2018 CFO Special
CFOs' Top Priorities: Growth , Corporate Governance, Risk Management And Enhancing Market Share
CFOs are often the most trusted management resource for the investors. Leading CFOs of Corporate India interact with the DSIJ TEAM and share their company's vision and strategies in this CFO special edition
When major indices are trading at record valuations and are touching all-time highs in line with the US indices, the million-dollar question facing the investors is where are we headed from here and what are the industry captains thinking about India'a growth story?
Investors definitely must be asking themselves -
Are we going to get stronger from here on or weaker in terms of corporate balance sheets and economy?
Are the corporate balance sheets immune from the risks of global trade war and where is the Indian currency headed vis-à-vis USD?
While these questions are important for investors, there are many things an investor would want to know from a corporate insider, including capex plans, organic or inorganic expansion plans, future growth outlook, etc. In this special edition, we have the insiders in the form of CFOs of major corporations in India being candid with us, sharing their optimism and outlook for the economy and their vision for their own company.
CFOs are mastermind behind the growth strategy adopted by any company. The tightrope that a CFO has to walk to balance growth with risk management without ignoring the corporate governance makes him a highly valuable player in the effort of wealth maximisation for the shareholders. As a master strategist, a CFO has to be future ready and needs to own analytics that improves predictive powers. While investing in technology for efficiency is a priority, growth financing comes first in the priority list of majority of CFOs.
We find that the Indian CFOs are optimistic on the economy and in principle do not believe that the trade war is going to impact the Indian companies too much. In fact, few of the financial masterminds believe that India will emerge victorious in the trade war game, going forward. This sentiment is in sharp contrast with what the CFOs of major global conglomerates believe as per the latest Deloitte survey of global CFOs.
Majority of the CFOs we spoke to are planning for expansion, thus reflecting their confidence in the economy and positive sectoral outlook. CFOs of consumer-facing companies are bullish on the consumption story in India even as the CFO of the NBFC company is betting on increasing financialisation of savings in India. While the CFO of a leading graphite player in India is bullish on the prospects for the industry owing to the structural changes in the demand and supply, the outlook is positive for the automotive industry in India as per the CFO of the leading automotive brand in India.
Overall, the India growth story is intact as per the financial captains of Corporate India. The focus areas for almost all of the CFOs is growth, corporate governance, keeping margins intact and continuously concentrating on improving market share.
"The IT landscape is on a digital transformation journey"
CFO, Tech Mahindra
Manoj Bhat has been associated with Tech Mahindra since 2006. He brings with him a rich experience of more than 20 years in the IT and ITES industry -- across various roles in Finance, Corporate Planning & Development, Merger & Acquisitions, and Strategy, and has played a key role in Tech Mahindra's organic and non-organic growth initiatives.
He has been the Deputy CFO of Tech Mahindra from 2013, with global responsibilities for Business Finance, Investor Relations and Corporate Planning. He is also handling the role of ‘Head of Mergers and Acquisitions' for Tech Mahindra from 2011 and is responsible for the acquisition strategy of the company.
Mr. Bhat has a Bachelors in Technology degree from IIT Mumbai and a postgraduate diploma in management (PGDM) from IIM Bangalore.
As a CFO of Tech Mahindra, what are your top three strategic priorities?
Tech Mahindra has been on a transformation journey over the last few quarters, using a multi-pronged approach of digital and service modernisation, embracing new age delivery and improving operational efficiencies while reskilling our talent pool. Providing strategic inputs on investing in high yield, high growth businesses, while driving performance management and enhancement is key. The other strategic priority is to make sure our processes and systems are in line with the changing needs and demands of the marketplace, and incorporating technology changes like automation and AI, and data analytics to help steer agile decision-making. Last, but not the least, driving operating efficiencies and helping Tech Mahindra drive value creation for investors, customers and employees is a priority area.
As a company, we have started this journey well, but believe that we have to keep the momentum and achieve a lot more.
Due to rationalisation of onsite and offshore, what impact do you think it will have on your company margins going forward?
Tech Mahindra is a global digital transformation provider with operations in 90 countries serving over 926 customers - this, apart from the partner and alliance ecosystem that we work with. Also, co-innovation with clients, academia, industry as well as collaborating with start-ups form an integral part of our TECHMNxt charter.
Our delivery models, therefore, are equally global and digital, well-equipped to adapt and leverage both global and local presence. While there may be short-term dips and gains in some pockets, overall at the company level, we are on an improving bottom-line trajectory and continuously working towards expanding it. Automation and AIOps through our proprietary platforms is key margin lever to achieve this. In addition, enhancing synergies with our portfolio companies and embracing new age delivery are key areas of focus.
What are the key growth drivers for your company going forward?
For Tech Mahindra, FY19 will be a year of digital transformation and growth. Our endeavour is to clock 40 per cent of the overall revenue from digital over time. As part of our TechMNxt charter, we are betting big on the next gen technologies like Blockchain, Cybersecurity, Artificial Intelligence (AI), Machine Learning (ML), Internet of Things (IoT), Robotics and Analytics.
Our enterprise vertical has been delivering growth over the last few years and our vertical presence and our service offerings across IT, BPS and engineering services has enabled us to maintain this momentum. The communication vertical is also showing signs of growth after a period of consolidation and investments in digital and networks of the future.
Due to 5G implementation, what kind of opportunities do you see for your company's telecom vertical?
If we look at 5G , the key benefits of the 5G technology will be increased data capacity and more flexible and agile networks. 5G will enable the customers or the network service providers to choose their own strategy, whether to be equipment-based, software-based or to work with players who create an entire ecosystem of services. Tech Mahindra is geared up to leverage all the three segments. We are betting big on 5G — the network of the future, and making investments in capabilities and ecosystem creation.
Networks will also become more software-defined, which will enable multiple-use cases across segments. The first opportunity is to be part of an ecosystem of players that will deliver 5G outcomes to the customers, be it to retail consumers or enterprise customers. We continue to partner with communication services providers, equipment manufacturers and software players like Altiostar to benefit from this growth in capital expenditure due to 5G. At the second level, we have an opportunity in the whole IoT solution layer, which will enable effective utilisation of the capabilities of the 5G network. This could involve creation, implementation and managing these solutions to achieve the objectives of the enterprise customers.
We have also historically seen network spend leading a revival in IT spends in our customer base and we could see some benefits in our IT business with communication service providers as we move further into the 5G cycle.
We have already set up a lab in Bengaluru in association with the US chipmaker Intel as part of our preparedness for 5G services. Further, our VNF (Virtual Network Function) exchange programme is geared towards collaborating and co-creating solutions for the future, with more than 40 partners on-board from across the globe. I must add that like any network change, 5G is a journey and we expect benefits on revenues may start flowing in by FY20 and pick up steam later.
What will be the impact of ongoing trade war on Indian IT sector in your view? Do you intend to diversify your revenues further?
Trade wars or protectionism is not a new phenomenon. In the current global socio-political and economic backdrop, it has certainly garnered more attention. Protectionism will exist, but there will be enough windows of business opportunities as well. For the Indian IT sector, this is an issue of importance, but my view is that, given the strong demand cycle for technology and the scarcity of talent globally, there will not be a long-term impact.
What is your outlook on the IT industry going forward? What are the internal growth targets you are working on?
The IT landscape is on a digital transformation journey. We have seen a phase of rapid evolution of technology and this has disrupted many traditional business models. However, post the initial phase of this change, we are seeing many of our customers having clear roadmaps and approaches to digital. This augurs well for the industry since this could potentially speed up decisionmaking and increase revenue velocity for the industry.
We have laid a clear goal on how we as a company can add value, and this model is called RUN, CHANGE and GROW.
a.) RUN is about enabling customers to do their existing business more efficiently.
b.) CHANGE enables our customers to change their service offerings/ portfolio to their customers so that they are ready for today, tomorrow and the future.
c.) GROW is built around constructing new revenue-generating partnerships with customers by taking a leadership position in the new connected world propelled by next gen technologies
All this will be enabled by one or a combination of many technologies be it Cloud, IoT, Analytics, Blockchain and the application of these technologies will be for modernising the traditional and creating new systems.
We don't give a view on our growth numbers, but our goal would be to maintain the momentum we have in our enterprise segment and increase growth in our communications segment.
How do you manage the currency volatility at Tech Mahindra? Where do you see INR headed versus USD?
The long term trend of the INR is that it has depreciated against the USD, with short term periods where it appreciates against the USD. To insulate against this, we follow a hedging policy consistently. Our hedging policy, which has delivered us good results, takes a longer view of two years while we decide our approach to covering our exposures in foreign currency. We cover multiple currencies since we are present in most of the major markets globally. Our view is that we cannot foresee the short term movements of the INR, hence we have institutionalised this policy.
What is the best part of being a CFO of a leading IT company from the fastest growing nation in the world?
First and foremost, the global nature of business and our exposure to multiple business verticals, economies, currencies and regulations, makes it a challenging and satisfying task to assess risks, manage performance and figure out the right strategy from both financial and business perspectives.
The other advantage of being in an IT company is the exposure to various companies doing path-breaking work in new technology areas, some of whom we partner with and others whom we invest in. This keeps me abreast of the latest in an ever-changing environment.
A K Sharma
Director (Finance), Indian Oil Corporation
"In future, investing across gas value chain will kick-start new phase of growth"
Mr. A. K. Sharma is a Commerce & Law graduate and a Chartered Accountant. Mr. Sharma has rich and varied experience in Petroleum Industry. He joined IndianOil in 1983 and has handled various assignments in Finance function both in Marketing as well as the Refinery Division of Indian Oil. As the Head of Treasury, he was credited for issuing the first ever Foreign Currency Bonds ($500 million bonds REG-S) of IndianOil in the International Markets in 2010. Mr. Sharma brings with him the vast experience of Project appraisal, Project Finance and Treasury Operations. Mr. Sharma is also the Chairman of IndianOil Mauritius Ltd., a subsidiary of IndianOil in Mauritius.
As a CFO of Indian Oil Corporation, what are your top three strategic priorities?
Our biggest strategic priority would be sustaining leadership in core business verticals. In the deregulated market scenario, where domestic and foreign players are jostling to garner a bigger share of the market, it would be necessary to remain ahead of the competition. This would call for capacity expansion of existing refineries, increasing pipeline networks and augmenting marketing touch points with appropriate product/service differentiators.
The second priority would be to further entrench our integration and diversification drive along with furthering the global reach to have a natural hedge against our core business of refining and marketing. Petrochemicals would be an important growth area, raising equity oil and gas production from international and domestic assets through future acquisitions as a part of diversification of business risk, will also form part of the integration drive. In future, the demand for cleaner fuels will be the hallmark for a cleaner environment, wherein investing across the gas value chain will kick-start a new phase of growth.
Further, disruption is the new buzzword in every sphere of business and oil and gas is not an exception. Therefore, from a long term perspective, we would have to intensify our foray into alternate energy sources, while also establishing presence in waste-toenergy, bio-CNG, EV battery manufacturing and the like.
In all the above endeavours, technological advances would be harnessed to the hilt to achieve speedier results. Of course, it has to be ensured that capital is available at the right cost for the above choices to be profitable, at the same time, the bigger challenge would be to prioritise the capital allocation to support such growth.
What kind of technical changes you will have to make to refineries to produce BS-VI fuel?
