The Number Bosses CFO<span style="text-transform:lowercase;">s</span> Their Companies & Beyond

The New Age CFO

Raghava Rao, Chief Financial Officer of Amazon pens this article exclusively for DSIJ reader-investors. 

It is perhaps a truism to state that the role of a CFO is changing; it is however less rhetorical to call out what is driving these changes, and then define the implications for young finance professionals as they are poised to climb the corporate ladder.

Five factors define how the world has changed in the last decade - increased competition, rapid changes in technology, growing regulation, globalisation and explosion of data. These factors are reinforced through a borderless world where commodity, currency and capital markets frequently collide sending implications that are profound in destinations beyond the point of origin. As examples, think of the implications of a revision in Fed interest rates in the US impacting the financial closure of an infrastructure project in Bihar. Technology changes lead to new business models that threaten the existence of seemingly unconnected industries. Think of the implications of Apple's foray into smartphones driving a nail in the coffin of Kodak.

In short, the CFO of today operates in a world that is more volatile, uncertain, complex and ambiguous (VUCA) than his mentor-predecessor CFO. This has implications in terms of expectations the CEO and business have about the CFO, skill set needed for the CFO to deliver to those expectations and the very foundation of the finance organisation that the CFO must build to ensure that his legacy survives beyond him.

In a VUCA world, the business needs the CFO to connect the dots and spot trends earlier than others, and to string together data points from diverse fields like technology, regulation, competition, politics, customer behaviour, foreign markets and help distil these into threats, opportunities and an agenda for his organization. As an example think of the CFO of an automobile major who needs to synthesize implications of protectionist policies emanating from a US presidential election, regulation motivated by environmentalist lobbies, excess capacity in a Chinese factory due to domestic slowdown in that country's export sector and rising growth of app-based taxi share companies to set the trigger points for committing to capital investment in India.

The CFO of yesterday most likely honed his skills in a manufacturing industry, and learnt his accounting, taxation and cost management skills in a world of stable ERP systems, inventory management, and steady state cost improvement and legacy direct and indirect taxation. The CFO of today is more likely to lead in an organization that is built around (or competes) with service providers, does not need large physical or tangible assets and operates with regulators, auditors and taxmen who are even less familiar with new age technology based business models.

Conventional investment analysis focused on capex decisions for physical assets which had depreciation rates, tax rates, selling prices, demand units and interest rates as key variables for carrying out sensitivity analysis. A finance leader for a tech company founded on an emerging business model has to instead think in terms of customers acquired, their fickleness and likely investments in retaining them, pricing for services not yet invented and adjust for risks from competitors not yet active. He needs to process these inputs for three different stakeholders – his business partners, for whom he needs to set an agenda for connecting financial metrics with operational KPIs to set performance benchmarks; his investors, for whom he needs to interpret financial and non-financial measures so that they are well informed about the true health of their investment; and finally for his own finance team, who need to be coached on soft skills and hard skills that were never visualised when MBA and accountancy text books were written. In all this, it is equally important to register what does not change for our new age CFO.

In the world of finance, like Newton’s laws of motion holding true across the universe, linking true value creation to long term cash flows is immutable. The challenge is to link cash flows to measures in a new business model around customer acquisition cost, customer retention cost, future cash flows over an imputed life cycle, investment in new products and adjust these for riskiness in execution and competition. Soft skills needed for success hinge more on earning trust with business partners, listening skills, learning with experience and readjusting and readapting to these lessons, being flexible on details but retaining stubbornness on the organization’s vision.

Building talent too is different. Build versus buy approaches for talent may vary in a new age industry versus old age industry. Youngsters today have grown up in a more individualistic world, are used to making their own decisions, and are more likely to reject a paternalistic approach where they could have been given a transfer letter to move to their next assignment.  Instead, they are likely to change jobs more frequently, will look for quick learning across different skills, prefer to work in a more informal work culture and want to be coached rather than be directed.

Again, what does not change is that building a finance team that will survive beyond the CFO will remain perhaps the CFO’s most important legacy.

Interview of Mr. Manas Datta, CFO, Wockhardt.

"Wockhardt is in a growth phase so the global uncertainty in terms of BREXIT, politico legal or politico security or the currencies and interest rate movement happening globally, trade barriers, the taxation issues are all the key challenges. "

Q1. Can you please explain your top 3 priorities at Wockhardt as a CFO? 

Ans: Controlling the entire business needs three things, no. 1 is best practises excellence and governance; no. 2 is liquidity; and no.3 is ensuring that the influencing ability of the company in the markets remains intact. Influence not in a negative term but in a term that people understand the organisation well, we communicate the organisation perspective, views and aspiration in a proper manner from time to time to the security analyst, equity analyst, to the market investors, to the bankers and to the rating agencies. These are the three priorities which will always remain, keeping the liquidity on, keeping governance and excellence practices on, and getting into effective communication and keeping our influencing ability intact on the market participants. 

Q2.  What are the key challenges lying ahead of you as a CFO? 

Ans:  About 20 years back, CFO’s were just book keepers, they used to do quarterly reporting, monthly reporting, statutory audits, etc. But today it has completely changed, and especially for the group like us which is present in 21 countries, there are many challenges. I will put it in two or three lines. Wockhardt is in a growth phase so the global uncertainty in terms of BREXIT, politico legal or politico security or the currencies and interest rate movement happening globally, trade barriers, the taxation issues are all the key challenges.

Q3. Can you please highlight with example your contribution as a CFO in shaping the growth strategy of the company? 

Ans: Wockhardt had a past history of CDR, although now it is very successful and the company is coming out of the CDR five years ahead of the schedule. Keeping liquidity at the right cost was very important for me ever since I became the CFO. On liquidity management, we have raised approximately about 425 million dollars in the last 2 years at a competitive rate; and we have also enhanced the working capital by three- fold because it was needed.  Today the company’s average cost of borrowing, related to the working capital is about 8.2 per cent, and mind it, this is all in rupee terms. Long term borrowing of the company in India is also less than 8.5 per cent.  This we have done in the last 18 months. One more point I would like to add is that our company has presence from Australia to US, therefore the company’s MIS system needs to be very robust, which we have successfully managed to achieve. Today we report our global consolidated financial information, from consolidated financial statements, to the company wise division, to the business wise division, to the product wise division, and we report all MIS from the day 2 of the succeeding month, which certainly means at any time from the 2^nd day of the succeeding month you have the complete information globally available.

Q4. The company manufactures medicines in the major segments like Anti- Infectives, Cardiology, Dermatology, Neurology, Pain management, and Respiratory. Apart from this is the company looking to enter into a new segment?

Ans: That’s a very interesting and forward looking statement. Yes you are very right. We do operate in the above segments, which provide us with around 80 per cent of the revenue. I would like to share that, Wockhardt is among those few organisations which spends around 10 -12 per cent of its global consolidated turnover in R&D. Our R&D is very well focused on pharma, bio-similar, and very upcoming new chemical entities. Wockhardt is the only company in the universe, which has 5 such new chemical entities approved by the government of US under the Qualified Infectious Disease programme, in anti-biotics. Our strategic concern and focus will remain in this area and hopefully in the future there will be a different type of Wockhardt, if everything under this QID comes true, over the next 3 to 5 years’ time.

Q.5 Company’s 1/3rd of the revenue comes from the European market. Is the company trying to tap new geographies in the near future?

Ans: We have our manufacturing facilities in US, UK and Ireland apart from India. Also we are coming up with another facility in Dubai so naturally Europe will continue to be our growth area or our focus area in the near future. The emerging markets are very important to us. The emerging markets in the last quarter have grown by more than 25 per cent and we will continue to focus on this area.

Q6. The company is operational in UK and France; how will the effect of BREXIT be on the business going ahead?

Ans: Our business in UK, France and Ireland falls in the BREXIT arena. Today impact is only on the pricing and foreign exchange fluctuation, today we don’t talk about trade barriers, or cross border issues unless and until it is happening, it is just a temporary phenomenon. On the other hand, whenever we have a transaction in Euro or Pounds it has suffered a minor loss and it will continue to have a negative impact, but in other cases I really do not think any significant impact is coming right away as far as BREXIT is concerned
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" Trade off between financial risk and arranging growth funds is critical. Arranging timely growth funds is very very important. There is a lot of pressure to grow and if the funds needed for the growth are not available in a timely fashion, there will be a problem.  Also corporate governance  and risk management  is of paramount importance and one of the key priorities as a CFO. We have to ensure there is prudent corporate governance from time to time."

CFO : R.K.Jain  UFLEX Ltd

Q1.  As a CFO of Uflex Ltd, a leading flexible packaging company , can you please elaborate on your top three priorities ?

Ans:-

1.     As a CFO, being a finance person the biggest priority is to maximise the Return on Capital Employed (ROCE). It is the foremost thing because we have to act in the interest of shareholders.

