DSIJ Interview With Nilesh Panpaliya CFO , Solar Industries.
" Digital technologies will revolutionise how businesses function "
Nilesh Panpaliya CFO , Solar Industries
How do you think Modi 2.0 will be different from Modi 1.0 when it comes to your sector?
Modi 1.0 has been really good for us as his focus areas were: Road construction (urban and rural roads), housing, Make in India (defence), exports, reduction in coal imports and power for all. We expect these areas to get further momentum in Modi 2.0 and will give boost to the growth of our company.
How do you plan to get your sales volumes to 4,50,000 metric tonnes by 2020 from 3,00,000 ?
We had targeted a sales volume of 4,50,00 MT for domestic market by 2020 and have reached a volume of 359000 MT in FY2018-19. As expected, our company witnessed strong demand from infrastructure sector segment, particularly road construction and provided strong boost to our volume.
However, the demand from coal mining sector was quite subdued due to negative growth of over burden removal. We are expecting strong demand in FY20 from coal mining sector as projected OB removal targets are very high to sustain coal demand. So these factors will help us to grow the volume to desired levels.
How much growth in revenues do you expect from the defence sector ?
A consistent increase in revenue from defence products quarter-on-quarter in the last financial year shows a strong growth. Last year, the turnover from defence product sale has reached Rs.170 crore, showing a robust growth of 358%. With the present order book of Rs.396 cr., we expect a turnover of around Rs.300 crore in 2019-20
How do you see the recent rate cut impacting your financing cost?
The recent rate cut will definitely impact and reduce our domestic cost of borrowing. We plan to fund our capital expenditure from internal generation. The working capital requirement will be met through bank funding and the recent rate cut will definitely reduce our finance cost.
Solar is today a global company and has borrowings not only in India but across various countries where we have manufacturing base. There has been an increase in the interest rate globally, especially Turkey, and also there had been higher working capital requirement in the overseas market. As a result, our net debt-equity ratio increased from 0.41 to 0.46, but our working capital days have decreased from 105 to 90 days.
We are working on lowering our present debt levels and further reduce our working capital days. Please comment on your expansion strategy and how do you intend to finance growth?
For the current year, we have a capital expenditure budget of Rs.265 crore, coupled with enhanced requirement of working capital as we expect out revenue growth to be 20% plus.
We will have a strong cash generation and we will meet our capital expenditure requirement from internal generation. We will continue to meet our overseas requirement by infusing equity and will borrow from local banks to meet the working capital requirement.
As a CFO, how responsible are you for the profitability of your company?
I firmly believe that the strongest parameter to measure success of any business is to measure “money in” and “money out”. As a CFO, my primary responsibility is to ensure that the business is done with minimal required fund raised in lowest possible cost, projects are implemented on time without cost overrun, and plant run at full efficiencies with minimum resources without compromising on safety, quality, health and environment.
As a CFO, my roles and responsibilities are safety, quality, health and environment, taxation and regulatory, governance, risk compliance, managing capital, financial reporting and accounting, cyber security, digital & analytics, talent management, efficiency and performance management, funding for growth and project management
What part of your job as a CFO is most challenging?
Digital technologies are set to revolutionise how businesses function in the next few years. Disruptive technologies like Internet of Things and blockchain will have a deep impact on the way we are working.
The present challenge for me is to ensure how best I can put automation, artificial intelligence, block chain and real time data to increase the efficiency and reduce the cost across the organisation. Further, it is not only getting these tools, but also ensuring that the team is trained enough to operate these tools and get the best out of it.
These full set of digital tools are must for a CFO, rather for the entire organisation, to detect and quickly respond to real-time business changes.
What is your outlook on the Indian economy and on your sector?
I am very positive about Indian economy and our sector, i.e explosives for civil and defence. Even as per World Economic Outlook Update, India's economy is expected to grow by 7.5 per cent in the 2019-20 fiscal year, keeping an upward trajectory as the rest of the world slumps.
India is one of the fastest growing economies in the world. With a stable political scenario and under a strong leadership, I expect the Indian economy to grow. Our strong domestic consumption and investment will be the key factors supporting this growth.
Defence sector-Indian private sector has a strong role to play in modernisation efforts and reducing import dependence in the defence sector. The government is restructuring defence manufacturing units and reorienting its policy towards privatisation to procure arms from domestic suppliers.
We are confident that the government will take effective steps to facilitate growth of private consumption, tepid increase in fixed investment and muted exports. However, further escalation of trade disputes among the world's largest economies pose a significant risk for both short and medium-term global growth prospects.
As for our sector, the key drivers will be: Coal India Limited (CIL), which provides about 85 percent of India’s domestic production of coal, is the world’s largest coal mining company. We expect coal to remain the dominant fuel in the power sector in India, through 2030 and beyond. All India production of coal is at 675.40 million tonnes in 2017-18 (provisional). The all India production of coal during Apr-Mar 2018-19 was 730.354 mn MT (provisional) with a positive growth was 8.1%. The targeted coal production for Apr-Mar 19-20 is 785 mn MT.
Infrastructure sector is a key driver for our company. The sector is highly responsible for propelling India’s overall development and enjoys intense focus from the government for initiating policies that would ensure time-bound creation of world-class infrastructure in the country. Infrastructure sector includes power, bridges, dams, roads and urban infrastructure development.
Housing sector will also be a major driver for our company. Asserting that with the country’s fast urbanisation, the need for more houses is being felt and to meet the demand and to transform the housing sector, the government has implemented programmes such as Pradhan Mantri Awas Yojana, Deen Dayal Antyodaya Yojana, National Urban Livelihoods Mission, HRIDAY, AMRUT and Smart Cities. Further, the government is making it easier for people to buy houses by providing tax benefits and other incentives. The Real Estate (Regulation and Development) Act, (RERA), has improved consumers’ confidence in developers and brought transparency in the real estate sector.
The growth in Infrastructure and housing sector means an increase in requirement of quarrying stone, power, cement and steel, thereby increasing the demand for explosives.
Defence sector-Indian private sector has a strong role to play in modernisation efforts and reducing import dependence in the defence sector. The government is restructuring defence manufacturing units and reorienting its policy towards privatisation to procure arms from domestic suppliers. Dependence on imports is more than 60 per cent. The Indian private sector is considered to have matured sufficiently, both in terms of size and scale of operations as well as in technology development, adaptation and assimilation capabilities, making it more capable than ever before of seizing this unique opportunity.