You would be aware that for migration from BS-IV to BS-VI fuel, sulphur content of MS and HSD has to be reduced from 50 PPMW max (BS-IV) to 10 PPMW max (BS-VI). In the refineries, the sulphur from fuels, that is, from high speed diesel (HSD) and motor spirit (MS) is removed through hydro-treating utilising hydrogen. The sulphur content in HSD is removed through units like diesel-hydro treating unit (DHDT) and with respect to MS FCC gasoline (high sulphur component of MS) is through gasoline hydro-treater unit (e.g. Prime-G). To take care of additional hydrogen requirement, new hydrogen generation unit may be required depending on availability of hydrogen. Further, to supply utility requirements like steam, power for above units, new gas turbines and steam generators would be required depending on the characteristics of each refinery.
The work on the above changes is already in full swing and the company is geared up to make available the BS VI compliant auto fuels well before the designated date.
Can you tell us how much amount are you investing for refinery upgradation and new expansion?
To meet the Government of India guidelines for production of 100% BS-VI compliant fuel (MS and HSD) in the entire country w.e.f. April1, 2020, BS VI projects worth about Rs.16,000 crore have been approved. BS-VI programme envisages revamps/installation of new units at Panipat, Mathura, Gujarat, Haldia, Bongaigaon, Digboi Refinery, Paradip and Guwahati.
At Haldia refinery, about Rs.4,200 crore is being invested for improvement of distillate yield. This project, which envisages installation of Delayed Coking Unit, is on the verge of completion and the benefits should start accruing from the current year itself.
To improve production of LPG and gasoline at Bongaigaon refinery, we are adding a secondary processing unit known as INDMAX unit at cost of about Rs.2600 crore. This unit is based on technology developed in-house by IOC's Research & Development wing.
We are also planning a project at Mathura refinery worth Rs.6000 crore with the twin objective of improving the distillate yield through a residue upgradation unit and also enhancing the capacity of the refinery by about 1.2 MMTPA.
As far as capacity expansion of our refineries are considered, we are looking to increase refining capacity at Gujarat refinery by about 4 MMTPA at an estimated investment of about Rs.15,000 crore. This would also include major revamp of some of the existing units. We are also planning to add 3 MMTPA of refining capacity at Barauni refinery at a cost of about Rs.6200 crore. In addition to the above, enhancing capacity of Panipat refinery by about 10 MMTPA is also on the anvil.
Further, a mega refinery on the west coast christened as Ratnagiri Refinery and Petrochemical Project is envisaged and a JV has been formed by the three oil PSUs for implementation of the same.
Over the past few years, your operating margins are heading northward. Can you tell us your view on the same for FY19E? Also, can you tell us about your strategy for inorganic growth?
With the average yearly crude prices hovering around $ 46 in 2015-16, $ 47 in 2016-17 and $ 56 in 2017-18, we could achieve a gross refinery margin (GRM) of $ 5.06 per barrel in the first year, which rose to $ 7.77 during the year 2016-17 and continued its upward trend by clocking $ 8.49 per barrel in 2017-18. Notably, during the last two years, we have bettered the Singapore GRMs, considered as benchmark for refineries in South Asian geography. Though the spreads in 2018-19, which is beyond our control, would certainly be instrumental in determining the level of GRMs that we would be able to achieve in 2018-19, yet I would like to place on record there are many steps that we have taken to ensure a healthy and robust GRM. The commissioning of Paradip refinery and its stabilisation, improving crude slate, reduction in crude procurement cost and tendering time lags and improvement in distillate yields and energy efficiency have been some measures that has helped in realising better GRMs.
As far as inorganic growth is concerned, with a view to diversify our business risk, we have been making concerted efforts to acquire producing/near producing/under development/ discovered upstream assets, either alone or in consortium with other companies. Regular efforts are also being made to identify and evaluate possible acquisition opportunities in other business-related areas.
What impact does deregulation of oil prices have on your company's profitability?
The most significant impact of deregulation has been on our working capital requirement. Before deregulation we were selling most commonly used fuels, i.e. petrol and diesel, at below market prices and the difference was being reimbursed in the form of subsidy. Due to time lag in the receipt of subsidy, there was no other alternative but to borrow from the market to meet working capital requirement. This impacted the profitability in terms of finance cost. On the other hand, deregulation has attracted private players in the market. The entry of new players generally puts pressure on the market share as well as margins. However, we have reviewed our business processes to make them more robust to keep abreast with time and increased focus on automation and upgradation of our retail outlets to retain market share.
As the CFO of India's largest fuel retailer, what challenges do you face?
In the face of competition from private players, sustaining leadership in core areas is a challenge. In a competitive scenario, the marketing margins will be under pressure and, therefore, ensuring high levels of revenue is a challenge. A fallout of the above would be fierce competition among the oil marketing companies to retain market share. The challenge would be to maintain investor confidence as well as augment shareholder's wealth.
P B Balaji
Group CFO, Tata Motors
"We want to take the lead in shaping Indian CV industry with path-breaking technologies and innovations"
Balaji is a global finance professional with over two decades of experience in the corporate sector. He started his career with Unilever in 1995 and worked in different corporate finance roles across Asian markets, Switzerland, UK and India. Since 2014, he has been heading the finance function as the Chief Financial Officer of Hindustan Unilever, a $6 billion enterprise. Prior to that, he was the Chief Accountant of the Unilever Group in London.
Can investors expect financial performance of Tata Motors to improve in the coming quarters?
With Turnaround 2.0, we will continue to enhance the organisation's effectiveness, enabling greater speed, simplicity and agility in our efforts. Our plan is to focus on sustaining the momentum for the CV business and to further increase our market share in the PV segment
We plan to manage transition through more personalised and calibrated change in CVs, while delivering elevation through more individualised experiences in PV. We have started the year with a bang, with an 86% growth in our domestic sales in April 2018 and we can only go higher from here
With regards to JLR, the contribution margins are healthy. We are keen to step up on the operating leverage. Our portfolio is starting to fill up with plug-in hybrids and electrics. That means that all the products which are there with electric options are starting to sell exceedingly well. Range Rover, Range Rover Sport get their full model year impact as well this year. We are quite excited and expect to see both demand and profitability improve in FY19 compared to last year
How is the company planning to bolster up its topline?What are the cost reduction initiatives undertaken by the company under your leadership?
As mentioned earlier , under Turnaround 2.0, we will continue to enhance the organization's effectiveness enabling greater speed, simplicity and agility in our efforts. Our goal is to continue sustaining the momentum for CV Business and further increase our market share in the PV segment. We will manage transition through a more personalized and calibrated change in CVs, while delivering elevation through more individualized experiences in PV
We plan to do this by enhancing our presence in emerging countries, with a focus on APAC, Africa and Middle-East markets, on the back of new range of world-class products like the Xenon, Super Ace, Prima and Ultra range of trucks. For PVs, we will focus on filling in product gaps and tapping the white spaces that will emerge Our portfolio of gaps have also been filled. Due to supply chain challenges, we have not supplied the full number of vehicles that we would want to supply. Therefore, this year things are getting fixed. We have grown too fast compared to what our capabilities were and we have picked up shares. Therefore, it is important that we build the capability to meet the demand
We have already taken tough decisions for streamlining and consolidating the businesses through the sale of defence business to TASL and shelving the Racemo project to improve cash flow. We have also had a significant ramp-up of production by nearly 22%, thanks to the structural debottlenecking of the supply chain. The exceptional contribution to the bottomline by cost reduction efforts is enabling us to build a robust cost structure and competitive advantage as we go ahead
How is the company planning to cope with sector-defining challenges, namely, the advent of electric vehicles and stricter emission norms?
We at Tata Motors have identified sustainable transportation as one of the core elements of our company strategy, in line with the Sustainable Mobility Vision outlined by the Indian government. Over the last one decade or so, we have been continuously innovating in the electric mobility space across our passenger and commercial vehicle portfolio. Over the years, we have run several projects and demonstrated EV concepts like Vista, Zest, Bolt, Tiago, Tata Ace, Tata Ace Magic and the Iris. With our understanding of the technology and customer requirements, we have bagged the order for Tigor EV, which we are supplying to EESL currently. In the commercial vehicle category, we successfully participated in the EV bus tendering process and have won orders from six out of the 10 cities (62% of the total tender order)
There are primarily two concerns when it comes to electric vehicles in India. Firstly, EV battery cost continues to be a dominant aspect of vehicle electrification. As the conventional IC powertrains are replaced by Li-ion battery, motor and reduction drive, the cost of the propulsion system goes up significantly. This means, despite FAME incentives, the on-road price of a typical B segment car is well beyond the expectations for a retail customer, eventually limiting its penetration. Optimising the costs of the electrical drive systems and providing a commensurate payback in terms of reduced operational costs are the major challenges for OEMs, including Tata Motors
Another challenge is the absence of electric charging infrastructure. Customers are reluctant to take on an EV with the uncertainty of being able to recharge the batteries
How is the company's restructuring plan helping it improve its market share across various segments?
The company has been streamlining and consolidating the businesses. The new modular platform strategy across CV segments will enable more variety to the customers. We want to take the lead in shaping the Indian CV industry with the introduction of path-breaking technologies and innovations. We are working towards enhancing the value proposition and the total cost of ownership for customers, while bolstering revenue potential. We are now the sixth largest CV player and the fourth largest truck manufacturer globally
In PVs, Turnaround 2.0 strategy will focus on filling in product gaps and tapping the white spaces that will emerge — sporting a robust product pipeline with its current and future products. The focus will be on driving volumes and increasing market share. TML will leverage its architecture strategy through the OMEGA and the ALFA architectures and the plan is to deliver 7-8 products/variants from these two platforms
We also plan to enhance our presence in emerging countries, with a focus on APAC, Africa and Middle-East market on the back of new range of world-class products like the Xenon, Super Ace, Prima and Ultra range of trucks
The company has recently unveiled several EVs in the CV and PV segments. What proportion of the company's total investment is likely to be dedicated to the EV segment? How do you view the EV revolution in the Indian auto industry?
We believe that the EV space will emerge gradually, as the customers start experiencing EV products and, more importantly, their inherent benefits of zero emission and lower operating costs. As far as Tata Motors is concerned, we will continue to scout for opportunities to fulfil our e-mobility aspirations
Under the FAME Scheme, Tata Motors has won tenders in six cities (out of 10 cities, which is about 62% of the share of the total tender orders); that amounts to a total order of 190 electric buses. We are also actively engaging with a number of potential customers - from city transport authorities, cab aggregators, private fleet owners and, of course, early enthusiasts. As part of our tender with EESL, we have already completed the production of 250 cars and initiated the execution of phase-2 orders. We are committed to the government's mission of e-mobility by 2030 and continue to work in a collaborative manner to facilitate faster adoption of electric vehicles and to build a sustainable future for India
India's power generation trend is dominated by conventional energy resources like thermal and renewable sources are less as compared to other countries. Don't you think the shift to EVs will burden the conventional power generation and negate the effect of shift to EVs?
Diesel buses consume 30 times more fuel than average-sized cars and, hence, their impact on energy use so far has become much greater. It is estimated that for every 1,000 battery-powered buses on the road, about 500 barrels a day of diesel fuel will be displaced from the market.