3.     Trade off between financial risk and arranging growth funds is critical. Arranging timely growth funds is very very important. There is a lot of pressure to grow and if the funds needed for the growth are not available in a timely fashion, there will be a problem. Also corporate governance and risk management  is of paramount importance and one of the key priorities as a CFO. We have to ensure there is prudent corporate governance from time to time.

Q2. Can you highlight a strategic initiative which paid of well for Uflex  during your tenure as a CFO?

Ans :- It has been a continuous and recurring job all the time,challenges are manifold but I can mention few of them .

One is that of  business restructuring, wherein we had undertaken some  business restructuring by way of merger of our various group companies, some by way of merger of various growth companies. It proved to be very useful.

 In some time in 1998 during the Asian crisis, I had gone for a negotiated debt settlement with the institutions. We found that our debt was fairly large and we devised a settlement scheme and settled the debts, which really helped us. Otherwise we would not have been able to reach the current status that we are at today.

Thirdly it was very important to meet the funds requirement in a timely manner. It was very important to raise the funds in time. Time is the essence , because if you are not able to raise the money in time , it has impact on the growth of the company. Luckily, we have always been able to raise money timely and there  has never been a liquidity problem so far for managing the business operations or even for growth opportunities.

Q3. With Marginal Cost of Funds lending rate now in place and touted to transmit the lower interest rate faster, is Uflex able to lower its cost of capital?

Ans: Absolutely, because since the interest rate regime is now going towards the down side and from time to time depends on the overall monetary position of the country our cost of debt also has gone down.

Since we operate both in India and also in international markets , we have facilities set up in different parts of the world. Our foreign borrowings' cost is much lower; and even in India as against the 18% to 19% I have seen in early 90s , today it has come down to about 11 to 11.5%.

Since the system of fixing the rate has also undergone a change, it is basically related to the base rate plus margins. Base rate is flexible whereas  the margin is based upon your rating that remains more or less same.

When the rates are going up or down it is basically the base rate that is going up or down and not the margins.  Once the rates are fixed it may not change unless there is substantial change in the credit rating.

As base rate is going down we will be taking advantage of the same and our overall cost of debt is around 8.1 per cent including both the domestic and international market.

Q4. Uflex has operations in several countries globally. How do you manage currency risk at Uflex? Do you do any kind of active currency risk management or you simply hedge currency risk?

Ans: We are a mix of many things. We have international locations and we also have Indian operations so we don't do any hedging  par se , but obviously we keep  the currency changes very well managed.

Basically exchange risks are of  two types i.e. current account and capital account. Current account is basically trade transactions like sales, purchases, etc., that you keep doing. Since we are a net foreign exchange earner in the  Indian market we don't carry any major exchange risk.

 In capital account, we have a policy that we will not borrow any foreign currency on Indian balance sheet. Our borrowings are largely in Indian rupee and very marginal amount we borrow in foreign currency and those liabilities are also going to diminish after three to four years. Even if we try to hedge, long term hedging is very expensive, if the exchange rate differences are much larger than the hedging cost, only then can one think of hedging. If the exchange rate variation is less than the heading cost than it is an expensive exercise. Long term transaction hedging i.e  3 to 4 yrs hedging is very expensive.

As far as Indian balance sheet is concerned we don't recourse to any hedging. As far as International operations are concerned largely they operate in those regions where either  they deal in USD or  the EURO.  They earn in USD and EURO and they spend in USD and EURO.  Egypt has become a little painful , basically the condition of the country is precarious and the local currency is depreciating rapidly in Egypt. Locally sourcing of  material is also not feasible in Egypt. There is a FOREX issue in Egypt.

As far as BREXIT is concerned we don't tend to loose much; neither are we to gain anything from the event as we have minimal exposure to the UK markets. In fact the USD may gain due to GBP depreciation and that may benefit us.

Q5.  Will GST bill after being constitutionalised help UFLEX increase sales locally in India?  What is your view on capping the GST rate at 18 per cent and the same being constitutionalised?

Ans: As far as the first part on GST is concerned in the question, it is good in general. This is something wherein the government  is trying to rationalise the tax structures, so it will bring a buoyancy in the tax regime. It will also facilitate ease of doing business and simplify the whole thing.

It is going to be good and definitely the tax structure will become stream lined and simplified. That will be the major benefit for us because we are the B2B company, we are not a B2C. In B2B basically, the tax is transferable, so it doesn't matter.

As far as capping of rate is concerned, my personal opinion is that it should not be capped. If you cap it at 18 per cent, most of the countries are keeping the rate open as these rates may depend on the situation from time to time in the economy.  Even your Income tax rate and other tax rates are open ended.

If you cap constitutionally then it has to go through the process and hence I do not recommend capping of rate.

Q6.  What strategy would you consider worked for you best in beating the competition? Backward integration?

Ans :-  Backward integration has got nothing to do with beating the competition. Basically when you do backward integration, it has to bring in value addition because ultimately you have to look at return on capital. If backward integration is not generating adequate return on capital , it means you are subsidising something and it can be helpful in facing the competition. 

The strategy that we  keep in mind is innovation .  You have to develop products with innovate and create distinction for your products in the markets. This way you can beat the competition. Innovation is the most important aspect  in beating the competition and we believe in that. 

The proximity to the customers (quick delivery , service, etc.) and how fast you can reach the market, is what is important. When you do some new innovations and new development, your speed to reach the market is important , so that you get the maximum advantage because sooner or later it will become competitive as these are the innovations which are not hard core research and are application oriented innovations so your faster reach to market becomes critical. This faster reach to market provides a competitive advantage. 

Lastly continue to focus on operational excellence so that you are able to get values within your own system. Operational improvement, productivity improvement and cost optimisation , all these things help you to create value within your resources, which helps us compete in the market.  We have been following this and as a result we are the leading player in the packaging space for quite some time.

Q7.  Can you please elaborate on products developed or being developed by Uflex to address counterfeiting and how do you see these products impacting sales for Uflex?

Ans :- Counterfeiting, I think is a very relevant point which you have raised. I am very happy that you have highlighted this point of counterfeiting.  Today all the consumer goods that are sold in the market, by the big brands, are facing major issue in terms of counterfeiting. There are lot of look alike situations and duplication and the big brands stand to loose their market credibility. If any duplicator or spurious packs are there in the market place, who loses the image , who loses the goodwill, it is the big brands. People don't know whether they are buying the original or duplicate. When people buy the duplicate thinking it is original , they always end up criticising the original brand. So that way it hits the original brand owner. So counterfeiting is becoming very very critical for the big companies and for big brands. Counterfeiting measures have to be built in.

Packaging becomes an identification. It is only the package that communicates first. Packaging plays an important role in terms of addressing the issues of counterfeiting. UFLEX as a company has become a master and a champion in providing this solution to the customers who use our packaging products. We have developed many new products in this area. We are the first one in India and also in the world to use Hologram technology in packaging. We have also advanced this hologram technology to a different level to latentogram to a unigram and finally to fresnel lense, the stamping foil, etc., and all these measures make the product pack distinct for others because they can't be duplicated and they can't be made by any manufacturer. It requires knowledge about using these techniques and it requires fairly good amount of investments. Both the things will discourage counterfeiting activities.
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The other method we have  used is making the pack complicated, like  big bags for cement packing, building material packing and packed food packing where pack  is designed in such a way that it can't be copied by an ordinary company.

You can understand when you see the packing product.

Cosmetic industry is highly prone to counterfeiting . Cosmetic manufacturers lose lot of market  in the entire world due to counterfeiting. They not only lose the market share but also the reputation.

While providing the counterfeiting solution , we are able to do so without being expensive. The only thing is  that we have to promote the product.  We are going to cosmetic players , health care , skin care ,shaving creams hair care, etc., whose products are non price elastic. These players can adopt counterfeiting proof packaging.

We are the largest innovative company in the world . Number of products developed in the past 30 years of our  journey have been unique and they have been driving the market.

All these innovations bring in lot of growth at the top level as well as bottom level. Since we deal with large customers, clients are asking for packaging products with in built features protecting from counterfeiting.  Most of our products currently that are sold have an inbuilt feature that protects against counterfeiting.

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“For CNG business, apart from pipelines, we need place for our compressors & dispensers. Scarcity of land in Mumbai and the surrounding region poses as another challenge in getting required number of outlets for dispensing CNG to vehicles.”

CFO : S. M. Ranade    Mahanagar Gas Ltd  

Q1.  As a CFO of Mahanagar Gas, what are your top three priorities? 

 

Ensuring improvement / Stabilisation in margins through the right pricing strategy

Provide timely information on all type of costs; create awareness about rising costs so that measures are taken to control costs.

Advise on deployment of capital in right direction so that Return on Investment can be improved.

 

Q2. What are the key strategic challenges faced by the company? 

The foremost challenge is to roll-out our infrastructure speedily. Tapping demand potential considerably depends upon how soon we reach the door steps of the customer. Congested city roads, underlying erstwhile utilities and heavy traffic pose a major challenge to laying pipe lines. The number of approvals required from different authorities like Municipality, Traffic Police, PWD, Railway, etc., also takes its own time.

