Date: April 28, 2011. Scene: Guido de Boer, Chief Financial Officer, United Breweries, answering queries from analysts on a conference call, soon after announcing his company's fourth quarter results.
Analyst: Why don't we see the company benefitting from the high beer consumption after the cricket World Cup win?
Guido De Boer: In general, the impact of such events on beer sales is grossly overestimated……. the real impact is of the weather. Analyst: How does that affect sales?
Guido De Boer: Summer time purchases are a bigger driver.
Date: May11, 2011. Scene: Similar. Adesh Gupta, CFO of Grasim Industries taking analysts' questions.
Analyst: Do you have any feedback to show cement demand is accelerating? Which regions?
Adesh Gupta: See if India has to grow, the infrastructure has to grow and if infrastructure grows, cement has to grow and ...
Guido De Boer and Adesh Gupta did not have their high profile bosses - Vijay Mallya and Kumar Mangalam Birla respectively - by their side when they took the above questions. Mallya and Birla were elsewhere, confident that their CFOs were more than capable of defending their companies' performance and spelling out future strategy. This was not an exception; they have stopped attending results announcements of their companies, as have many other industry heavyweights.
"The CFO is no longer just a number cruncher," says Sridhar of Pfizer. Over the years, the role of a CFO has evolved from being a bookkeeper to that of one who raises resources, meets compliance and regulatory requirements, and handles investors. "The last role broadened after 2008 (when the downturn struck)," Sridhar adds.
If the role has expanded, it has become much more challenging as well. The biggest of such challenges are the shorter business cycles. Commodity prices have become volatile, interest rates change and currency fluctuations are frequent and unpredictable. "What used to be a threeto-four year business cycle in steel, refineries or shipping has become a six-month cycle," says V. Ashok, Group CFO of Essar.
For the second year now, Business Today and YES Bank have got together to pick the best CFOs in the country - the ones who best succeeded in finding the balance between company growth and meeting shareholder expectations, while keeping input costs down during the difficult financial year of 2009/10. As was the case last year, we have several categories, but Y.M. Deosthalee, CFO of the behemoth Larsen & Toubro, emerges the overall winner.
| Trial by Jury|
The job for the jury was cut out: to pick a total of 14 winners from the top three in each category. Going by the long discussions held in New Delhi at the end of May this year, it was no easy task. Barring Akhil Gupta of Bharti Airtel, who the jury members unanimously decided deserved the award for Leverage Management, all the other choices - including that of the overall Best CFO - were announced after much debate. It was a close call between Hero Honda and Infosys for the award for Wealth Creation, between Maruti Suzuki and Jindal Power & Steel for Liquidity Management, and between the Mahindra Group and the Bharti Group for Enhancing Competitiveness through Mergers and Acquisitions.
The only category in which jury members went beyond the top three names was the Commitment to the Triple Bottom Line. Ambuja Cements, which was in the top five but never made it to the top three because of a CFO change, was eventually given the award. The final toss-up for India's Best CFO for 2009/10 was between two stalwarts: Y.M. Deosthalee of Larsen & Toubro and Akhil Gupta of Bharti Airtel.
The jury consisted of Amit Kumar, Senior President, Corporate and Institutional Banking, at YES Bank, which carried out the initial sorting of CFOs of the BT500 companies to pick likely winners; Mick Gordon, Managing Director, Synovate India, another partner that did the perception study with brokers and fund managers; Ashok Chawla, former finance secretary and now tipped to be the Competition Commission of India chief, and Renny Thomas, partner at McKinsey.
"We have consciously worked at removing risk from our businesses over the last two years," says Deosthalee. "Thus despite large variations in foreign currency and commodity markets, we have managed to maintain our operating margins."
A noticeable feature of the last two years has been that of the CEO devolving the task of protecting the company from the impact of adverse external developments to the CFO.
Policy flip-flops continue to plague infrastructure sectors such as real estate or telecom. Sometimes there is a temporary paralysis in government, and key decisions are kept pending. At other times, unexpected environmental concerns arise or the Central Bureau of Investigation starts a probe. Such things have serious financial implications for the companies involved. "Suddenly CFOs have to be very savvy about legal matters," says Praveen Sood of Hindustan Construction Company, one of whose subsidiaries, Lavasa Corporation, is losing Rs 1.5 crore every day, because the Union environment ministry has stopped work on its development project at Lavasa, 90 km from Pune.
In the difficult economic environment of 2009/10, with the downturn receding but leaving behind major problems, there were bigger challenges of managing leverage as well as liquidity. "A CFO is no longer raising money from retail investors, but from sophisticated institutional investors who actually look at how confident the CFO is about the future," says Ashok of Essar.
Sood of HCC says: "A CFO has to take a great deal of interest in every aspect of his company's projects, right from the time of the bidding to incorporate all possible future risks." Take Bharti Airtel, which has emerged winner in the Leverage Management category, or Maruti Suzuki India, which won in the Liquidity Management category. Bharti's strong balance sheet enabled it to tie up funding for its massive 3G and Broadband Wireless Access spectrum bids. Maruti has a strong working capital cycle management with almost 75 per cent of its components manufacturing being outsourced.
| How BT and YES Bank Chose the Best CFOs|
The financial year 2009/10 was a tough one for CFOs, with companies slowly recovering from the downturn amid fears of a relapse. This made choosing award winners a challenging task as well.
BT-YES Bank used the tested BT 500 companies - ranked by market capitalisation - as the basis for analysis. The list was sorted into three: large companies, or those with revenues of more than `2,000 crore, mid-sized companies, whose revenues were lower, and public sector units, or PSUs.
After the first round of eliminations, 37 large companies, 34 midsized ones, and 13 PSUs remained. Another 20 were listed separately for their success at mergers and acquisitions, or M&As. The study also factored in differences between sectors and peer comparisons within particular sectors.
For many key ratios, the benchmark of good performance - say, debt to equity ratio or price to earnings ratio - differs from industry to industry. For M&A, companies from the BT500 that completed mergers and acquisitions in the financial year were considered.
Market research firm Synovate stepped in next to undertake a qualitative perception-led survey of brokers and fund managers to further prune the list. They interviewed 60 top-notch brokers and fund managers, forming four panels to assess the companies.
The Sustained Wealth Creation award panel considered parameters like the ratio of market value to book value, return on equity as well as capital employed and price to earnings ratio. The Leverage Management panel analysed debt ratios such as net debt to EBIDTA (earnings before depreciation, interest, taxes and amortisation) and total debt to net worth. The panel on Liquidity Management studied current ratio, working capital cycle, etc. A second phase perception-led survey captured company developments relating to FY11, just as the first phase had analysed FY10 financial results. The final list had 12 large companies, eight mid-sized, three PSUs and three for M&As.
Disclaimer: Most of the companies may have a direct or indirect relationship with YES Bank, BT's partner in this study
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