CFO, Dabur India Ltd
"Ensuring sustainable and profitable growth is both a challenge and opportunity for CFO"
Mr. Lalit Malik is the CFO at Dabur India Ltd. A Finance professional with over three decades of experience in India and abroad, Lalit oversees the Accounting, Business Support, Financial Planning and Analysis, Mergers & Acquisitions, Internal audit and Tax functions at Dabur globally. He is a strong proponent of good Corporate Governance Practices and believes that transparency is the key ingredient for success of any organisation.
Lalit is part of the core strategic group at Dabur. As Dabur's Joint Chief Risk Officer, he has helped the company successfully navigate the emerging risks and the several structural changes in India's Regulatory Environment.
Lalit has been conferred with several prestigious awards like: Most Influential CFO's of India — from CIMA.
CFO Award for Excellence in Contribution to the World of Finance from — CFO India in 2016 and 2017.
Ranked among the Top 3 Best CFO's by Business World Magazine in the consistent Liquidity Management Category.
As CFO of Dabur, what are your top three strategic priorities?
CFO's responsibility covers the 5 's of the business: Cost Control, Compliance, Consistency, Continuous Improvement and Effective Communication. In a highly volatile environment where strong external headwinds and regulatory changes are the order of the day, a CFO has to be forward thinking to not just manage the emerging challenges but also ensure sustainable growth for his organisation. For me, the top three priorities will be: a. Being a partner in ensuring sustainable, profitable growth for Dabur b. Ensuring complete statutory compliance and corporate governance c. Ensuring control and cost savings
What are the growth drivers for your company? Which product segment are you expecting to show maximum growth?
There are three key pillars to Dabur's growth strategy:
a. New product development
b. Expansion into new geographies
Dabur has been witnessing a highly secular growth across all its key categories, which has been reflected in the performance in Q1 of FY2018-19. Despite an increase in the level of competitive intensity, our brands reported a robust performance during the quarter, growing ahead of the market and delivering strong double-digit growth across all our key categories like health supplements, hair care, oral care, skin care, home care and foods. Our business has performed well on all operating parameters. This strong performance reflects the robustness of our business model and our ability to efficiently manage the emerging challenges. We have put in place a prudent growth strategy and continued to invest heavily behind our brands to successfully tap the emerging opportunities.
The recent years have seen a marked increase in demand for Ayurveda and natural products. This trend has been gaining momentum with the growing awareness about the benefits of Ayurveda and Ayurvedic products. To tap these opportunities, Dabur strengthened its healthcare portfolio by introducing several time-tested Ayurvedic remedies in modern day formats to cater to the new generation. In a market that continues to grow and expand and is seeing increasing consumer awareness and government support, companies like Dabur -- with its traditional herbal positioning and strong R&D -- are likely to benefit disproportionately from this trend.
Can you throw some light on the outlook of your international business amid trade war situation?
The international markets have been witnessing high volatility in recent years due to geopolitical disturbances and currency fluctuations in some of our key geographies. Even in these challenging times, we identified opportunities ahead of competition, which is reflected in the strong constant currency growth that our international business has been reporting.
Your operating margins over the last few quarters have grown. Can you tell us which factors have contributed to margin improvement? Going forward, what kind of operating margin are you looking for?
Our margin improvement has primarily been on account of cost-saving initiatives and synergies. Despite the growing inflationary pressures, our intent is to maintain margins through proactive measures.
Dabur is one of the pioneers in the Ayurvedic segment. How do you plan to leverage this position amid rising awareness for Ayurvedic products?
The recent years have seen a marked increase in demand for Ayurveda and natural products. The consumers today, particularly the youth, are increasingly shifting to natural and Ayurvedic products for both their healthcare and personal care needs. This is also reflected in the sudden increase in the number of players entering this category and the general increase in natural and Ayurvedic products offerings from mainstream players too.
Dabur has been pioneer in the Ayurveda and natural space in India. We are today the leading Ayurveda and natural healthcare company with a portfolio of products that are based on nature and natural ingredients. Dabur has always believed in the benefit of Ayurveda and has been spreading the goodness among our consumers in India with a range of Ayurvedic products. We have been, for the past 134 years, developing and successfully introducing products based on Ayurveda to cater to the ever-changing needs of the consumer. We continue to introduce new products, invest in enhancing our distribution network and effective communication with our consumers to spread awareness about the high quality of our products as also the benefits that they offer. Going forward too, we will continue to introduce a range of products that will be value-added and in the premium category, which will help us improve our market share.
Dabur maintains its edge over competitors with its herbal and Ayurvedic heritage of over a century. We remain true to our heritage and are continuously working to update our portfolio in line with changing consumer demands and aspirations.
Dabur India also has a strong in-house research wing that follows a ‘bush-to-brand' approach. We have our in-house nursery, which grows several rare herbs that go into various products. We have been growing quality rare medicinal herbs that are used in our products. Today, we grow rare herbs in over 5,000 acres of land across India. This in-depth knowledge about nature and natural ingredients is one of our big strengths in the market.
It has been one year since GST implementation. How has GST impacted Dabur?
The introduction of GST is, by far, the most important transformational tax reform introduced in India in recent years. Given the fact that GST has subsumed all other taxes, it not only improved the ease of doing business, but it also ushered in a degree of convenience and numerous benefits for consumers. The subsequent introduction of E-Way Bill further helped the supply chain.
While there were some disruptions in the initial period and a steep learning curve, we were fully geared up for the GST. We had engaged an external consultant and have been working on GST for over a year before its actual roll-out. We had completed all the groundwork regarding amendments in our IT infrastructure much ahead of the actual announcement to ensure a seamless transition. We had also supported our channel partners to help them become GST-ready.
The introduction of GST led to a downward revision in prices of several products across key consumer categories, which helped improve consumer sentiments. In the subsequent months since the roll-out of GST, we have seen consumer confidence improving, which has resulted in higher growth with consumer demand shifting from unorganised players to organised players.
What is the best part of being a CFO of Dabur?
As I mentioned earlier, we are living in a highly volatile environment today, marked by regulatory changes and geopolitical disturbances. Ensuring sustainable and profitable growth in these times of high volatility and complexity is both a challenge and an opportunity for any CFO. Being part of a team taking proactive measures and timely decisions while managing a complex portfolio would be the best part of being a CFO.
Naresh H. Bhansali
CEO - Finance, Strategy and Business Development and CFO Emami Limited
"When growth is priority, challenge is the growth driver"
Mr. Naresh Bhansali, CEO - Finance, Strategy and Business Development and CFO, Emami Limited is a FCA with more than 2 decades of rich experience in the field of Finance & Accounting.
Currently, he is in — charge of the overall responsibility of Strategy & Business Development, Mergers & Acquisitions, Finance and Accounts, Legal & Taxation, Internal Audit and Information Technology verticals among others for Emami Limited.
Mr. Naresh H. Bhansali has been awarded the Best CFO in the ‘Healthy Balance Sheet Management — Mid Size Corporate' category by YES BANK-BW BusinessWorld for the year 2018. For three years in a row since 2015-16, Mr Bhansali has been adjudged the BEST CFO by YES BANK-BW BusinessWorld, which is indeed a commendable achievement. He has also been awarded in the category of ‘Winning Edge' in Cost Management — Revenue above Rs.1000 cr in 2013 for his exceptional contribution to corporate finance by CFO India Magazine. Back in 2012, he had also been chosen as the winner of ICAI Awards in the category CA CFO — FMCG.
As a CFO of Emami, what are your top three strategic priorities?
For any business, nowadays, the CFOs do not look only after finance. They are the enablers for the business, and in fact, they participate very actively in the growth and strategy of the business. So, the strategic priorities for the business becomes the priority for the CFO as well. The number one priority for any organisation and for us also is the growth, how to grow the business, and then if you are to grow the business, what are the building blocks challenging that growth and how the CFO and other top management team can help build that kind of ecosystem that facilitates growth. First, is the overall growth from the existing business, and second, is the inorganic growth from any JV or acquisition, etc. While growing the business faster than peers is the number one priority, growing profitability is another priority. CFOs play a vital role in balancing between growth and profitability. The world is changing around you, and using technology optimally for digitalization, efficiency enhancement and to reduce the cost of the business is yet another priority.
How has FY18 been for your company and what are your expectation in terms of volumes and profitability in FY19 & FY20?
The last two years FY17 and FY18 were impacted by the structural changes which have happened in the Indian economy in terms of demonetisation and GST. Though one can say that the primaries were impacted while the secondaries remained intact, there had been lot of challenges during this period because these changes demanded realignment of the ways of doing business, as the new business rules evolved. For instance, the wholesale channel, one of the important channels of the business, got impacted and that disruption lasted a little longer than expected. But, during this period, we actively engaged in increasing our network of direct retail distribution to smaller towns and villages and brought down our percentage of wholesale dependence. This helped us to hold on to the field and we could grow despite the disruption. To that extent, our performance has been satisfactory. Almost all our power brands have strengthened their respective market shares, new launches have also performed satisfactorily and international business has also started growing consistently. With the stabilisation of the above mentioned structural changes, normal monsoons, growing rural incomes and the increasing government outlays on infrastructure, among others, would help the consumer sector grow rapidly. Emami is poised to take benefit of this growing opportunity. We expect to return to our aggressive growth trajectory with double digit volume growth across all segments.
What are the key growth challenges faced by your company in the current market scenario?
When growth is the priority, then challenge is also the growth driver. We have grown very aggressively compared to the peers in the past and we still have an edge. But we would like to continue to grow further. In terms of the business model, the penetration of our products in all the categories is still very low, so the scope of growth is quite high. To achieve the desired result, we are ramping up our distribution, our marketing and our overall ecosystem to support that kind of an aggressive growth trajectory. Our brands enjoy handsome market shares with leadership positions in many categories. We now need to strategise on how to increase the market itself through further penetration and retain our leadership position. Increasing the relevance of the brand, increasing its usage, communicating it very clearly to the consumers, which will help increase penetration and the per person usage are the action areas for us. These are the things that drive the growth in the existing business and existing categories. To further this growth, brand extensions are good levers to drive it ahead. For example, we first came up with Navratna oil, and when it succeeded, we introduced Navratna cool talc on the same cooling proposition. Similarly, in Fair and Handsome, first we came up with the cream, followed by a facewash extension. Again, BoroPlus initially started with an antiseptic cream, which was later extended to body lotions, prickly heat powder, face washes, etc. This strategy has helped us deliver sustainable profitable growth while taking leadership positions in the niche categories.
What are the challenges you are facing?
Having made the right products, the challenge is to communicate to consumers and then make the products available, when and where the consumers want. All our products are made on the basis of the science of Ayurveda using modern laboratory practices. We then market them aggressively through ATL/BTL campaigns with celebrity endorsements for top of the mind recall. Our sales team then ensures that products are made available to every consumer through our well-entrenched distribution in general trade, modern trade, rural market, e-commerce and even defence supplies. We work relentlessly to improve on each of the areas to deliver superior results, better than the past and better than the peers.
Raw material prices are heading northward. How do you plan to mitigate this rise in input cost?