Municipalities do not allow public road excavations from May till September in view of monsoon season. Hence, effectively we get half of the year to lay our pipeline infrastructure.

For CNG business, apart from pipelines, we need place for our compressors & dispensers. Scarcity of land in Mumbai and the surrounding region poses as another challenge in getting required number of outlets for dispensing CNG to vehicles.  

Last mile connectivity to customers in domestic / household category requires plumbing activity with reference to low pressure gas pipe lines. We are facing acute shortage of plumbing teams in our operational areas. Probably this could be due to a more profitable employment they get in the construction business.  

Q3. In current fiscal Mahanagar Gas is facing de-growth in revenues. Can you specify what is leading to such a scenario of de-growth? 

More than growth in revenues one should look for growth in gross profit, since sometimes, during the year selling prices of Gas are reduced to pass on benefit of decrease in costs of Gas to customers. Lesser revenue in 2015-16 as compared to 2014-15 was result of such reduction in Gas prices. However, gross margin has increased from Rs 782 crores to Rs 837 crores.

Q4. Do you think that Mahanagar Gas can grow by 25 per cent per annum in the coming years? What shift in strategy will be required to allow faster growth in the company?

Customer categories related to Gas distribution in cities include household, CNG vehicles, industrial & commercial. Per capita consumption differs for each customer type substantially. Typical consumption could be 0.40, 4, 1000, 100 standard cubic metre per day for household, CNG vehicles, industrial & commercial customers respectively. Today, nearly 85 % of the total sales volumes are through household & CNG customer category. Due to low per capita consumption and a time consuming customer acquisition process in these categories, growth even in 2 digits is considered significant, MGL having already penetrated the market to a considerable extent.

Growth by 20 % or above could be possible in theory in industrial and commercial category. But unfortunately, industries are getting shifted from Mumbai & surrounding region, probably due to sky rocketing prices of real estate.

To achieve higher growth, however, compared to traditional growth pattern, some strategies could be brought into force. Mandatory requirements for all industrial units in Mumbai Metropolitan region to switch over to Natural Gas for reducing pollution levels can boost volumes in this customer category.      

Mandatory requirements for all commercial units in Mumbai Metropolitan region to switch over to Natural Gas to improve safety standards can boost volumes in this customer category as well.  

MGL has entered into a contract with certain builders to provide household Gas connections during the process of construction. This could speed up number of household connections.

Frequent need to refill CNG cylinder/ vehicle discourages many people to adopt a CNG vehicle. A light weight cylinder with higher capacity can probably solve this issue and it can help in substantial increase in CNG vehicles.

Q5.Where do you see Crude Oil prices headed and how can you explain demand relation between Crude prices and Natural Gas, which may affect Mahanagar Gas' profitability?

We do not have expertise in prediction of Oil prices.  However, as per EIA’s (Energy Information Administration’s) projections, over a moderate period of one year, Oil is expected to be in the range of US$ 50-60/BBL.

A silver lining has emerged due to IPO of Saudi Aramco; and the new Petroleum Minister of Saudi Arabia believes that the world has gotten rid of oversupply, and he is emphasising on price increase instead of production increase.

Further, upward movement in number of Oil & Gas rigs in USA also indicates upward movement of Crude Oil prices. Earlier Oil & Gas rigs quantity had fallen by more than ¼ i.e. from 2000 rigs to less than 500. Recent times have seen an increasing trend in these rig numbers in the USA.

The sustainability of Oil prices will depend on how quickly American frackers re-open rigs and Iran increases Oil production. Also it depends on how quickly the crisis in Venezuela and Nigeria is resolved to ramp up Oil productions.

Considering Oil and Gas are substituting each other in energy space, crashed market prices of Oil also indirectly lead to lower Gas prices traded at various international hubs.

• As per the present pricing policy of GoI, the price of domestically produced Gas is linked to the volume weighted average of Gas prices at

• Henry Hub (US),

• Alberta Gas Reference Point (Canada),

• National Balancing Point (NBP) (UK) and

• Russian domestic market.

Therefore, lower Oil prices resulting into lower Gas trading prices at above hubs lead to lower prices of domestically produced Gas.

$/MMBTU	Apr’15 to Sep’15	Oct’15 to Mar’16	Apr’16 to Sept’16
GCV	4.66	3.82	3.06

It can be seen from the above table that falling Crude Oil prices have resulted into falling Natural Gas prices.

 In case , petrol / diesel prices to end users in India do not fall in line with Crude prices ( due to government duties & taxes)  , margins for MGL in CNG customer category can improve by taking advantage of reduced Gas purchase cost.

In industrial and commercial customer category, MGL is benefitting from the scenario of rising Oil prices, since the prices of the competing alternate liquid fuels also go up. Margins can improve particularly when substantial Gas can be sourced from relatively cheaper spot Gas.

Q6.The PAT margins have shrunk consistently for Mahanagar Gas from 21.49 per cent in FY12 to 13.5 per cent in FY16. Can you tell us how the margins could be improved for the company? 

Let us first understand why the margins shrunk. The drop in PAT margin was mainly attributable to sudden downward trend observed in Crude Oil prices. Starting from 2014 onwards, Crude Oil prices dropped from approximately $ 100 to $ 30 over a period of 2-3 years. Our customers in industrial and commercial category in Mumbai and surrounding region use predominantly LSHS (low-sulphur heavy stocks) and FO (Fuel Oil) as alternate fuels. These products were being offered by Oil Marketing Companies at heavily discounted prices in view of the glut in the market. Our selling prices are indexed to alternate fuels for most of the customers in the industrial and commercial category. In order to offer value proposition to our industrial and commercial customers, we have suitably adjusted our prices / margins downwards.

General public perception in this period was that petrol / diesel prices will go down further or will not rise. As a result, our process of customer acquisition in CNG customer category (vehicles running on Compressed Natural Gas) slowed down. These developments had an adverse impact on the PAT.

In view of the upward trend in Crude Oil prices, prices of liquid fuel have started increasing in India. PAT margins will improve since price of Natural Gas is indexed with liquid fuels for most of our customers in industrial and commercial category. We also aim to take advantage of our relatively comfortable position prevailing in global LNG supplies. We are and will be sourcing spot RLNG (Regasified Liquefied Natural Gas) on a competitive basis. The measure will facilitate reduction in Gas cost for feeding industrial and commercial category, which in turn would improve margins further. We plan to continue with a discount level, in absolute terms, against petrol/ diesel/ subsidised LPG. Since prices of petrol/ diesel/subsidised LPG may move upward, gross profits  in these customer categories will improve due to improvement in pace of  customer acquisition. On the opex front, we plan to replace old compressors, dispensers used in CNG business, in a phased manner, which will reduce maintenance costs. Measures are being taken to optimise power costs as well.

So in brief, efficient Gas sourcing on RLNG front, right discount strategy vis-à-vis alternate/ competing fuels and some measures to reduce opex should help us in improving PAT margins.

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CFO : Srinivas Palakodeti  Hinduja Global Solutions

" Challenge has been to achieve top line growth while protecting the bottom line in the long run, and I would like to stress that I am not talking about the short term. "

Q1. As a CFO of Hinduja Global solution can you please elaborate the top three priorities?

Ans: 
1.     The traditional part in terms of protecting the assets

2.     Another priority is to really be a business owner and enable the operations, making sure to identify opportunities and ensure that the liquid resources are available. Allocate capital correctly and managing contingent risks is important.

3.     Thirdly , what we call development strategy in terms of defining growth opportunity and working with the leadership team in terms of defining strategy is extremely important.

One of the key activities is to act as a communicator to various stakeholders. To define a story and communicate well to all the stakeholders so that stakeholders have confidence in what company is doing and planning.

These are three broad key priorities.

Q2. Can you highlight strategic initiatives, which paid of well for your company during your 10 years as a CFO?

Ans: Hinduja Global Solution as a company has done about 6 to 7 acquisitions in the last five to six years. These acquisitions have been in different geographies i.e  in Canada,  India and other different markets-  different geographies.

Most of them have been in the space of either call center or business or on the health care side which is related more to software solutions and services. The one which I would like to highlight was a challenging task. We had bought a payroll processing business way back in 2011. That was quite a different experience, even though being in the business of  business process management -BPML, Netcom corpus. It was purely non voice and completely in a different location - Mumbai (we are spread in different locations across India)and a different business model what is called a non linear  business , where the growth in revenue is far higher than the growth of the number of employees. That’s one business which we acquired around 2011 and something which has given us good growth. It has doubled the revenue over the last five years and continues to be as profitable as it was when we bought the business. It has also helped us get a foothold onto new clients whom we are tapping or we are looking to tap. So that's one very satisfying acquisition which we made.

It is not only that it is doing well financially, but also it’s nature of business is different.  The business is different because we are doing pay roll processing ( sensitive data), and we have  done it in a different way. A high level of client confidentiality is required and the way of working is also completely different  than the other parts of the business. It is doing very well and we are satisfied.

