DSIJ Interview With Suraj Prakash Director Finance , BEML.
CFO needs to be a strategic contributor for driving value
Suraj Prakash Director Finance , BEML
What are your strategic priorities?
Keeping in view the highly competitive and dynamic business environment, top three priorities will be to act as part of strategic think tank in the organisation for identifying key business growth drivers for creating profit growth opportunities by playing a role of key partner with the top management team and to develop execution plans so as to improve the top line. Another area of strategic priority for me would be to focus on making the organisation more cost competitive to withstand stiff competition by identifying areas of cost control, focus on optimisation of working capital across the business by developing and constantly monitoring key metrics for improving operational efficiency, including compression of cash operating cycle, effective inventory management, promoting culture of cost optimisation. Thirdly, harnessing technology in my view would be one of other key priorities so as to use advancements in technology for data analytics, timely availability of more meaning and relevant information for key and effective decision-making across entire business operations having impact on not only the top line and bottom line but to also reflect on company's commitment to highly professional and business-oriented culture and approach.
How is digitisation influencing your company's operations?
The company has adopted digitisation and technology as one of key strategic areas to spur growth by enhancing faster decision-making, improving efficiency and increased productivity of the organisation by reducing processing lead time, timely availability of appropriate data with enhanced accuracy and transparency so as to promote overall efficiency in business operations and decision-making thereto. Several initiatives like FLM, digitisation of several business processes like e-procurement, e-payment, video conferencing and other processes, including those relating to finance and HR functions have significantly enhanced organisational agility, cost reduction with improved efficiency and faster speed of response and greater satisfaction of all stakeholders including customers, vendors and employees.
What are the key risks facing Indian economy in your view?
India's growth has been impressive in recent years, with India being one of the fastest growing large developing economies. Several structural reforms led by implementation of GST, Insolvency and Bankruptcy Code, several initiatives towards "ease of doing business" have had big positive impact. With GDP growth numbers showing declining trend, though modest, with lower growth rate of 3.1% in May 2019 in IIP vs 3.8% in corresponding month in the previous fiscal, it would be imperative for the government to take key strategic decisions to attract investment, improve overall business sentiments and boost growth. With inflation under check, the recent reduction in repo rate by RBI by 35 basis point is a welcome step and would be of great significance towards this end. The fiscal deficit was within the target level during 2018-19 and keeping it in check in times to come would be very important. Though the tax-to-GDP ratio has improved over the years, the same is way below world average and hence needs to be improved for which innovative measures would be required to improve compliance and better tax realisation.
What are the key growth challenges facing your company?
With BEML product profile catering to core sectors of the economy such as defence, aerospace, coal, mining, steel, infrastructure, cement, power, irrigation, construction, road building, rail and metro transportation, etc, key challenges would be to have preparedness to ward off intense competition from international giants like Caterpillar, Komatsu, Alstom, Bombardier, CAF, CRRC, etc. The stiff competition is likely to have impact on the pricing, which in turn may have pressure on margins for which we are focusing on cost optimisation as one of our key strategies so as to sustain margin while the top line grows. The emergence of artificial intelligence (AI) is one of key areas which we are focusing for adoption, not just to keep pace with the changing business needs, but also provide us competitive edge in terms of product offerings. Innovation and new product development in line with market needs is one of the priority areas to stay ahead of competition. We have already demonstrated our capability by fielding two heavy duty dump trucks of 150T and 190T capacity which are performing exceedingly well demonstrating our R&D prowess and capability to adapt to market needs.
What are the key growth levers of your company?
With BEML catering to core sectors of economy as mentioned above, including infrastructure and urban transportation, focus of government on infrastructure development in the country like expansion of metro transportation networks in metropolitan cities and introduction of metro transportation systems in the tier-II cities has generated a big business opportunity for our company to tap this big potential for high revenue growth rate in rail and metro business vertical. We are looking forward to tap the future and emerging business opportunities in rapid rail transport and high speed rail systems.