In the past years, the costs had been relatively benign, particularly the agri-products were at a lower level and the crude was also low, so that had an impact on the overall cost. However, despite the present rise in the cost of key materials like menthol and crude, we have been able to sustain the improved margins. We strategise our procurement plans through long term purchase contracts; use hedging mechanisms, develop new sources of procurement, and so on. Besides, we also take some moderate price increases Y-o-Y wherever we feel that there is a probability of raw material price hike. But we try to do that without impacting the consumers very hard. So, we always take around a 3-4 per cent kind of an annual price increase. We, therefore, expect that despite such cost increase, there would not be a significant material erosion in the gross margin.
Can you throw some light on your capex plan for the next two to three years? If you look at the past, we have built up a lot of capacities across all our units, including our overseas units in Bangladesh and in North-East India, where we have built our largest plant last year. The plant is at Pacharia in Assam, which is a state-of-the-art, highly modern unit commissioned at an investment of around Rs.300 crore. So, almost all the capacity expansion has happened and now there would be only some kind of regular and/or some upgradation capex. We, therefore, do not expect a lot of capex in the next two years in terms of the capacity expansion, but more towards investing in the technology and upgradation, which may not cost more than Rs.100 crore of investment Y-o-Y in the next two years.
What kind of EBITDA margin are you looking for FY19?
As our EBIDTA margins are at the peak and we intend to capitalise on the evolving business opportunity by investing behind the brands and processes and also on introducing new products to the consumers, our margins may reduce by 100/200 bps, but that would be more than offset by growth in the business.
In your view, how will the ongoing trade war end and what will be its impact on the Indian economy?
While the world has become so unpredictable and things are changing on a daily basis, some day you may find that the things are changing for the better, but sometime one may feel that the things are becoming so negative. On an overall level, I don't think that there would be something which would impact us adversely. In-between, for a month or so, there could be some price increases for the crude, there could be import embargo or something else, but that should not last for long. Though I am not an expert, but that's my view.
Any message you would want to convey to your company's shareholders?
We are working relentlessly and the whole team is very excited to take up the opportunity of this evolving Indian economy. Consumerism is expected to increase substantially and we are placed very favourably to take advantage of this situation. We are an Ayurveda company, which is very relevant in present times, duly supported with most modern technology. We sell the products across all channels and markets. Our products have a very strong value-for-money proposition. So, I think we are very rightly placed with an optimistic business outlook.
CFO, Sterlite Technologies
"Basis historical trend, we may maintain 24-25 per cent margin for FY19 and beyond that"
Anupam Jindal has been associated with the Vedanta Group since 1998 in various business verticals, including its aluminium and copper businesses. Having set up a large finance team for one of the aluminium entities in 2001-03 for a US$ 1 billion greenfield project, he moved to Australia in 2003 as head of finance for Vedanta Group's two copper mines, before returning to India in 2006 as CFO, Sterlite Technologies. Anupam has been heading a team of more than 100 people in his current role that drives the complete finance function of Sterlite Tech, along with multiple subsidiaries in India and overseas. As part of the senior-most leadership team at Sterlite Tech, Anupam has been instrumental in enabling the company's foray into various new business initiatives, investor relations, capex planning, financing and refinancing of its large telecom business with more than Rs 10,000 crore portfolio of transmission assets. He has also played a crucial role in the acquisition of Elitecore Technologies in 2015. Being a Chartered Accountant from ICAI, his focus areas have been finance, treasury, accounts and MIS.
As a CFO of Sterlite Technologies, what are your top three strategic priorities?
Our objective is to increase the shareholder value for all our stakeholders — suppliers, customers, employers, governments, authorities in India and outside, where we impact digital experiences.
On No.1 priority is the growth that we have committed to the market up to FY20. Beyond that, we need to create sustainable growth opportunities for the company. The entire executive management is working towards it. We have charted out a programme so that some of us focus on long term growth, while the team is focused on delivering the ‘here and now' happening on the ground.
The No. 2 priority is all about maintaining and improving our corporate governance standards. We have set quite high parameters to meet corporate governance standards, disclosure, transparency and communication. How do we further elevate this as we grow, remains a priority. We are driving this through systems, team building and culture building.
The No. 3 priority is beyond the company. How can we look at positioning the country in the overall global market as a thought and industry leader? There are overseas players like Cisco, Ericsson, Nokia, among other companies ruling the entire network and telecommunication industry. How can Sterlite Tech become a large company like those while driving the technology revolution in this space. We see a huge opportunity here and have started to think along these lines. It is a long and tough journey, but it's a job I'm driving along with my team.
Recently, you have acquired Metallurgica Bresciana. Can you through some light on the synergy of this acquisition? Also, can you tell us about your plans for inorganic growth?
We are a large global network solutions provider. On the optical fibre and fibre cables side, we hold about 6 to 7 per cent global market share. From a technology perspective, we are uniquely positioned. In India, we are the only company having the capability of making fibre right from silica, the basic raw material. Globally, we are among the only 10 companies which manufacture preforms and are currently addressing fibre demands of 8 among the top 10 global telecom operators.
From an international perspective, we have been able to secure a good market in Europe and China. Last year, our international revenue was nearly half of our total revenue. Of which, 27 per cent of revenue was from Europe and 18 per cent from China. With this large market in Europe, which has also grown over the last 2-3 years, we didn't have manufacturing base there until now. So, to serve the European markets better, we were looking at something closer which are not high-cost markets like France and Germany, but good hubs. We were looking for such opportunities for some time now, and found it in Metallurgica Bresciana.
The company is based in Italy and has the potential to ramp up significantly. Currently, this company is serving Italy and customers around the country. They have some Chinese customers as well. This company has fibre cable manufacturing capacity of 3 million and some copper communication cable, which serves new industry verticals that we didn't have access to. This opportunity was aligned to our existing offerings and is of value from day 1.
It also provides an opportunity to scale up, thereby getting better utilisation of the 3 million capacity, which is currently utilised up to 60 per cent. We may ramp it up to 5 million over the next 6 months or so by balancing and debottlenecking. Then we may look at expanding capacity further to help increase the market.
We have a clearly defined and articulated inorganic growth policy, which we have communicated to investors also from time to time. We would continue to look at inorganic opportunities which fits very well with our strategy of growing the company in all three industry verticals — telecom products, system integration and software solutions. There are certain financial parameters which we would continue to look at. Size does not really matter, but it definitely has to be within our reach and capability. The geography has to be closer to our customers, where we have market access, primarily Europe and China. We are also trying to enter the US where we see a huge opportunity for growth.
You have also forayed into 5G enabling front haul and fibreto- home network technologies. What kind of growth do you see from this segment? Over the next five years, what kind of revenue share do you expect from this segment?
The 5G is a very recent growth driver that is emerging. So far, the fibre industry was driven by the transition towards 4G, which was happening around the world. In India, we are still witnessing this transition. Large telecom operators in developed countries have started talking about 5G, taking up trials. The commercial launch will start as early as end of 2018, early 2019 globally. This will be a huge transformation in telecom and digital communication industry, where the network will get more and more dense with fibre.
Fibre demand in India is very small as compared to what will be seeing going forward. Today, the global industry is about 500 million km of fibre consumption per annum. With new fibre deployment, this 500 million may go up to 700-800 million km on a short-term basis. Post that, about 900 million - 1 billion km fibre will be globally consumed on a sustainable basis with rising 5G penetration. It will be at least 5 to 7-year demand cycle, if not more.
As far as our market share is concerned, we have consistently increased it in the global industry from less than 1 per cent to currently about 6 to 7 per cent. We are increasing our capacity from 30 million out of this 500 million market to 50 million, and I am sure by the time this 50 million capacity comes up by June 2019, the market will also have shifted from 500 million to about 550-600 million mark. We may increase to 8-9 per cent market share, depending on the market dynamics and will look at our own capability to increase capacity on the ground.
Currently, we are looking from the product segment, which is fibre and fibre cables, which together contributes 75 per cent of the revenue. This segment currently serves the needs of 3G, 4G. When the market moves to 5G and last-mile connectivity through fibre to the home (FTTH), the movement will not happen simultaneously in all the countries. Some countries move faster; some may move slower. For example, India lagged behind in terms of changeover to new network. India moved towards 4G with Reliance Jio pursuing it aggressively over the last 3-4 years. All existing players have been lagging behind in rolling out network because of many constraints. Fortunately, to grow, we aggressively looked at global opportunities in time.
While products business will have its own growth, we also have system integration and software businesses which are growing. We started services and software businesses 3-5 years back and these are getting good traction. The software business serves revenue monetisation and OSS/BSS requirements of telecom companies and has huge growth opportunity. Currently, it is about 20-25 per cent of our revenue profile and we see this growing in terms of absolute value, in our overall profile.
Your EBITDA margin over the past years is on an upward trend. What kind of margin are you looking for FY19E?
We have maintained EBIDTA margin of about 20-21 per cent on a long-term average basis. Essentially, we are a very cost-focused company. At the same time, we ensure that the customer is serviced with the best solutions at par with the global players. This creates the best profitability in the industry. The margins are already at a high level. While the long term average is 21-22 per cent on EBIDTA, in Q1FY19 we have delivered EBIDTA margin of 29 per cent. I won't say that 29 per cent would continue as it's a function of how our services and software businesses pick up. Within products business, it is a play of optical fibre, which is a high margin business, versus optical cable, which is a relatively lower margin business. EBITDA margin is a combination of all these three businesses of telecom products, services and software. Basis historical trend, we may maintain 24-25 per cent margin for FY19 and beyond that.
What is your view on ongoing trade war?
This trade war between two of the largest economies of the world is unfortunate. We don't see an immediate threat to the company, but it's quite complicated. Fortunately, fibre is not a commodity or product that is exported from China to US. China itself is consuming huge amount of fibre. But in retaliation to the US measure of curbing or imposing high duty on Chinese products, there is a possibility of China imposing huge duty on imports from US or the US players setting up shop in China. This may have some impact on the industry, but presently, I don't see that as a significant challenge.
India does not export much of engineering products to China, apart from companies such as ours. As per my knowledge, India generally exports more of raw materials and natural resources than actually importing. The impact on the Indian economy may be seen if aggressive imports from China could be coming into India because of the gates to the US getting closed or getting higher. That may result in some dumping and that's where the government has to act to protect local industries.
"We have to ensure that we increase the size of the market pie"
Kumar Subbiah joined CEAT in Feb 2015 after spending little over 20 years with Unilever and Hindustan Unilever, where he handled various finance and commercial roles in India and outside India. Kumar is a B.Com graduate from Loyola College, Chennai. He is also a Chartered Accountant and a Cost Accountant with professional interests both in finance and supply chain.He is fond of macroeconomics and information technology.
As a CFO of CEAT, what are your top three strategic priorities?
My priorities will be aligned to the organisations priorities. So, our priority number one is growth, and to grow profitably. So, my priority as a CFO is how do I help business to grow and to grow profitably? Priority no. 2, we have large capex plans and so my priority is how do I help the business to manage that capex in terms of funding, managing the overall cash flows, ensuring that capex is well spent, etc. The third priority is, in the tyre industry, the commodity or the raw material cost is 60 per cent of the turnover and any volatility in the raw material prices will certainly impact the margins. Therefore, how do we manage that commodity to ensure that the business gets enough time whenever there is upward movement in the raw materials prices or the commodity prices, and how do I give protection or cover even the exposure arising out of forex? So, these are the top three priorities for me.
Can you throw some light on your capex plan?