Q3.As a part of CFO role can you elaborate on what are the key challenges facing you towards achieving the company's vision, mission and objectives?

Ans: If you look at the performance of HGS, the growth of the topline has never been a challenge. We have grown more than about Rs 900 crore in FY10 to close to about Rs 3300 crore in FY16. It has grown more than 3 times in revenues over last 5 years.

Challenge has been to achieve top line growth while protecting the bottom line in the long run, and I would like to stress that I am not talking about the short term.

Also as a company which operates in different geographies, you have always to look at the change in business situation globally  as you know what happened in Euro Zone with Brexit which came as a surprise.  We need to update ourselves on changes in laws, changes in policies, etc., and being a global company we need to be compliant across all geographies.

Staying abreast with changes in rules and regulations is very high  in terms of priority. Also we need to meet the objectives and ensure we deliver to the shareholders, employees and other stakeholders as well as the society as a whole. .

Q4. With Marginal Cost of Fund lending rate now in place, while transmitting to the lower rate speedily, will your company be able to lower cost of debt and overall cost of capital?

Ans: Definitely.  In India and other countries where rates were high, around 10%-11%, we are seeing  a drop in interest rate. Now they are placed in the range of 9%-10%.

We are seeing some reduction in interest rate and we expect that to continue for some time, since the rate cut has begun recently. With the reduction in interest cost,naturally the cost of capital is also expected to decrease.

As far as foreign currency borrowing goes, the Libor rate is higher today. Indian Interest rate has come down and Libor rate is higher currently as compared to what it was three years ago. It has probably gone up by a quarter percent or even more depending on what time horizon you are talking about.

Q5. With highly diversified business activities and presence in several countries as you said earlier, how do you manage forex currency risk?

Ans:

Forex currency risk (Capex) does not impact the whole business, but it impacts about, let's say a little over 40% of our revenue, and bulk of that is really the revenue, which actually originates from North America and which is delivered from geographies such as Jamaica, India and Philippines. That's where you would have to look out, but if you look at the Dollar to rupee rate, by and large the tendency has been for the rupee to depreciate.  Typically you would have 5% to 6% premium, and to the extent that rupee depreciates in short run it will help our profitability,  but the rupee depreciation really reflects the differential interest rate and inflation rate between US and India or  US and Philippines. Philippine Peso as a currency is far more stable than India but it has also depreciated in the last 12 months or 18 months. We take forward covers, playing simple forward covers, no exotic options on a rolling 12 month basis. I have an estimate of how much revenue I will earn a year from now and then I will sell part of that amount in the Dollar market.

We have negligible exposure to other currencies, for e.g. money  coming in Pounds or Euros to markets like India or Philippines is negligible. We do have some exposure to Canadian dollars.They come into Philippines, but that's a small portion.

Q6. What are the growth pillars for the company and how do you manage growth finance requirements?

Ans: As a company we have a net worth of about Rs 1,200 crore. We have a gross debt of about 800 crore and we also have a fair amount of cash sitting on our books, moreover there are no hurdles in terms of being able to raise money to grow on an overall basis.

We are, from leverage point of view,at a very comfortable level and in the longer run we could always raise money from the equity market, if there is a need; and the promoters hold 68%, so there is also a headroom for growth by increasing the equity base.

Right now in the shorter run for the current growth what is normal organic growth, we believe we have adequate credit facilities in place or we have ability to borrow.

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 "Quess has made 9 acquisitions over the past few years. Acquisition integration while preserving the culture and morale of each acquired entity is a key challenge."

CFO :  Subrata Nag    Quess Corp

 

Q1.  As a CFO of Quess Corp Ltd., a leading business services company, can you please elaborate on your top three priorities? 

Quess operates in four business segments, namely Global Technology Solutions (“GTS”), People & Services (P&S), Integrated Facility Management (“IFM”), and Industrial Asset Management (“IAM”). 

On a Company wide basis, my top three priorities are:

• Margin expansion: We are constantly seeking to expand margins of each business.

• By working with each business to increase operational efficiency, leverage economies of scale and reduce cost of delivering service, we can drive margin expansion at each business level.

• Keeping a strict control on our overhead expenditures, thereby ensuring constant expansion of margin at a companywide level.

• Effective use of capital

• Strict working capital management through reduction in debtor days, leading to higher cash conversion ratio for the Company

• Ensure that each business operates at working capital cycles that are better than industry average

• Through margin expansion and effective use of capital, provide industry leading returns on capital employed to stakeholders

• Improve systems, processes and internal control

• Further adopt technology driven systems and processes that establish effective internal controls

• Drive continuous improvement in internal control systems through exception based management

 Q2. Can you highlight a strategic initiative which paid of well for Quess Corp during your tenure as a CFO?

• Establishment of Shared Service Centre

• Under my tenure, Quess established a shared service centre to cater to finance, accounting, payroll, and compliance management across all business verticals.

• This set up has ensured standardised business processes across businesses, leading to economies of scale, lowering cost of service, and driving margin expansion across each business.

• Implementation of technology driven solutions and processes

• Over the past couple of years, we have streamlined our systems and processes through technology. At a Company level, we have implemented SAP for financial controls and our in-house HR platform.  These implementations have ensured robust internal controls while the Company has grown at a 52% CAGR over the past 5 years.

• Verticalisation within businesses

• We have implemented “verticalisation” across all our businesses along service delivery lines. This has allowed specialisation amongst service delivery personnel while building organisational domain knowledge.

• This change has enabled a better go-to-market strategy for business, leading to higher sales growth (example: our India IT staffing business is growing organically from 205 cr in FY 12 to 460 cr in FY 16 while expanding margins from 6.6% to 12.7%)

Q3.  What are the key challenges faced by you as a CFO in achieving company's set targets and goals? 

• Integration of acquired companies

• Quess has made 9 acquisitions over the past few years. Acquisition integration while preserving the culture and morale of each acquired entity is a key challenge.

• In particular, our acquisitions of MFXchange (USA) and Brainhunter (Canada) are in their turnaround phase, with MFXchange achieving profitability in Q4FY16. Successful turnaround and margin expansion of both businesses remain a key challenge.

• Management of growth

• Quess has grown at a 52% CAGR over the past five years, with PAT growing by over 80% CAGR in the same period. Managing working capital and ensuring availability of working capital facilities are another set of key challenges.

Q4. What is the improvement in margins you see once you reduce the debts using the funds raised through IPO? 

• We are repaying 50 crores of debt and funding another 160 crores of incremental working capital from our IPO proceeds.

• At our current cost of debt, these changes will result in a 45 to 60 basis points improvement in margin, on account of financing alone.

Q5.  Your company believes in inorganic growth with several acquisitions already done. Can you update us on whether the latest acquisitions are already making profits? By when do you expect the acquired companies to break even?

• The last three acquisitions done by Quess were Randstad Lanka (Private) Limited (“Randstad Lanka”) in April 2016, MFXchange Holdings Inc. (“MFX”), with 49% acquired in November 2014 and remaining 51% acquired in January 2016 and Brainhunter Systems Limited (“Brainhunter”) acquired in September 2014.

• Of the above, Randstad Lanka was profitable at the time of acquisition and continues to be profitable.

• MFX was loss making till December 2015. Since our full takeover in January, MFX has turned around and showed a profit in the quarter ending March 2016.  We continue to focus on margin expansion at MFX and believe that the turnaround will continue.

• Brainhunter lost approximately CAD 2 million in FY2016. However, the last month of the year (March 2016), Brainhunter broke even at an operating level.  We are confident of the turnaround continuing at Brainhunter and expect full profitability in due course.

 

Q6. You are into a low margin business with intense competition even though the growth is above average in the industry. How do you plan to keep margins intact while improving the growth in sales and how do you provide value addition to your customers to create differentiation and is it helping your margins? 

 

We have deployed a number of different levers to ensure margin expansion, while sales continue to grow on one end –
In our GTS business:
“Verticalisation” at the strategic business unit level has led to margin expansion and has increased customer confidence. This is evident in the expansion of margin at our Indian IT Staffing business.
Further segment level margins will improve as MFX and Brainhunter continue their turnaround.
In our IFM business:
Turnaround of Aravon, which we acquired in April 2015 and have since turned around, will drive further margin expansion.
In our P&S business:
Providing value added services instead of vanilla general staffing will drive business margins.
Already a number of these initiatives are underway through our InEDGE retail offering via which we provide visual merchandising and sales force management solutions to our clients.
Further, we have introduced technology driven employee life cycle management systems through which customers get live data on associates deployed with them
Increasing the pie of our training and skill development business, which operates at a higher margin than general staffing, will drive further margin expansion across these businesses.
In our IAM segment:
“Verticalisation” across the strategic business unit will drive greater economies of scale in service delivery, leading to margin expansion.
Greater share of SLA based contracts (as opposed to time and material) will give further impetus to margins.
 