The expected growth in the coal segment to cater to growing demands of power and other segments besides significant growth in infrastructure projects provides us with big growth opportunities in mining and construction business segment. Recent exemption from customs duty for specified defence products which are not manufactured in India will provide fillip to "Make in India" initiative, besides providing cost-competitive edge to Indian manufacturers.
Product innovation is the key to long term growth for any organisation and BEML's commitment towards this demonstrates our vision not only for retaining leadership position in our core product range, but also expanding our product offerings through in-house R&D efforts as well as technological tie-ups. Indigenisation is one of the key areas which is on our top priority, not just for cost optimisation, but also towards backward integration and many key opportunities are being pursued in this regard.
What skill-sets are a must to be a successful CFO of a company?
CFOs play a vital role in driving business growth and need to provide financial leadership by aligning business strategy and organisational goals with finance strategy to ensure business growth and enhance value to stakeholders. CFO needs to be an analytical wizard with strong understanding of business environment and provide strategic vision and thinking to top leadership. He must have flexible and responsive approach and the ability to react quickly to fluctuations in the market dynamics. He must be a strong team man with excellent man management skills. CFO need to have strong skills in effective working capital management, compliance to regulatory framework, including financial accounting and tax management. He needs to establish and ensure effective communication and streamline fluidity between various functions and verticals and thus demonstrate a more cohesive leadership role. In a nutshell, instead of spending his time and resources on just managing financial strategy and resources, including evaluation of investment opportunities and allocation of resources, CFO needs to spend more time and energy on being a strategic contributor to the top leadership for driving value in the business.
What is the challenging aspect of being a CFO?
Apart from driving business growth strategies and managing financial resources, including allocation of resources for smooth and profitable operations of the company, CFO's key challenge is to play a key role in risk identification and mitigation across various operations and be a flag bearer in ensuring ever-increasing ticklish and complex regulatory compliances going beyond compliances in finance and tax stream. Devising and implementing cost optimisation strategy is one of the big challenges in today's highly competitive business scenario with intense and stiff competition on the pricing front so as to sustain margins while ensuring top-line growth.
How has the role of a CFO evolved over the years?
Today, the role of a CFO has undergone sea change where he is expected to possess multi-functional knowledge, besides domain knowledge of finance. Today, CFOs are expected to be the change agents and key strategists, actively contributing in key strategic decisions for driving business growth. CFOs challenges and role encompass balancing allocation of capital and other resources to new growth projects without impacting existing business and ensuring sustained margins, which needs excellent skills in management of cash resources, including working capital and raising resources at optimum cost as timely availability of finance and at a lower cost directly impacts the bottom-line of the company which calls for holistic approach to finance cost optimisation.
CFO's role has widened to provide analytical and critical data to facilitate effective and viable business decisions. He is expected to provide suitable metrics and drive deliberations on how those metrics would impact various business segments so as to generate better business performance culminating in improved financial performance. CFOs are expected to develop more effective operational strategies for value creation and play lead role in managing operational risk throughout the organisation.
What is the growth outlook for your company?
The company is looking for robust growth in all the three business verticals it operates in, .i.e. rail and metro, mining and construction, defence and aerospace. As all the core sectors of economy to which BEML caters are expected to grow, we are expecting that all the three business segments of BEML are poised for impressive growth in the current fiscal 2019-20. It is not out of place to mention here that financial results of Q1 of current fiscal has shown 28% growth in revenue, 36% growth in value of production and around 40% decline in losses vis-à-vis Q1 of the previous fiscal. Similarly, there has been significant improvement in other operational parameters like sundry debtors and inventory, with both coming down from 249 and 377 days to 202 and 280 days, respectively, over corresponding Q1 of FY 2018-19. With strong understanding of the current business environment and right strategies being implemented by the management, we expect the momentum of improved performance of Q1 across various performance metrics to continue in the forthcoming quarters and expect to come out with robust growth and enhanced value to stakeholders in the current fiscal.