In terms of capex plan, we have already stated that we would be spending about Rs.4000 crore over the next 3-5 years. So that is our capex plan. It is a large amount of capex and currently CEAT's balance sheet is reasonably healthy, particularly with respect to leverage ratios, whether debt/equity, debt/EBIDTA, etc, so CEAT's consolidated basis debt-equity ratio is 0.28 and standalone is 0.2 as on.June 30. So we have enough balance sheet strength to fund capex, but considering that the capex amount is large, we are planning to fund one-third of it from internal accruals and two-third through debt. However, it depends on the cash flow. We have already started expanding our capacity. The first one is for truck and bus radial tyres at our existing location in Halol and we are going to set up one large modern passenger car radial plant in the southern part of India near Chennai. So, we have clearly drawn out a plan in terms of where would be investing that capex and how much for each of the categories is being worked out and broadly shared also.
In FY18, 61 per cent of your revenue was from replacement market. What is your strategy to ramp-up revenue from the OEM segment?
Our original equipment share is very close to about 28-30 per cent. If you really look at sales of tyres in India also, it would be a similar ratio between replacement and OEM. But when you really want to grow, we have to ensure is that we increase the size of the pie and not necessarily change the ratio significantly. So when we increase the size of the pie, then it means we have to sell more tyres to original equipment manufacturers even to maintain the same ratio.Hence, we are doing a lot of work with the OEMs to get our products approved well in advance, so that when we add capacities we are able to supply tyres to them.
Presently, you are a leader in Sri Lankan market. What is your strategy to grow in other international markets?
In Sri Lanka, we have a manufacturing presence. In Bangladesh also, we have some plans to set up a factory because these are neighbouring countries. For all other markets, we export out of India. Therefore, we have not thought of manufacturing presence in other locations, however, we certainly have plans to grow in the international market. So step number one, we have set up a specialty tyre manufacturing plant at Ambernath, which commenced operations in October last year. This is an exportoriented unit, so whatever is produced there will be predominantly exported. Its export market is large. Secondly, we are also adding capacity and some portion of that capacity is also for meeting exports of both passenger car tyres as well as truck and bus tyres, in addition to specialty tyres. Therefore, currently once we expand our capacity, we'll have that much additional volumes for us to export.
How do you plan to sustain your margins amid rising crude oil prices?
This is a very big challenge. To be honest, I don't think anybody can influence crude oil prices, and it is also very difficult to predict crude oil prices. You can understand the trend, you can understand the macroeconomic reasons for the prices in case of any movement in prices, but it is difficult to sustain. What we do is that, we have a good procurement cover policy. What happens is when the raw materials prices increase, it increases for everyone, so we are not in a disadvantageous position compared to any of our competitors. Therefore, what is important is that business needs adequate time to react in the market. Therefore, it is important for us to ensure that we give that much time for the business to react in the market whenever the raw material prices move up significantly.
We are in a competitive market and CEAT is not a market leader, therefore, sometimes we have to ensure that we remain competitive in a market because we are not a leader for us to take any initiative. So what we try to do is, we try to have good control over costs, efficiency and overheads and try to minimise discretionary costs whenever raw material prices increase, if we are not able to support it with price increase, etc. So, we take these actions in addition to ensuring that we buy well and we give enough time for the business to change or react to the market whenever the raw material prices increase.
Director - Finance & CFO, Deepak Nitrite
"CFO's role has evolved from reporting numbers to managing business"
Sanjay Upadhyay is an Associate Member of the Institute of Cost Accountants of India. He is also a Fellow Member of the Institute of Company Secretaries of India. He has also completed Advanced Management Program from Wharton, USA. He has vast experience in the areas of finance, accounts, commercial and secretarial functions. He is associated with the company since 1994.
How has the role of CFO evolved over several years? How is CFO in general influencing the strategy adopted by the company?
It is a fact that the role of CFO has changed over the past decade and it is still evolving towards managing, growing and diversifying business. The number of CFOs has rapidly grown due to the growing intellectual needs of the businesses. The evolution started with presenting correct numbers, smart reporting, paving the way towards new regulations for a healthy commercial world, installing of cost management and cost leadership in an integrated ERP environment, managing working capital and capital expenditure, enhancing return on capital and adhering to regulatory compliances etc.
Gradually, the role did spread towards a greater involvement in the decision-making of the business and came with an expectation towards providing deep and precise insights. The commercial and financial considerations of all management decisions are vital to enable the collective leadership to steer an organisation forward and this is where the CFO started having increasing strategic relevance.
Today's CFO fraternity is very different from what it used to be. 1. They are able to partner their CEOs in creating a resilient but flexible business model 2. They are analytical about data, regulations, business environment, competition; which helps in effective facilitation of business needs 3. CFOs now analyse their business model and ascertain how the model is amenable towards adapting constant change 4. CFOs are now very cautious about various known and unknown risks (e.g countryspecific risk, product/sector risk, product technology obsolescence risk, cyber risk, etc) and they continuously find out ways to mitigate such risks 5. In recent times, lot of socio-economic-political changes have had severe impact on business and CFOs are now constantly striving towards establishing their business in such a new regime 6. Grasping future technological developments and application of AI in business 7. Developing, managing and retaining a focused team
What are the top three key challenges faced by you as a CFO? Kindly mention your top three priorities as a CFO in implementing the business strategy and technology?
The key challenges are: 1) Monitoring complexity and putting all the assets of the company into maximum and best possible use for return maximisation | 2) Internationally, chemical industry is going through a major change in terms of its geographical and regional presence, catering to the world market from its region and enhancing return to all stakeholders. In our country, our positioning is such that we are endeavouring towards converting such a changing climate into a sustainable opportunity. 3) i) To grow our presence into petrochemical intermediates, which we have embarked into now, through organic/ inorganic route and thus creating a sustainable business model. ii) To assess potential acquisition target and consummate transaction with best possible funding option, wherever feasible.
The top priorities are:
1.The organisation is in the threshold of a quantum jump, which needs a very effective team with some of the finest operating managers. I am concentrating on that currently. 2. Removing some of the potential limiting factors which have a tendency towards becoming impediments on growth plans, which we are currently working on. This includes application of technology and innovation with the focus of creating and sustaining a competitive advantage 3. Making the organisation ready, in terms of financial flexibility, towards funding upcoming projects, which are going to bring in the planned quantum jump.
Please share with us your outlook on chemical Intermediate space in which you operate?
India is the third largest producer of chemicals in Asia and seventh largest in the world. As revealed by the National Accounts Statistics 2017, the chemical industry constitutes 2.4% of India's Gross Value Added (GVA). The chemical industry is a critical component of the Index of Industrial Production (IIP) and has 7.9% weight in the index. Its expansive portfolio of more than 80,000 products makes Indian chemical industry one of the most diversified chemical industries in the world. According to a report jointly published by FICCI and Tata Strategic Management Group, India ranks 14th in exports and 8th in imports of chemicals.
Based on properties and applications, India's chemical industry can be classified into seven major segments – bulk chemicals, speciality chemicals, petrochemicals, pharmaceuticals, fertilisers, agrochemicals and biotechnology. India's chemical industry is projected to double in size to $300 billion by 2025, growing at nearly 10% annually, with specialty and agrochemical sectors leading the pace, thereby outgrowing the pace of growth of other industries across the world.
We are witnessing encouraging opportunities across the chemicals and specialty chemicals landscape. China had been the largest supplier of bulk chemicals for about last three decades, while it used to dominate intermediates and fine chemicals offering low costs achieved with the support of low funding cost, inadequate environmental norms and also government support by way of export/import incentives, whereas countries like India had to maintain sustainability standards at higher costs. Now that the Chinese government has become stricter with respect to environmental norms, such cost advantage disappeared, resulting in level playing field for the Indian chemical industry.
What kind of investment do you envisage for FY19? What will be the company's focus areas for the fiscal?
As you may be aware, we have entailed a capex of Rs.1,400 crore towards greenfield project for manufacturing phenol and acetone. The project is expected to be commissioned shortly, in about couple of months. The greenfield project is now into final round of pre-commissioning activities. In view of the impending commissioning, DPL's leadership team is already in place and the marketing team has commenced customer outreach programme. There is complete focus on operational readiness and flawless start-up, for which technology provider's team is engaged at the project site.
Apart from this, we are implementing brownfield expansion projects across all business segments, incurring capital expenditure of around Rs.60—70 crore to take advantage of strong demand, both globally as well as in the domestic market.
Kindly highlight growth drivers for your company and the future prospects on the backdrop of commissioning of phenol business?
The commissioning of the greenfield project for manufacture of phenol and acetone is one of the foremost growth drivers in the coming years. This project is set to commence commercial operations soon. This will make Deepak Phenolics Ltd the company's wholly-owned subsidiary as a market leader for phenol and acetone in the country and also open up new frontiers of growth for DNL. The outlook remains favourable as phenol is finding new applications, resulting in increased local demand, which has now crossed 320,000 tonnes per annum. As the local supply is limited, the wide demand-supply gap is met by increase in imports. Further, the availability of raw materials in the local market has eased considerably, while margins are improving. The combination of these factors is contributing to a strong tailwind ahead of the commissioning.
We are currently working on few downstream products of phenol and acetone, and once we establish basic operations, we shall bring in those products. There are several other softer sides which have remained and expected to remain strong growth drivers for our company: 1.Sound corporate governance 2.Product portfolio to suit sustainable growth 3.Sound environmental compliance leading to lapels like Responsible
Group CFO, IIFL
"The environment is quite good for financial services companies like us"
As a CFO of IIFL Holdings, what are your top three strategic visions in the next few years?
IIFL is one of the largest financial services firms in India. We primarily have three businesses — IIF Finance, IIFL Wealth & IIFL Securities. IIFL Finance has loan AUMs of Rs.311.3 billion, which is retail-focused and diversified.
The products we offer are home loan, loan against property, SME and micro finance loans. IIFL Wealth is a leader in the wealth management industry with assets under advise and management exceeding Rs.1,40,000 crore.
IIFL Securities is India's leading securities trading company. Marquee global investors like Fairfax, General Atlantic and CDC Group have invested in IIFL Holdings, IIFL Wealth and IIFL Finance, respectively. We serve over four million customers across the length and breadth of India. Our three-pronged Vision 2020 is doubling, durability and derisking. The first vision is doubling of revenue between FY16 and FY20 and profit by 2.5X during the same period. The second is reducing volatility and cyclicality of earnings in all businesses. The third is diversifying revenue sources with focus on financial services.
Looking forward, which business segment in your view will grow the fastest?
All three businesses have been doing well. The environment is quite good for financial services companies like us. The credit demand is good for the segment of customers we are catering and the same shows in our results every quarter. Our wealth management business has shown fantastic growth and has achieved leadership position in a short span of time. I believe all businesses have tremendous future and should growth at a fast pace.
Please give more details about your company's plan for demerger of three key businesses?
We have announced the demerger of our three key businesses earlier this year. The businesses are IIFL Finance, IIFL Wealth and IIFL Securities. We believe each of the businesses have achieved a certain scale and size in terms of the total AUMs or profit and, therefore, it is in a position to stand on its own.
We believe that by separating them we will allow them to grow to their full potential. We have filed the scheme with the stock exchanges and regulators. The process would require approvals of the regulators, shareholders and creditors. After the approval, the scheme will be filed with the ROC and then they are ready for listing.