We provide a number of value added services to clients including –
Technology driven live monitoring of deployed resources in our staffing business.
Data based approach on deployed employee productivity, ensuring better decision points for customers.
Technology product offerings in our IAM businesses that allow real-time monitoring of customers’ industrial assets.

Training and skill development of associates, based on customer needs.

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 Mr. Bharat Kedia, Chief Financial Officer, Parag Milk Foods Ltd.

“ The FMCG sector is becoming very attractive as private players have demonstrated significant growth opportunity both strategically as well as through innovation. The increasing competition will only enrich the industry.”

 Q1.  Can you please explain your top 3 priorities at Parag Milk Foods as a CFO?

1.     Foreign Investment to become our indispensable business partner

2.     Strengthening systems and progress from patch work to comprehensive model

3.     Return on Investment

 

Q2.   What are the key challenges lying ahead of you as a CFO of the newly listed company?

1.     Compliance and regulatory environment

2.     Manage long term goals and declare short term results

3.     Taking organisation on a journey from revenue to ROCE (Return on capital employed)

 

Q3. Can you please highlight with an example your contribution as a CFO in shaping the growth strategy of the company?

 

Increasingly CFOs are required to act as a perfect partner with cross functional leadership and most support them in bringing strategic decisions to life, while also demonstrating great financial responsibility, acting as a voice of caution on the face of poor investment strategies that are detrimental to long term value creation of stake holders.

Shaping a growth strategy requires acting cohesively with other functions:

 

2.     Acting as integrator and navigator of the organization

3.     Leading investor relationships

4.     Balancing ambitious growth targets with risk management and compliance

5.     Re-directing finance team energy from data management to analysis and review management

6.     Bringing transparency in investment related decisions for future growth

Q4.  For Parag Milk Foods (PMF) the promoter shares pledged is substantially high, and it can make investors concerned.  Also there is increasing competition from big players like ITC, which now will be focusing on packaged food business more seriously and may enter the dairy industry. What would you like to tell our readers regarding both the concerns related to PMF?

The FMCG sector is becoming very attractive as private players have demonstrated significant growth opportunity both strategically as well as through innovation. The increasing competition will only enrich the industry.

Q5. PMF enjoys a market share of 32 per cent in the cheese market in India whereas Amul still rules Indian cheese market with 42 per cent market share. What is it going to take for you to be number 1 in India for the said product and what sought of time frame you are targeting to overtake Amul if at all it is in your agenda?

Cheese is relatively smaller market in India but growing rapidly; capturing the growth and developing sustainable value through sale by product. As company has ventured into Whey protein which is currently a b2b business, it is now venturing into consumer business. “Whey” is the way to enhance profitability of the company.

 Q6. What is your plan to minimise cost of capital? Is Marginal Cost of Funds lending rate (MCLR) system helping you reduce the cost of borrowing?

Creating value for shareholders through improvement in margins and explicating existing infrastructure will ensure company moves in the right direction. Cost of borrowing is reducing and interest cost is improving.

 Q7. On improving the distribution network, what are the key elements you are focusing on?

Currently, company’s distribution network is wide enough to cover all stretches of the country. We constantly seek to grow our product reach to under-penetrated geographies. We intend to appoint additional distributors and super stockiests to increase the availability of our products in smaller towns in India and introduce new low unit price products in Tier III cities and rural areas. We are also focusing on management of logistics as dairy supply chain requires varied temperature to store and transport.

Q8.  PMF has brands like Gowardhan, Go, Pride of Cows and Topp Up. Which brand are you going to invest in, to the maximum, in the coming quarters?

We believe that our brands are one of our key strengths and that our stakeholders associate our brands with trusted and superior quality. We undertake extensive consumer and market research to gauge the various aspects of a product and plan our marketing campaigns. On the basis of our product and market based research studies, which we conduct on an ongoing basis , we intend to continue to enhance the brand recall of our products through strategic branding initiatives, including the use of social media and consumer engagement programs.

[PAGE BREAK]

Q1.  As a CFO of Pincon Spirit Ltd., can you please elaborate on your top three key priorities during next three years?  

 A1. Top three key priorities during the next three years are:

1.     Increase in profitability by way of cost control measures.
2.     Steering the company to have PAN India presence.
3.     Increase the equity base for lesser dependence on external debt portfolio.

 

Q2. 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 also the investors, having parked their money in your company's stocks?

 A2. Market penetration through innovative placing of product range at entry level price band, along with products in mid level to regular pricing segments; in other words we could successfully place our products in the entire value chain.

 This paid off in enabling the company to have a robust market presence in a short time span, resulting into Pincon Spirit being one of the fastest growing corporate houses in India.

We, due to our presence in the entire value chain, have been able to be a risk mitigated business entity, with lesser susceptibility to market volatility, which is definitely a very positive comfort factor for the investors.   

Q3.  As a CFO what are the key challenges faced by you in achieving the company vision and mission or objectives? How did you really overcome it?

A3. Retaining the pace of upward business growth of the company; business expansion across different states of the country; fund augmentation for supporting high level of business growth, etc., were the major challenges faced by us. We could overcome these with positive results due to having the right people at the right place coupled with perfectly high spirited team work. 

Q4. How do you see your company going ahead, in the wake of the recent global crisis, including that being faced by the UK, China and also some of the other European countries? How have you planned to steer clear of all these issues and take your company ahead?

A4. Indian economy is one of the fastest growing economies in the world. Having widespread base in agricultural and industrial sectors, and also considering the demographic profile of India, it is less susceptible to the global crisis faced by UK, China and other European countries. This creates a much stable base for the business houses primarily functioning in India. We also plan our business ventures considering various socio-economic factors for business risk mitigation. All these have enabled us to steer away from any negative impact on our business due to the recent global crisis.  

Q5. We keep hearing about CEOs 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, company he/she is working for. Do you feel deprived of limelight at times? How about CFOs being faces of the companies in India in future?

 A5. I think the concern is not being deprived of limelight. CEOs are very much important for steering any company towards achieving its business goals. It is a team work, CFOs and CEOs work hand in hand for a desired result. Nowadays CFOs are also getting recognition and are not persons always remaining behind the back drop. 

Q6. Numbers are the primary things that you play with at work. People in the outside world have a feel that CFOs are the set of people who only understand numbers and are away from other aspects of life. How much is this true, upto what extent? Further what needs to be done to ensure CFOs in India get their dues? 

A6. Primarily being the finance head of a company, numbers are definitely important for CFOs. CFOs are also an important part in the decision making process of a company. In general, CFOs should be more involved in overall business process of a company along with contributing to the financial aspects.

[PAGE BREAK]

"when you have multi locational factories with multi locational operations then you have to set up the system and process in such a way that the organisation works in a professional manner. Your interference in the organisation and your interference in the system should be minimal. Your system should be such a strong system that the loopholes should be minimised. "

CFO : AJAY MAHAJAN   SHILPI CABLES

 shilpi cable

Q1.  As a CFO of Shilpi Cable Technologies Ltd., can you please elaborate on your top three key priorities ?

Ans: Basically if we look at the key priorities we can divide it into the two or three parts, 1^st we are growing at a CAGR of almost 35% from the last 4 years, and now we want to grow in the same manner in the next 2 to 3 years. For growing in the same manner we have to coordinate and discuss with the managing director and CEO to chalk out new ways of growth, whether to add more business; add more products in our portfolio; and also to ensure whether the new products are sustainable in terms of future profitability, which is one of the key priorities.

When we are thinking for expanding the business by adding new products in the portfolio or by including new business, then we have to analyse as to how the finance part for that business can be arranged. Finance has to be arranged in such a manner that the debt burden for the company is minimised. In terms of inorganic growth, like acquiring some business, we have to acquire that business with a minimum of cash and majorly in the form of stock option, which is to be converted or locked-in for a certain period in the future, so that the cash flow from the company will be minimised.

Secondly when we think of raising funds we have to analyse the international market also, because we are available not only in India, but we have business in Hong Kong, Singapore and Dubai. So we have to analyse the international market and check how effeciently we can raise the finance.

Third challenge is when you have multi locational factories with multi locational operations then you have to set up the system and process in such a way that the organisation works in a professional manner. Your interference in the organisation and your interference in the system should be minimal. Your system should be such a strong system that the loopholes should be minimised. These are the three main priorities as a CFO.

Q2. Can you highlight a strategic initiative which paid off well for your company during your tenure as a CFO?

Ans: Basically we have operations in India as well as the overseas market. In India we are into manufacturing and we are present in the various segments. Outside India we are involved in the trading activities. With new initiatives taken by the management, we are now going to set up the manufacturing factories outside India. This initiative will help us develop a good market for our product overseas.  This strategic initiative has been the highlight during my tenure.

 Q3. With Marginal Cost of Funds lending rate now in place and touted to transmit the lower interest rate faster, will your company be able to lower its cost of debt and hence overall cost of capital? 

