing marketing expenses.
He placed a strong emphasis on comparing net profit margins, asset turnover, raw material ratios, and overhead expenses to industry standards. “The hidden inefficiencies are often exposed by these straightforward metrics,” he stated.
Timing of Expenses: The Silent Game-Changer
Goel believes that marketers make one of the biggest errors when they aggressively market unproven products. “After a successful launch, you discover that the product isn’t appropriate for all weather conditions. Then you have to start over, and all of that money spent on marketing turns into negative publicity,” he cautioned.
A phased launch approach is what he suggests: first, introduce new products to a small market, then test, adjust, and scale. Realistic forecasting and cost control are made possible by this method.
Working Capital: The Backbone of Survival
“Most businesses struggle with working capital, which is just your current assets less your current liabilities,” Goel stated.
He mentioned frequent errors, such as stockpiling raw materials that eventually go bad. He emphasized, “That’s locked-up capital doing nothing.” His counsel? Divide big orders into more manageable, frequent batches. “It helps suppliers plan more effectively and streamlines your forecasting.”
He made a comparison to Asian Paints, which is renowned for its remarkable forecasting skills and 4 lakh deliveries per day, which allow them to control 97% of the value chain.
Cash Management & Supplier Relations
Although helpful, supplier credit frequently has unstated costs, Goel warned. “A bank overdraft may be at 9%, while you may be paying an effective interest rate of 15–18% on credit.”
Rather, he recommended negotiating better terms and utilizing early payment discounts, which are tactics employed by big businesses to maximize cash flow.
Receivables & Liquidity Strategy
Receivables management is equally important. Effective levers include providing early payment discounts, automating collections, and requiring on-time payments in order to receive scheme payouts. “Preserve liquidity, even if it means not using your overdraft limits. Even though the ₹1 crore cap only costs you ₹25,000 annually, the opportunities it offers are enormous.
He suggested leveraging slow seasons like the monsoon to build inventory and utilize idle labor, thereby preparing for peak season demands like Diwali.
Final Word: Cash Flow Is the Reality
Goel came to the conclusion that “cash flow is reality, profit is sanity, and revenue is vanity.” He cautioned that if the business is unable to fulfill its responsibilities because of past-due receivables, even a 20% profit margin is meaningless.
He encouraged business owners to build sustainable, cash-positive companies instead of focusing solely on revenue, citing real-life examples of successful companies struggling with EMI payments due to poor cash management.
This insightful session hosted by MR. ANKIT GOEL, in PaintVision Global Business Summit under the leadership of MR. MANISH MALHOTRA.