IIFL Wealth is amongst the top three wealth management companies in India. Please share the growth outlook of the IIFL Wealth division. While I can't give you a future outlook, here is a glimpse to wealth performance in Q4 FY18, which is indicative of the growth. IIFL Wealth's PAT grew at 37% YoY to Rs.103 crore. Our assets under advice management and distribution have grown 3% on Q-o-Q and 39% Y-o-Y to reach Rs.1.32 trillion.
We hired 14 bankers during the quarter, taking the total number of bankers to 330, to further drive the growth momentum. IIFL Wealth offers a broad range of product and services to participate in a larger share of the client wallet. This includes financial products distribution, advisory, brokerage, asset management, credit solutions and estate planning. We raised net new money of Rs.25053 crore in FY18 versus Rs.22535 crore last year.
During the quarter, the team garnered AUMs or commitments in excess of Rs.4000 crore in wide-ranging products. AIF assets grew 52% Y-o-Y to Rs.11736 crore. The total commitment in our ‘Special Opportunities Fund', which invests in pre-IPO and IPO situations, is now close to Rs.8700 crore.
A new Affordable Housing Fund was launched during last quarter, which also received an outstanding response with the commitment of more than Rs.1360 crore. IIFL Wealth Finance, which offers loan against securities and margin funding to high networth individuals, grew its loan book 15% Q-o-Q and 85% Y-o-Y to Rs.6701 crore. Average lending rate for this book is around 10.3%. This kind of business growth is likely to continue.
What is the most challenging thing you faced in your current role?
Understanding intricacies of different product lines (we have nearly ten products in the NBFC and several more in other businesses) was both challenging as well as enjoyable. It was great learning.
Chief Operating Officer & Chief Financial Officer HEG Ltd
"The structural changes in graphite electrode industry have led to shortage of electrodes worldwide"
As a CFO of HEG, what are your top three strategic priorities?
Invest for growth, enhance shareholders' value and align finance and operational decisions based on data
Currently there is surge in demand for your product (graphite electrodes) and you are operating at more than 80 per cent capacity utilisation. Can you share your capacity expansion plan?
The entire graphite electrodes industry is globally facing a tremendous shortage of needle coke - one of the critical raw materials. We fully import this raw material which is supplied by only three companies worldwide. Due to the raw material dependency, the entire graphite industry is constrained in achieving its full utilisation. However, we are looking at the possibilities to debottleneck around 20,000 MT capacity at our existing plant and take it to 100,000 MTPA. We are rigorously working on this project and should be able to take a decision on this in the next few months.
We are also looking at opportunities in carbon adjacencies in the area of carbon and carbon-related material, which is currently under evaluation.
Your operating margins in the recent quarters were quite high. Are you confident of maintaining it going forward?
The industry has witnessed positive development relating to trend in order bookings. Earlier, the bookings would be for 12 months, which has come down to 3-6 months. This has led to reasonable level of certainty on maintaining margins safely for the next couple of quarters and we do believe we will be able to maintain these margins. There is a structural change in the supply scenario of the industry as a whole, thereby leading to healthy margins that will continue in the near foreseeable future.
What are your plans to mitigate the rising raw material cost (needle coke)?
As mentioned earlier, the production and availability of single largest raw material — needle coke is with three major suppliers only. Hence, we believe that that the prices would be mainly governed by overall demand and supply scenario of graphite electrodes. Our analysis of the industry dynamics in the near future gives us comfort that we shall be able to pass on the impact of increase in prices of needle coke to the electric arc furnace (EAF) steel industry customer base.
Please share your outlook on graphite industry for next two years?
There is a structural change in the graphite electrode industry, both on the demand as well as supply side. The major influencing factor to increase the demand for graphite electrode globally including China has been the conscious effort to replace the highly polluting induction furnaces and small blast furnaces since early 2017. We have witnessed the continuity of the drive in 2018 and anticipate the same going forward. This has resulted in large-scale closing down of steel capacities in China, thereby reducing the export of steel to the rest of the world by 40% to 50%.
Also, as the rest of the world is producing approximately 50% of its total steel (approx. 825 MMT) through the EAF route, wherein our products are used, the production of steel has suddenly jumped up by 30 to 50 MMT in the last 12 to 18 months. This has resulted in an increase in demand of graphite electrodes at a time when the graphite electrode capacities have been shut down by around 25% globally.
On the supply side, there have been permanent closure of nearly 200,000 MTs of graphite electrode facilities in the past 3-4 years and most of them have been dismantled/razed to ground. Also, with the alternate use of needle coke into lithium batteries, none of the electrode producer is able to get their full requirement of coke, thereby restricting operations between 80-90%.
These structural changes have resulted in the demand growth exceeding supply and hence shortage of electrodes worldwide.
R K Chandiok
Director (Finance), National Fertilizers Ltd.
"CFOs go beyond their role and bring strategic thinking into play"
As a Director (Finance) of National Fertilizers Ltd, can you please elaborate on your top three priorities during the next three years?
As a Director (Finance), my priority area shall be to arrange funds for both short term working capital requirements for daily operations and long term loan requirements for various energy reduction schemes and other ongoing capex schemes for upgradation of electrical and instrumentation systems, information technology, i.e., implementation of ERP, etc.. It will be my endeavor to arrange funds by negotiating better terms and lower interest rate. For management of working capital requirement and associated costs, the focus shall be to strengthen the system for timely submission of subsidy claims with Government of India (GoI), earliest realisation of subsidy claims, reduction in mismatch of cash flow and reduction in avoidable expenses. As the fertiliser industry is highly controlled industry and with the introduction of Direct Benefit Transfer (DBT), the timely release of subsidy by GoI will play an important factor in day-to-day working capital management. It shall be my priority and focus to arrange funds for the working capital requirement at cheaper rates so as to achieve cost reduction and cost savings through effective utilisation of resources to enhance the profitability and value of the company.
Can you highlight the strategic initiative which paid off well for your company during your tenure as a Director (Finance)? How did it help the company and also investors who have parked their money in your company's stocks?
For increasing the wealth of shareholders,recently a decision was taken to arrange funds for energy reduction schemes from a single large bank without hiring agency for undertaking debt arrangement and advisory services. It has saved the initial processing cost by Rs.5 crore and the negotiations with the bank has resulted in getting rupee term loan sanctioned (more than Rs.1000 crore) at a pricing almost at par with AAA rated companies. Previously, strategic decision taken was to restructure the existing external commercial borrowings (ECBs) with new ECB with reduced all-in cost and restructured repayment by back loading to match with the cash flow requirement/projections of the company leading to saving in the interest cost.
A strategic decision was taken to review and change the composition of short term borrowings through various instruments. A strategic position was taken to raise maximum funds through Commercial Papers (CPs) at a cheaper rate for three months and discharge/ repay them before the expiry the quarter. Generally, it is seen that the CPs cost higher if these are dated after the expiry of the quarter. The borrowing through the CPs was 30% in FY 2013-14 and increased to 94% in 2017-18. As a result, interest savings equivalent to 60 bps was achieved in FY18. It requires very efficient and close monitoring. NFL sparingly borrows short term loans/cash credit from banks limits which attract higher rate of interest. The bank limits are used for few days, i.e. till the old CPs are replaced with new CPs in the next quarter. The credit rating of the company was got reviewed and upgraded to reduce overall finance cost. The utilisation mix of cash credit facility, commercial papers and short terms loans, etc., was aligned to expected cash flows to reduce the overall cost of funding. A strategic decision has been taken and implemented to introduce Dealer Financing Scheme (e-DFS) to make available cheaper loan at interest rate of 8.80% p.a. to dealers as against their general borrowing rate of around 10% to 14% p.a. and will enable NFL to target saving of around Rs.3-4 crore.
Similarly through SBI, NFL introduced Vendor Financing Scheme (e-VFS) to enable vendors to get realised their invoice value before due date presently at 8.05% p.a. from SBI. It will result in lowering interest cost to NFL as credit period of vendors has been increased and expected to save interest cost of Rs.1.50 crore to Rs.2.00 crore on per annum basis.
Inter Corporate Deposit (ICD) Scheme was developed after pursuing with many PSUs for availing short term funds at a lower rate of interest as compared to STL/ CC etc. At times, ICDs were raised at per/ lower rate than overall CP cost.
In addition, various steps taken to reduce interest cost such as increasing credit period of gas suppliers (expected to lower interest cost by Rs.8 crore), payment of invoices only on due dates and introduction of Tripartite Facilitation Arrangement between bank, supplier and NFL for timely payment of dues on due date in lieu of stand by LC arrangement at very competitive bank charges as against costlier LC charges saving of Rs.50 lakhs. In addition, to improve profitability, NFL is also taking action to monetise various idle assets of the company and unlocking the potential income. In this regard, leasing of school buildings, land for gas station, piped gas, petrol pumps, etc. have been undertaken.
The policy for investment of surplus funds was also reviewed and revised for optimising the return by investing strategically in FDs with public and private sector banks and mutual funds within the guidelines.
As a CFO what are the key challenges faced by you in achieving the company's objectives? How did you really overcome it?
The fertiliser industry is highly regulated and controlled industry and as such the objectives of the company can be achieved through timely availability of the finance for meeting the short term as well as long term requirements of the company. In the scenario of budget constraints with GoI for release of subsidy and challenges of recently introduced DBT system, the full year subsidy is not released in time leading to resorting of working capital arrangement to meet the day-to-day requirement for sustained operations of the manufacturing company. The challenge is to arrange rupee funding for higher import of DAP/ MOP/NPK etc. as against buyers/ suppliers credit. In addition, arranging timely funds for capex (equity portion) will require excellent management of liquidity. Thus, in a controlled industry where the profit margins are fixed and are eaten up by under-recoveries under the subsidy regime, cost control and cost savings are essentially required to maintain healthy profitability levels.
The timely availability of finance and at a lower cost improves the profitability of the company and as such holistic approach was adopted to achieve reduction in the finance cost. The change in the mix of instruments by using higher volume of cheaper CPs, availing higher credit period from suppliers, used MIBOR/CD-linked loans as against MCLR-linked loans, negotiated lower rate with existing banks, adding new banks with lower rates, insisted terms for repayment of loan without prepayment premium/penalty yielded saving in finance cost to NFL. Most importantly, after lot of persuasion with DOF and DEA, Special Banking Facility (short term loan) was got implemented for all urea manufacturers at a cheaper interest cost of 1.75% p.a to the company, pending release of subsidy for want of budget by GoI.
In appreciation of achievements, I bagged "Winner - CA Distinguished Achiever – Public Sector Undertaking Award" by Institute of Chartered Accountants of India in January 2018.
What are the long terms plans to maximise the wealth of the shareholders?
In the long term, action has been initiated during the last two/three years to increase the production and sale of industrial products such as nitric acid (54% and 60% concentration), ammonium nitrate, sodium nitrate/nitrite, etc., to increase the trading volumes of imported fertilisers (DAP, MOP and AS etc.) multifold and leverage the strengths of vast marketing set up, dealers' network and experienced highly motivated marketing team. In other words, the share of non-urea business which is having better potential for profits, is being increased. As a result of constant efforts, the urea versus non-urea business ratio has been changed from 99:1 to 88:12.
CMD Manoj Mishra and board of directors have played key role in making NFL a multi-product company under the Kisanbrand, implementation of the various energy reduction schemes at all the units and diversification in trading activities. Thus, with implementation of energy reduction schemes and focus on reducing the finance cost, NFL is expected to achieve better results leading to increase in the wealth of shareholders.