Ans: If you look at the previous year we have tried to reduce the cost of debt through the banks. But now what we are doing is, since our market capitalisation was very small in the previous year and since it has now increased, is that we will be going to the NCD market, Bond market and we will try to reduce the cost of borrowing. Currently the cost of debt is in the range of 11% and we do have foreign currency borrowing in USD.

Q4.  With commodities prices having bottomed out considerably and the prices of Copper and Aluminium expected to firm up in coming days, how do you see such commodity prices impacting profitability of Shilpi Cables? How do you manage risk emanating from volatility in raw material prices?

Ans: No, that will not impact the company’s profitability because we are hedging our position with our buyers. All the contracts are back to back contracts. So whatever the movement is in the commodity price we pass it on to our customers.

Q5. High tech electronics, energy storage solutions and diversified industrial products are three growth pillars for your Company. Can you please throw some light on the same and how much growth you see in each of the segment?

Ans: So if you are asking about the segment wise growth of our company, it comprises the whole segment. We can look at the telecom segment. One pillar is the telecom segment. Almost 15% to 20% revenue comes from the telecom segment. Now what we have done is, we have set up a joint venture for manufacturing antennas, so we think with the addition of this product our growth in Telecom segment will continue over the next 2 to 3 years.

Second is our automotive segment. We are manufacturing the cables and harness for the automotive segment. Till date we were in the two wheelers segment, now we have got the approval from the four wheelers segment like TATA and Mahindra & Mahindra. After getting the approval from four wheelers segment our growth for the automotive segment will continue owing to our foray into the four wheelers segment.   Let me explain. Till now I was operating in two wheeler segment which is only 40 per cent of the automotive segment. The remaining 60 per cent is the four wheeler segment of automotive. Now I will be catering to the larger segment i.e four wheeler segment and hence we are confident of growing at a healthy rate in automotive segment as well. The growth will be tremendous because we will be entering the four wheeler segment for the first time. For two wheeler segment we will grow at 10 to 15 per cent.

We have been growing at a CAGR of 35 per cent for last four years and we believe this growth story will continue for next three years.

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: We always want that there should be no deviation or no lapse of various statutory compliances or concerns. With lot of changes happening in the company act and in the corporate governance, to keep with the company’s image, corporate governance was the key for me, so as to ensure that I don’t miss out on any of the statutory requirements; as also periodic forecasting and profitability analysis, are the areas of concern, when you deal with investors after your company gets listed, to ensure that you are following your vision and mission statement".

CFO :    Nilesh Panpaliya    Solar Industries

Solar Industries Ltd.

Q1. What are the top three priorities?

Ans:

 First priority is to preserve margins and there is always a very strong focus on working capital management.

Secondly, now with extensive global operations and specially the way things are being moving globally, financial risk management becomes a priority. Typically forex exposure management vis-a- vis all the countries is critical. The challenge for a company like us is to continuously ensure that your balance sheet is not affected because of currency variation as every time you have some or the other forex transaction, i.e., either you have to give or pay to other countries. Let’s say you expect to receive proceeds in USD and tomorrow if the local currency will depreciate than you will get less USD, and similarly when you have to pay in USD then you are supposed to pay more. Earlier there was symmetry, in that all the currencies used to follow the same pattern, but now you find that the Indian rupee is getting stronger and the other currencies are depreciating, which is a major challenge.

Thirdly, to forecast precisely the cash projections, and to ensure minimal cost of funds.

Q2. Can you please highlight a strategic initiative which paid off well for your company during your tenure as a CFO where you have contributed to the strategy as a CFO and which has eventually helped your company?

Ans:  When we started to grow, the first hurdle was to get sufficient funds for the company in that particular year so that we would be able to spread across India. We are typically into manufacturing of bulk explosives and we wanted to set up a bulk plant so that was a very big project. People have been saying that the equity is the costliest source of fund, but for me I believe that if raised with a perfect premium then probably equity will become the cheapest source of fund, if we only serve on the face value. So basically I was instrumental in making the company listed. Further I ensured that we have the minimal cost of funds which I successfully achieved. Another big challenge was to have a very efficient working capital cycle which was taken care of very effectively.

Another major area of focus was - to have a right credit rating. That step was instrumental. Our credit rating is done by CRISIL, and we have the top most rating for short term funds which have a positive outlook; and of course we took investor relations to a different level. These are the key achievements as a CFO.

Q4.What are the key challenges faced by you towards achieving the company’s vision and mission as a CFO?

Ans: We always want that there should be no deviation or no lapse of various statutory compliances or concerns. With lot of changes happening in the company act and in the corporate governance, to keep with the company’s image, corporate governance was the key for me, so as to ensure that I don’t miss out on any of the statutory requirements; as also periodic forecasting and profitability analysis, are the areas of concern, when you deal with investors after your company gets listed, to ensure that you are following your vision and mission statement. Another important area posing as a challenge is banking relationship, so what I did was instead of adopting a consortium moved on to multiple banking option. Banks are more cost efficient rather than a consortium, so we mortgaged all our assets to the trustee, and depending on the exposure we used to give them the security. Multiple banking phenomenon, which was adopted for the first time here in this part of Central India, and even the trustee criterion, the other important thing being real time information, like inventories and debtors, were all the challenges being faced by us. We have the system in place so that, when you want perfect working capital cycle you should have real time information on your debtors and inventories, and the overall process was very challenging.

Q5.  Has the Brexit event made any difference, any exposure to that currency, Pound?

Ans: No we have no exposure to the Pound; our total exposure is to USD.

Q6. With Marginal cost of funds lending rate now in place and touted to transmit the lower interest rate faster, is your company able to lower its cost of capital?; and also please explain your currency risk managing strategy, that will help make cash flow more predictable.

Ans:  When you talk about our cost of funds, our debt equity ratio is just 0.23, and our total cost of funds is very low, and we always have taken a forward cover for currency risk, ensuring that we have a targeted cost of fund, so that we extract basic cost which we require to pay for drawing this foreign currency plus the spread, and take a forward cover. Even if the domestic rates are dipping they are still much higher compared to our cost of fund. Example: if the domestic rate is 11% then the company’s cost of fund is nearly 7 to7.5%. Basically we borrow funds say at a rate of 4% and we take 3 to 4% forward cover, and our maximum foreign loan is in USD. So everything is covered by forward contract and also we are a net exporter; whenever we resort to a small import, definitely it has exports to compensate for upside or downside in the currency, implying eventually that our exposure is totally covered.

Q6. Cartilage and Bulk explorers are the key growth drivers for your company. Do you see similar trend continuing or other products going faster in upcoming quarter? Also can you please highlight that which product gives you the highest margin and what is your product portfolio’s strategy to maximise the revenue?

Ans: We have explorers and an initiating system. In explorers we have civilian explorers and military explorers, and then initiating system is for initiating the explorers. Now the entire demand of bulk explorers comes from large open class mines like Coal India and others. Coal India is going to double its coal production by 2022, definitely our product sales will also be growing, and it will be more than double because we have around 24% market share, and we are also trying to grab maximum growth, which is actually happening because in explosive domain we are the only company which can do capacity expansion; and secondly there is a good growth for infrastructure like the road construction is now going on at the rate of 27 km/day. So this gives us a very big opportunity, and also housing projects require cements and steel, lime stone and iron ore, both of which require explosives. These are the areas where we have been growing and look pretty well. Now after 2 years of the patent government, and another 6 months to go, we will have lot of action in these areas. As it is explosives is the first thing which can sense the growth in the economy, because whenever an economy starts growing, it requires explosives.   We are expecting a growth of 25%. Also we are focusing on exports and out of the total exports happening from India our exports are 65%. We are also setting a new plant in South Africa, and we already have a plant in Nigeria. So this is our strategy to increase our revenue. For this year we have got an order of Rs 80 crore for supply of defense explosives.  Govt. is taking effective steps for opening up new private sector coal mines and other mines also, and definitely our company’s growth will be commendable.

Q7. How has the make in India programme helped your company so far, and would you think that it will impact the prospect of business?

Ans: The Govt. has launched Make in India programme. It is deigned typically for the defense products, so the policies and clear cut guidelines are still awaited but our company has already done a capex of almost 225 core, and have formulated various ingredients as import substitutes, like molecules explosives, and we are into high energy explosives like HNI, RDX, etc.  We have also entered into emanation filling, which are consumable defense products, and the country always falls short of all these things, which are import dependent. We have an order of Rs 80 core which will eventually grow, because I was reading in TOI – India is the 2^nd largest importer of arms, and it is a big opportunity for us that we are making these products; the country will also be benefitted, because the major outflow is the foreign exchange, and the money will remain in India.

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Quote “ Our Company’s vision is “to become most preferred global brand in product segments wherein we operate”. Obviously to achieve this, one needs best talent, robust business processes and globally recognised standards. I think getting all these working well together in a rapidly changing business environment has been challenging. Now after a couple of years of focused work, we can say the Company has started achieving satisfactory results on the same.”

CFO : NEERAJ JAIN   ; Cosmo Films

Q1.  As a CFO of Cosmo Films Ltd., can you please elaborate on your top three priorities? 

Top three priorities are:

• Profitability enhancement, whether by way of improving margins or cost rationalisation initiatives

• Managing business risks including forex, operational and strategic in rapidly changing global environment

• Use of technology to improve business processes and implement best practices

Q2. Can you highlight a strategic initiative which paid of well for your company during your tenure as a CFO?

Focus on value added films and parallel rationalisation of cost base are twin strategic initiatives which paid of well for us. Today with focus on value added films and product development, we are a Company known for providing a speciality solution for packaging and this is going to be the key differentiating factor over the years to come.

Q3.  As a CFO what are the key challenges faced by yourself in achieving the company vision and mission or objectives ? 

Our Company’s vision is “to become most preferred global brand in product segments wherein we operate”. Obviously to achieve this, one needs best talent, robust business processes and globally recognised standards. I think getting all these working well together in a rapidly changing business environment has been challenging. Now after a couple of years of focused work, we can say the Company has started achieving satisfactory results on the same.

Q4. With events like Brexit the volatility in currency markets can impact profit margins. For your company being an exporter, weakening INR is good news. How do you manage currency risks and what is your hedging cost if any? 

The Company has in place risk management framework for managing business risks including foreign currency risks. Since we have been running at an insignificant level of net GBP/Euro exposure due to hedges taken/natural hedge, consequently Brexit and GBP depreciation has had an insignificant immediate impact on the Company. Further, Company’s export business is fairly diversified (we export to more than 80 countries in different parts of the world) alongwith almost half of Company’s sales coming from domestic market, hence dependence on a single country is minimal.

We are a net foreign exchange earning Company, hence weak INR would result in better export margins; although it may have some impact on foreign currency loans. On net basis, it should be beneficial for the Company in medium to long term.

We have been using different derivative options and forward covers to manage foreign currency risks for which average cost is between 5%-6% pa.

Q5. Where lies the maximum margin for your company, in Packaging, Lamination, Label or Industrial? What is your capacity utilisation right now and is current demand both global and domestic helping company operate at full capacity? Or is the growth in demand suggesting that new capacity will be required to be built up? 

The Company has a significant Value Add business. Most of the products under Lamination and Label categories are Value Add business, which is a high margin business.

We have been running almost up to full capacity utilisation. The growing demand in domestic market has been a key factor for the industry to grow at much higher rate compared to GDP growth rate during last one decade. Considering low packaged food penetration in India and rising personal disposable income, the industry is estimated to grow fast. Further, investment in organised retail industry and change in pack format from rigid to flexible are going to further add on to the demand level. There are researches projecting Indian BOPP (Biaxially oriented polypropylene film)  Industry to lead the BOPP demand growth in the world in coming years. Of course, the industry needs to add new capacity in coming years to support the growing demand.

Q6 .  Can you help us quantify the benefits your company may receive thanks to the Make in India initiative by the current government and also can you please comment on how is digitisation helping you grow? 

The new initiatives by the current government, whether Make in India or GST or skills development would benefit the corporate world. At this stage, it may be difficult to quantify the same for Cosmo Films.

Digitisation is the need of the day and Cosmo Films is among the first in the industry to utilise digitisation for managing growth. We are using ERP since many years to manage business processes and have also implanted several new initiatives such as CRM to further utilise digitisation.

Neeraj Jain

Chief Financial Officer

Cosmo Films Limited

"Given the state of the global economy and the volatility in the financial and commodities markets, maintaining a low debt level is a major challenge. Also maintaining equilibrium in cash flow is another challenge and we have to keep a close check on collections/receivables."

CFO :  Ajay Mahajan  Arihant Superstructures 

Q1.  As a CFO of Arihant Superstructures Limited can you please elaborate on your top three priorities? 

At Arihant, we follow the philosophy of ‘Factory of Homes,’ and our departments are streamlined to ensure our projects are both cost & time effective. Our first commitment is always towards our customer and to make sure that we deliver our projects on time. That said, my top priority is to ensure easy flow of funds to the engineering department so that all our construction projects are completed smoothly. My second priority is to maintain the debt levels, with no more than a 25% increase on the existing debt levels on a year-on-year basis. While my third priority is to monitor the cost and time schedule of projects to keep costs as low as possible without compromising on the quality.

Q2. Can you highlight a strategic initiative which paid of well for your company during your tenure as a CFO?

Yes, there have been several initiatives that have worked for us. All of our projects are done in phases, as this reduces the project lifecycle, and our focus is on delivering the product without delays to the customer. We also redesign our projects according to the location, and prices are set accordingly, which has helped increase sales. All our under-construction projects are monitored periodically to keep costs from escalating, which has helped us maintain EBITDA margins.

 Q3. What are the key challenges faced by yourself as a CFO of Arihant Superstructures Limited?

Given the state of the global economy and the volatility in the financial and commodities markets, maintaining a low debt level is a major challenge. Also maintaining equilibrium in cash flow is another challenge and we have to keep a close check on collections/receivables.


Q4. With Marginal Cost of Funds lending rate now in place and touted to transmit the lower interest rate faster, is your company able to lower its cost of capital?  

At Arihant, we have managed to keep our Weighted Average Cost of Capital (WACC) below 13%. We also expect interest rates to fall further and once that happens we hope to further reduce our WACC.

Q5. You have concentrated on markets in Mumbai (Maharashtra) and Jodhpur (Rajasthan). Any other markets you will be concentrating on? 

Our main focus is on Navi Mumbai and Jodhpur, where we are also market-leaders. There are no plans in the immediate future to expand into other locations. We have several projects underway in Navi Mumbai and Jodhpur and our priority is to finish these on time.

 
Q6. You have several projects going on right now. Can you throw some light on the execution risks involved and cost overruns due to same?

A.  One of the biggest risks is the delay in execution of the project, which generally involves smooth flow of funds to projects. We have tied-up with several banks to make up for fund requirements, if any. We have also outsourced the EPC activity to reputed contractors. All this ensures that we maintain the quality of the product as well as deliver on time. We also have an in-house department which monitors the construction schedule. We have also hired a PMC agency which reports directly to the chairman, with updates on the status and quality of the project. Also, our projects are duly insured in the event of a natural disaster or accidents.


Q7.  What is your take on growth opportunities in affordable housing segment and what percentage of your revenues come from affordable housing?  What sort of support are you getting from government to bring affordable housing to the needy? 

Affordable Housing segment will witness the maximum growth in commercial terms for Real Estate firms. This is the space where there are a maximum number of end users, who also are first time buyers. Thus we also shoulder the responsibility of ensuring that the product is not just a building unit but a home for these customers. Government focus is on EWS (Economically Weaker Section) when they talk about “Housing for All by 2022”. The Real Estate (Regulation & Development) Act, 2016 will ensure a level playing field.

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CFO :  Manish Mahajan   PPAP Automotive

Quote :

" the key challenges that we are facing today are

 

• Improving the efficiency of returns on financial resources

• Keep our exchange rate based exposure at minimum

Building up an organisation which supports each and every operation with feedback on improvement areas."

Questionnaire for PPAP Automotive Limited 

Q1.   At PPAP Automotive Limited, what are your top three priorities? 

 

• Exploring Economically viable growth opportunities

 

We are today very comfortably placed as regards our financial position with our Debt Equity Ratio at 0.35. Our profitability has also seen a marked improvement over the last 3 years. The challenge now is to productively grow the organisation. Any growth decision entails risk and we are focused on undertaking only economically viable growth initiatives.

 

• Continuing the drive to improve internal efficiencies

 

The improvement in profitability has been achieved due to the company wide drive to increase efficiency across all the departments. We are focusing on sustenance as well as identifying new areas where we can improve our efficiencies.

 

• Digitising the operations

 

The next phase of improving efficiency will be driven by digitising the various aspects of operations. We have identified various areas where we can further improve the risk as well as improve the efficiency.

Q2.   What are the key challenges faced by yourself as a CFO of PPAP Automotive Limited? 

In line with the above priorities, the key challenges that we are facing today are

Improving the efficiency of returns on financial resource 

Keep our exchange rate based exposure at minimum

Building up an organisation which supports each and every operation with feedback on improvement areas.

Q3.   Can you help us with an example on any strategy execution you were closely involved with during your tenure as a CFO, which eventually helped the company grow and obtain its objective?

In FY14, PPAP was facing a serious challenge of being in the midst of a significant capex programme while the profitability in the previous year had hit all-time lows. We went ahead with making strong changes in the organisation.

We removed the loss making fringe businesses (via a slump sale process), set up our plant at Pathredi for Honda, invested in our JV, and lastly also carried out the change of name of our company from earlier “Precision Pipes and Profiles Co Ltd” to the current “PPAP Automotive Ltd”.

These steps taken by us at that time have borne fruits.