CFOs are believed to be people who only understand numbers. What needs to be done to ensure CFOs in India get their dues?
CEOs are the face of the company and providing leadership for growth of the company, whereas DFs understand the numbers as well as the meaning and requirement of the overall corporate objectives as well. For this purpose, they go beyond their role and bring strategic thinking into play by understanding the dynamics of products market and financial market so as to increase overall market share of the company without losing the margins.
Kailash B Gupta
CFO, INOX Leisure Ltd
"Today's CFO is a financial strategist and business adviser to the CEO"
As a CFO, can you please elaborate on your top three key priorities during next three years?
With the introduction of a wide array of alternative content, the exhibition business is all set for a major disruption. The aim is to strike a balance between the growth levers of the business and the core of the existing business. In the evolving regulatory landscape, it becomes imperative to measure the political impact and its effects on the industry as a whole. Accordingly, it is important that we have the overall controls in place, so that the company is compliant with all the laws and regulations. Further, as an industry representative, it also becomes necessary to put forward the industry-wide issues by liaising with various government departments in a timely manner. As a CFO of a company with such a high growth rate, it becomes important to manage the debt of the company. The challenge is to strike a balance between the high growth and also the level of debt the company can accommodate. The strategy would be to device an appropriate finance structure which is most optimal to the organisation.
Can you highlight the strategic initiatives that paid off well for your company during your tenure as a CFO with the present company?How did these help the company and investors who have parked their money in your company's stocks?
The following key initiatives were undertaken: 1. We entered into a fresh deal with a few ticket aggregators which in turn led to an additional revenue of approx. Rs.100 crore over a period of three years. 2. We formed centralised procurement cell to take advantage of bulk buying, better rates and to maintain integrity issues 3. We introduced multiple banking arrangement in the company and optimised the loan mix from Indian and foreign banks, leading to substantial savings in the form of lower interest rates
As a CFO what are the key challenges faced by you in achieving the company's objectives? How did you really overcome these challenges?
Businesses are constantly facing changes due to the technological progress and unstable economic and political situations. The role of today´s CFO is fundamentally changing. Their work does not end with passive control of numbers, revenues and expenditures as CEOs/board of directors and other stakeholders have a lot more expectations from their performance. As a CFO the key challenges are:
Supporting growth while managing risk In the current scenario, growth is the main objective of the company. The company has already signed 700-plus new screens which are to be operational in the next few years. The company is also looking at the growth by the way of acquisitions. The company relies on the CFO to help it drive the growth strategy from mergers and acquisitions to geographic expansion and organic growth. I, as a CFO, interact closely with the business team and design various strategies for the growth of the business, while managing the risk profile of the company.
Regulatory compliance: The critical need is to keep abreast of potential new laws that will have an effect on the firm's financial bottom line as it remains a key challenge for any CFO. As a CFO, I see the same as an opportunity wherein the new strategies can be put in place and the same can be used for the competitive advantage for the firm.
Technology and innovation: With the advancement of new technologies, the CFOs are expected to look for new ways of working that could involve overhauling business models and operations in order to harness the opportunities that emerging technologies offer. As a CFO, I closely co-ordinate with the business team in general, and the chief information officer, in particular, to be able to adapt the latest technologies available. We see the new technological advancement as enabler and aim to be the next technological disruptor in the sector.
Retaining and nurturing talent: Finding and retaining the talent needed to drive finance teams is one of the most important challenges for the organisation. Identifying the right person for the job is one of the most critical aspect of people management. As a CFO, I have to ensure that the team has right tools, skills and capabilities to arm the management with cutting-edge insights and analysis which can be used for taking informed business decisions.
Cost control: Controlling the costs will always be a priority for chief financial officers.
We keep hearing about CEOs more through media and other such modes of communication. CFOs apparently live behind the curtain but play a very crucial role when it comes to wealth creation of the individual investors. Do you feel deprived of limelight at times? How about CFOs being faces of the companies in India in future?
As a professional, the only 'limelight', according to me, is being recognised by stakeholders and delivering immense value to the organisation through my expertise and skills. For me, this is the best publicity and I am absolutely satisfied with it.
CFOs are now recognised as business partners and are carrying the business, regulatory and investor relations. They are carrying greater responsibilities when it comes to creating value for the shareholders. They will be seen as caretaker of the wealth of the shareholders in good and bad times.
Numbers are the primary things that you play with at work. People in the outside world have a feeling that CFOs are the set of people who only understand numbers and they are kind of far away from other aspects of life. How much is this true? What further needs to be done to ensure CFOs in India get their dues?
I believe that the above statement was true a few years back. With the ever evolving business landscape, the role of the CFO has also undergone a drastic change. Today's CFO can be seen as a financial strategist and business adviser to the CEO. It is no longer enough for CFOs to be reporting numbers and managing financial function. In the current scenario, I see the CFO as a business person who also has a finance background.
I believe that the CFO in India must adapt to the changing environment. While it is vital for the head of finance to have a deep understanding of the numbers, the CFO now has a much more central role in deciding strategy and communicating with internal teams and external stakeholders. This is the age of business partnering. By adoption of the new role, I believe CFOs will get their dues.
CFO, S Chand & Company
"CFOs are not deprived of any limelight and are already the face of companies in India"
As a CFO, can you please elaborate on your top three key priorities during next three years?
The top three key priorities are to maximize capital efficiency, optimize cost and ensure business is adequately funded with a right mix of debt and equity.
Can you highlight a strategic initiative which paid off well for your company during your tenure as a CFO with the present company?
How did it help the company and investors who have parked their money in your company's stocks? The company framed a strategy to allocate more resources and focus on the K-12 content segment in FY2011-12 and embarked on an inorganic path to increase its presence in this vertical. This strategy has played out largely as per plans and resultedin the company growing at above 30% CAGR in the last six years. Our initial investor Everstone Capital backed us on this strategy right from the start and made healthy returns with a part exit from our IPO in 2017.
As a CFO what are the key challenges faced by you in achieving the company's objectives? How did you overcome them?
The key challenges include balancing allocation of capital and other resources to new ventures which will pave the path for future growth without impacting the existing business and ensuring margins are not diluted. The company must be disciplined enough to allocate resources knowing that some venture would work and some may not. The company has over the years invested into digital and service businesses, both inhouse and outside, after understanding internal capabilities to spread the risk and improve the probability of success in each of the ventures.
We keep hearing about CEOs more through media and other such modes of communication. CFOs apparently live behind the curtain but play a very crucial role when it comes to wealth creation of the individual investors. Do you feel deprived of limelight at times? How about CFOs being faces of the companies in India in future?
This is no longer true, at least not for S Chand. The CFO is the face of the company at various places including banks, financial institutions, credit rating agencies, taxation authorities, other regulatory authorities, investors and even large customers and vendors. All of these correspond first with the CFO and then with the CEO. As far as public listed companies and companies where there is private equity or a foreign partner, the CFOsare not deprived of any limelight and they are already the face of companies in India.
Numbers are the primary things that you play with at work. People in the outside world have a feel that CFOs are a set of people who only understand numbers and kind of away from other aspects of life. How much is this true? What further needs to be done to ensure CFOs in India get their dues?
With the changing regulatory environment, corporate governance and information technology available today, the role of the CFO is much more than numbers. The CFO has to be an integral part of any decision-making process, be it new product development, new line of business, marketing strategies, new production units, hiring of talent, mergers and acquisitions etc. Every aspect of the business has a financial impact and there must be a buy in with the CFO for the same.
CFO, Cosmo Films
"Restrictions on use of plastic should benefit BOPP industry due to better recyclability"
As CFO of Cosmo Films, what are your top three strategic priorities?
The top three priorities are: 1. To facilitate company's medium to long term strategy by enhancing share of specialised films, i.e., working towards de-commoditising the business model. 2. Working towards close to zero net working capital deployment in the business (i.e. shorten the working capital cycle). 3. To facilitate company's growth by ensuring cost effective finance is available at all times.
Your EBITDA margin over the past few fiscals has been deteriorating. Can you tell us what factors caused this margin deterioration? Your view on the same for FY19E?
During FY18, sales volume grew by 25% with 20% growth in speciality films. While BOPP film margin continues to be volatile and has wiped out gains of volume increase and better product mix, our continuous focus on improving operational efficiencies helped in maintaining EBIDTA level in absolute value. BOPP film margin has been running low due to temporary demand and supply gap in the domestic industry. As very minimal new capacity is expected in domestic industry in the next two years, we expect BOPP margins to improve towards normal level sooner rather than later. Further, the company is working towards expanding speciality and improving internal efficiencies, which will de-commoditise and strengthen the business model in the medium to long term.
What kind of opportunities or risk do you see due to plastic ban in many states?
The Government of India has recently issued revised guidelines in which provisions related to restriction on multilayer packaging has been broadly taken out and substituted by provisions related to further utilisation, collection and recyclability of plastic. In the new guidelines, the focus is on alternate usage of plastic rather restricting production or consumption. Some state governments indicated restriction on specific plastic products (such as PET based bottles, polythene based carry bags). None of these products uses BOPP, hence from Cosmo Films perspective, it will not have any impact. The provisions around restricted use of plastic in the long term should benefit BOPP industry as the same is better placed from recyclability perspective compared to other options.
How would be the coming fiscal different from the previous one?
The company continues to focus on improving speciality films sale. In this direction, the company is increasing capacity of speciality products and has also recently launched several speciality products such as
1. Cosmo Synthetic Papers (CSP)- Enhanced features such as quick drying (labels, tags, maps, ID cards, tickets for adventure parks, etc.)
2. Metalised label film- Mirror finish glossy film which can be printed with high speed flexo printing machine.
3. BOPP films for soap wrapping- Enhances moisture barrier which helps to maintain consistent soap weight for longer time.
4. Metalised velvet films- It is engineered to provide brilliant metallic look with velvet touch to the laminated paper/paperboard or package.
5. Conduction sealing films- These are one side corona treated and other side heat sealable, clear, laminated films for retortable lidding applications. The major application segments for these films include dairy products, medicine and pharmaceutical industry.
6. Digital printable label films- These films are designed for digital printing on HP Indigo machine. It provides excellent ink adhesion and high quality printing results on finished products like wrap around label applications.
7. Solid white PSA label films- It is a solid white film with high opacity and excellent stiffness properties. Further, BOPP films margins are also expected to move towards normal level. These factors, along with better internal efficiencies, should facilitate better margins and ROCE in coming years.
In FY18, you were running on 90 per cent-plus capacity utilisation. Can you share your capex guidance for FY19E?
The company will focus on improving financials in FY19, hence it would be conservative in capital expenditure during the year. Besides the already committed capex for buying adjoining factory land and building, the company will enhance capacity in speciality vertical which is running close to full capacity utilisation. However, the overall capex size would not be high in this fiscal.
What is your outlook on packaging industry for the next 2-3 years and what will be Cosmo Films' strategy to grow faster than the industry?
India as well as global flexible packaging industry is expected to grow close to the twice the respective GDP growth rate as has been the trend during the last one decade. As BOPP flexible packaging industry's growth is largely linked with India's consumption, which is running at low penetration (particularly packaged food with low penetration in India), the industry should witness consumption-based growth, particularly for food packaging. The consumer sector will be looking more for product differentiation and value-addition.