Q4. Is your company planning to expand its product base? Can you please explain how the new product launches can help contribute to sales volumes and profitability? What is the target market share you intend to achieve with new and existing products? 

We are constantly working towards expanding our product base and our customer portfolio. Our endeavour is to provide customers with a superior value added solution for their vehicles. In PPAP, we were resorting to Plastic based Sealing System since inception. Recently, we have set up a JV Company with our technology partners to expand into EPDM based Automotive sealing parts. We are constantly interacting with the customers for new avenues where we can add value for them. We are also looking at expanding the target audience by examining opportunities in the Non Passenger Vehicle segment viz. LCV, Railways, etc.

We are an OEM company and deliver our products to car manufacturers in the country. Therefore, the sales volume is dependent on the business they generate. We basically work very closely with our customers and try to give them a superior product with superior value, with an edge over competition.

 Q5. PPAP automotive has given dividends in FY16 after it declared dividends in FY12. The company has been inconsistent so far when it comes to dividends. How do you see the dividend policy shaping  up for your company over the  coming years? 

The return to shareholders is an important consideration by the board of directors of the company. However, the priority is to ensure the health of the company before any payouts to any shareholders are made.

While we were consistently giving dividends till FY12, a conscious decision in FY13 of stopping the dividend was taken since we wanted to conserve the financial resources to meet the requirements of the operations of the company.

Considering the progress of the company’s financial requirements, the board of directors has recommended dividend from FY15 onwards. Going forward the Board will follow a consistent dividend policy.

Q6. What essential steps are being taken to improve the net profit margin as the historical data suggests unpredictable margins, even though the margins have improved in recent times?

Our margins have been consistently improving since FY13. The EBITDA margin has improved from 7.24% in FY13 to 17.20% in FY16. We are working on multiple fronts towards protecting the already achieved levels and are looking at further improvement

 

• Improving internal operating efficiencies by focusing on elimination of waste and improving the processes.

• Reducing the exchange rate risks through focus on localisation

 

As a result, our raw material costs as a percent of sales has come down from 60% in FY13 to under 53% in FY16. Other expenses which cover elements like power, freight, administrative overheads etc have come down from 16.56% to 14.32% over this period.

Q7.  Will you be able to bring down your overall cost of capital?  Is MCLR helping you bring down cost of capital? 

Our overall cost of capital has been coming down consistently and MCLR is expected to bring down the same further as the MCLR based rates are lower than the bank base rates. We are continuously exploring other opportunities to reduce our cost of capital.

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“. As a chief opportunity officer-successful CFOs build a team of analysts, typically found in the financial planning and analysis (“FP&A”) function, which builds a solid fact base around the company’s businesses and its markets. Good CFOs use this fact base as their primary tool to facilitate strategic conversations with the rest of the management team—including the CEO, head of sales, head of operations, and business unit leaders. They consistently identify profit growth opportunities and partner with the rest of the management team to develop execution plans to drive those profit improvements into the P&L account.”

CFO ; Pradeep Gupta  ; Jagson International Limited

Q1.  As a finance head of Jagson International Limited , can you please elaborate on your top three priorities ? 

Ans: CFOs and their overall finance departments are trying to find a balance for financial priorities in 2016. The main priorities of 2016 include these areas- strategic planning, budgeting, performance management, business intelligence, periodic forecasting, profitability analysis and risk management.

1.     As a chief opportunity officer-successful CFOs build a team of analysts, typically found in the financial planning and analysis (“FP&A”) function, which builds a solid fact base around the company’s businesses and its markets. Good CFOs use this fact base as their primary tool to facilitate strategic conversations with the rest of the management team—including the CEO, head of sales, head of operations, and business unit leaders. They consistently identify profit growth opportunities and partner with the rest of the management team to develop execution plans to drive those profit improvements into the P&L account.

2.     As a chief investment officer- In this role, the CFO provides financial tools and analysis to evaluate various investment opportunities, whether they are capital investments “bubbled up” from the business or acquisition opportunities in the marketplace. The CFO is in a unique position to provide useful context and compare one investment opportunity vs. another to ensure the highest return.

3.     As a chief metrics officer- The CFO can deliver the critical data that empowers management and staff to make better day-to-day business decisions. Providing the right metrics and soliciting a conversation around how the various parts of the business can influence those metrics, can drive better business performance.

Q2. Can you highlight a strategic initiative which paid of well for your company during your tenure?

I am involved with the Jagson Group of Companies since 1999 and for the last 15 years I have been independently looking after the major offshore drilling and operation, which has shown tremendous improvement. The new generation approach has enabled me to attain the desired results.

I’m the regular member of the Petrotech and CII and have gained excellent experience and mastery in offshore oil exploration and drilling industry. The youngest entrepreneurs in this oil field are in the country, and their efforts have been recognised by the offshore industry platform oceantex, being duly felicitated with the "Young Entrepreneur award" in 2008. I’m closely connected with the group's other business interests, like outlet of petroleum products in Kyrgyzstan, a CIS country.

Q3.  With Marginal Cost of Funds lending rate now in place and touted to transmit the lower interest rate faster, is Jagson International Ltd., able to lower its cost of capital?  

It all depends on the market flow and capital is driving the oil markets and it enables bad behaviour by producers. That is why oil prices will stay low. The oil-price rally that began in February is over. Prices rose from $26 per barrel to $51 by early June and are now below $46. If they fall through $40, the next likely support level is at $36 per barrel.

Most people think that fundamentals–supply and demand–drive the oil market but capital drives the market and oil prices.

More than anything, rig count reflects capital flow. Many believe that oil prices drive the rig count but it is really capital flow that drives rig count and production and that affects oil prices.

When oil prices fall and oil-price volatility increases, the floodgates of capital open. Every genius-investor wants to buy low and sell high. Rig count rises with fresh capital, production increases, and eventually oil prices fall. 

Q4.  What is your take on GST and how do you think the uniform tax code will affect your business? 

Ans: GST is a wise move to stimulate growth. Once such a tax is established, the rate tends to grow and enables more government spending.

But in India the states already levy their own sales taxes, and use the web of bureaucracy to protect local producers from competition. This local protectionism has balkanised the Indian market, preventing the best companies from achieving economies of scale. 

Replacing these taxes with a single GST will create a national market for the first time. The National Council of Applied Economic Research, an independent think tank, estimates the reform will add 1.7% to GDP. Also lower compliance costs should reduce evasion and bring in more revenue, which will be shared with the states.

Q5.  How do you manage volatility in forex and cash flows in general? 

Increased volatility in supply and demand has created new challenges for the chief financial officer. Research shows that commodity swings, unpredictable shortages, and demand fluctuations can tie up working capital, reduce revenue, constrain cash flow, and cut profit, all while complicating the budgeting process. These conditions also raise risks of delivery failures, customer dissatisfaction, and even regulatory noncompliance. Not surprisingly, finding new ways to manage volatility has become a priority for CFOs. Inventory optimisation lies at the heart of a data-driven, operational solution that analytics' centres of excellence and global business service organisations can foster with the CFO’s sponsorship.

As per our experience, the CFO should focus on three macro areas: cash and P&L; budgeting and planning; and risk management to manage the volatility and cash flows in general- 

Cash and P&L management: Suboptimal inventory levels are especially damaging during volatile periods because they amplify swings in financial performance and make it much more “noisy” and difficult to manage. Research has found that inefficient inventory practices can drive up working capital needs by 5-10 percent. Excess inventories can reduce cash flow by 4-5 percent, while frequent stock-outs can reduce sales by 2-3 percent. All of these effects can cut profit materially and are accentuated by volatility.

Budgeting and planning: Increased volatility leads to ineffective or inaccurate pricing and inconsistent availability of goods, leading to incorrect forecasting and budgeting. The combination of fluctuating demand, shorter product cycles, and changes in commodity markets can force companies to make frequent—even monthly—changes in sales, operations, and resource-allocation plans. Systematic stock-outs or write-offs of obsolete inventory are another cause of large swings in actual performance versus a pre-designed plan. Finally, incorrect assumptions regarding working capital needs (stock, replenishment, obsolescence) cause suboptimal investment in other areas.

Risk management: While supply chain managers must ensure goods are shipped or delivered on schedule, it is in the CFO’s interest to reduce the risk of these shipments translating into revenue at different times — or prices—than expected. The role of inventory in fulfilling demand is well understood, but the magnitude of the challenge is now such that CFOs pay greater attention.

Q6 .  Can you highlight your company's expansion plan? Also at what rate are you expecting to grow in various business segments you are currently operational in? 

We are planning to expand, but, there is no timeline to it. We are always looking for the right opportunity  to come our way. 

There may be many more players to join in the same segment as the prices are low and I think it’s a good time for an investment. 

While on the other side we all have seen the Prime Minister’s start up India movement is happening and it will obviously create startups in our segment. Apart from this point, Govt. of India’s initiative towards GST will enable good tractions towards our business of interest.