We will be working towards twin strategic objectives of enhanced focus on speciality films and lower production cost for BOPP commodity products. These twin strategic goals shall always differentiate Cosmo Films from the competition.
CFO, Kisan Moulding
"A healthier and leaner balance sheet ranks high on management's agenda"
Recently your company has raised around Rs.59 crore. Can you tell us how you will be deploying these funds? Also, do you think your company would be in need for additional funds?
We raised ~ Rs.59 crore via a preferential allotment of 5 million shares last year. These funds were raised to meet our working capital requirements and selling and administration expenses. We have sufficient capacities to meet incremental demand envisaged over the next couple of years and hence we don't expect to raise any funds for capex purposes.
However, based on our expectations, growing sales would necessitate increasing working capital requirements, at the least. We have been constantly working towards improving our balance sheet and achieving a profitable growth. This implies that some of the incremental working capital needs would/could be met by some easing up of debtors on our books.
Do you have any other plan to raise funds other than fresh equity infusion? As a part of our corporate restructuring exercise initiated two years back, we had identified some non-core assets which we had planned to monetize. While we have sold some such assets in the previous financial year, we plan to dispose off some more assets in the current year. At this moment, we don't intend diluting equity anymore.
Can you throw some light on your strategy to revive your company's bottomline performance?
1. While we always had a reasonable strong brand and good products, aggressive capacity expansion during the economic downturn weighed upon our performance. Over the last couple of years, the management has drawn up strategic turnaround plans and successfully implemented several of them, as listed below:
2. We have streamlined our business by changing our product mix to focus on high margin products.
3. High margin, niche products (solvents, fittings, etc) were identified and seasoned professionals were inducted in the organisation with the sole focus on growing those segments. 4. We increased the number of SKUs and currently are amongst the largest, in terms of SKUs (+2800 SKUs) domestically.
5. We have addressed areas like working capital, which needed immediate attention by raising funds via equity dilution
6. Non-core assets were identified and some (worth ~Rs.14 cr.) have been already disposed off in the previous financial year with more in the sale pipeline in the current year.
7. We successfully automated our mother plant at Tarapur to improve productivity and quality, while reducing our labour costs.
How do you plan to encash opportunities arising from various government initiatives such as doubling the farmer's income and push for affordable housing for all by 2022?
The 'Kisan' brand enjoys a strong recall with its target audience in agri pipes segment. That said, we have undertaken several activities to improve our market share in the non-agri pipes and fittings business. While our regular distributor/ dealer meets help us stay updated with customer demands, our internal R&D team work towards bettering our customer experience by developing products accordingly. For instance, we have recently developed self-locking column pipes (patent pending), which could prove to be a game changer in the agri pipes segment. Roping Amitabh Bachchan as our brand ambassador would help drastically improve our brand recall in all the segments and act as a catalyst in widening our customer connect. We also hope to increase our distributor/dealer network (currently 500+ distributors and 30,000+ dealers pan-India).
You have reduced your debt recently. Can you tell us what proportion of debt you are targeting in your overall capital structure in the coming fiscals?
Reduction of debt was one of the strategic calls taken by the management. Accordingly, our term loan repayments have started from beginning of 2017, with a reduction of Rs.20 crore every year. While it is relatively early to put a finger on the exact debt number or gearing ratio that the company would be comfortable with going forward, a healthier and leaner balance sheet ranks high on the management's agenda.
CFO, Mirc Electronics Limited
"We expect consumer durables industry to grow in double digits over the next 4-5 years"
As a CFO of Mirc Electronics, what are your top three strategic priorities?
Close involvement in strategy, fundraising and investor relations have become three major strategic priorities for CFO in the current dynamic corporate world. The CFO plays a major role in validating the many new strategic initiatives like expansions, diversification and mergers and acquisitions by the company on the financial front. He needs to communicate effectively at regular intervals with investors. The cash flow management at regular intervals and assessing the requirement for raising funds by way of debt or equity and implementing the same to ensure smooth functioning of the organisation.
Your company has witnessed turnaround in net profit for FY18. We would like to know what strategy helped you to register this performance?
Over the last 2-3 years, we have undergone a turnaround by having good controls on our costing and revamping our operations by bringing in lots of automation at the plant and working on expanding our distribution network. We have adhered to strict bottomline approach, reduced debt and saved on interest cost, a one-time golden handshake with employees have substantially saved the cost, discontinued loss-making products like mobiles, grown in new segments like washing machines and the pie of air-conditioners has been increasing. All these steps have resulted in Rs.23 crore profit for FY18 as compared to the loss in FY17. We are the only large Indian player in the consumer durables segment growing at good growth rates. We are confident of growing at 20% during the current financial year.
You have reduced your borrowing significantly in FY18, what kind of debt proportion are you targeting in total capital?
Our total gross debt has come down considerably to about Rs.50 crore in FY18 from Rs.165 crore in FY17 on account of improved cash flows during the year and fund infusion from Lucky Securities to the tune of Rs.90 crore. We would be debt-free company during FY19 once the warrants issued to Lucky Securities get converted. Besides, we are in the process of divesting our non-core assets to the tune of Rs.100 crore, which will further improve our cash flow situation in the company.
Your operating margins have remained quite volatile in the last few quarters. What is your view on the same for FY19E?
The operating margins have improved in the last couple of quarters during FY18. We have reached EBIDTA margin of 8%, which is the industry norm and we would comfortably maintain these margins. As consumer durables business is seasonal, we have to look at year-on-year margins rather than quarter-on-quarter margins. At the upper level, we have reached our PAT margin to 4%-5% and we would continue to maintain the same going forward. The quarters consisting of Diwali and summer vacations would be bulky because of television sales during Diwali and air-conditioner sales during summer.
Due to rising disposable incomes and availability of credit facility, the demand for electronic is expected to rise. How do you plan to encash this opportunity?
The rise in urbanisation and disposable incomes in rural and semi-urban areas has been very important factors for us to increase our sales. Moreover, given the growing electrification across India, availability of credit facility, demand for electronic goods and effective roll-out of GST/E-way bills, we expect the consumer durables industry to grow in double digits over the next 4-5 years. The penetration level in washing machines and air-conditioners is well below 5% in India, and as compared to China and other developed markets, penetration the level is way below. This is the major driver for increase in demand for consumer durables in the country. With increasing population of ‘double income, no kids' in the country, the need for consumer durables is increasing day-by-day.
Can you tell us about your divestment plan and how you will be utilising these funds?
We are in the process of divesting our non-core assets across India worth Rs.100 crore. We have identified these assets and have initiated the process for selling these assets. We will use these funds for our working capital purpose, which will reduce the debt even on our increased revenues in the coming years.
MD & CFO, Responsive Industries
"With our enhanced business model, we expect significant improvement in earnings"
As a CFO of Responsive Industries, what are your top three strategic priorities?
As a CFO, my top three strategic priorities are transparency, optimal use of free cash flow and communicating with shareholders at large. Out of these three, optimal use of free cash flow is the top priority as it is the only matter which can make or break any organisation. We have enhanced our business model recently and are expecting a significant improvement in earnings going ahead. So it's very important for us to effectively use the funds for future growth for delivering return to shareholders. The third priority for me is to communicate with shareholders on how the company is growing and other aspects of the business. We have taken conscious decision of discontinuing printed flooring division which is a low margin business in our portfolio of products. This has really freed up lots of bandwidth and cash flows to concentrate on our company's growth. We are coming out with advanced and high value-added products like Luxury Vinyl Tile and R Leather in synthetic leather products
Can you tell us about your expansion plan to serve the US and European market?
How will you fund this expansion? We are setting up a Luxury Vinyl Tile (LVT) plant in UAE. LVT is the fastest growing segment in flooring space. Its market size is about $7 billion globally with USA and Europe being the key end markets. We are exploring UAE to set up our plant which would serve these developed markets.
What is your view on the domestic market for PVC products that your company offers?
India is an emerging market for vinyl flooring and it constitutes only 2-3% of global demand. However, it is highly fragmented. The main demand drivers for contract sheet vinyl are healthcare, education, and sports infrastructure, which are rapidly adopting this as de-facto solution. In the healthcare space, we are seeing large-scale adoption of vinyl flooring in both private sector and public sector hospitals. In the education sector too, as there is a huge demand for school infrastructure in India, we are seeing this as a big opportunity in public sector schools. We also see a huge demand for vinyl flooring in transportation segment as the Indian railways and large number of bus body builders are in urgent need of expansion and modernisation. Thus, looking at the demand potential from these sectors, we are very positive on the domestic market for PVC products. We are currently present in 35 cities across the country and have the largest network of over 75 active distributors, which would help us to capitalise on this huge opportunity.
What kind of topline and bottomline growth are you targeting for FY19E?
We have enhanced our business model by discontinuing low margin segment of economical vinyl flooring post Q1FY18 and increased the share of high margin value-added products. We are expecting good growth rates in our new products like Luxury Vinyl Tiles and R Leather, which is very close to real leather.
We would see significant improvement in EBIDA from the current 12% to 24% in the next one year. At PAT level also, we are going to report good numbers, as our depreciation is coming down and also our interest cost from long term borrowings would be zero after September 2108.
Your current debt-to-equity ratio is at a comfortable level. What is your target on the same in foreseeable years?
We will be long term debt-free company by September 2108 and from there onwards, we will be having small amount of working capital to the tune of Rs.160 crore and the utilisation of these limits would be in the range of Rs.90 to Rs.100 crore at any given point of time. Considering the increase in profitability of the company on account of increased focus on introducing high margin high value-added products, the working capital requirement also would be marginal.
"We will be long term debt-free company by September 2108 and from there onwards, we will be having small amount of working capital to the tune of Rs.160 crore."
Farokh P. Gandhi
Chief Financial Officer, Eros International Media Ltd
"Changing technology, increased bandwidths and internet affordability has changed media industry immensely "
As a CFO of Eros International, what are your top three strategic priorities?
Our top three strategies include having a strong top line growth, margin expansion and continued efforts to maintain a conservative balance sheet while funding company's growth plan.
What is your outlook on media industry in India?
I think that the media landscape has evolved rapidly over the past few years. Changing technology, increased bandwidths and internet affordability has changed the industry immensely. People now have different viewing habits and are not just consuming content from cinema and television, but also via other media like digital and social media.
What are your key growth drivers?
We are redefining our portfolio mix and expanding margins by investing in content driven films with higher return on investment potential and lower risk, in turn making Eros less dependent on box office numbers. While we continue to believe that box office will be important, monetising traditional revenues and making content for our OTT platform competitive is an essential growth driver for us.
What kind of impact do you see on debt due to investment in content-driven film? Do you have any internal target ratio for debt-to-equity?
The investments in premium content and distribution networks we have made over the past few years are now clearly showing in our financials. We believe in maintaining a conservative balance sheet and our debt-to-equity ratio as on March 31 was 0.25, which is below the industry norms.
What is the toughest aspect of being a CFO?
CFOs have to keep up with the changing dynamics of every industry which directly or indirectly affect the business. The change in consumer preferences, behaviour, viewership and pricing, to change in government regulations, everything has an impact on the business and financial metrics. There are times when all the above situations arise at the same time, so one needs to be patient and handle all matters diligently..