Ajay Seth wins in consistent liquidity management large companies category
Sunny Sen July 5, 2011
The mood at the Delhi headquarters of Maruti Suzuki India is relaxed. Most of the staff is away on an extended weekend, because of biannual maintenance work on the premises.
Ajay Seth, Chief Financial Officer, just back from a holiday in Greece and Turkey, is in an expansive mood. He recalls how, in 1976, he decided to study commerce, although science was the most popular subject at the time.
"Commerce was not trendy then, but I was good with numbers," he says.
Soon afterwards, he decided to become a chartered accountant. He started his career in 1983 at Eicher Motors as Assistant Manager (finance).
Stints at JCB and Toyota followed, before Seth joined Maruti in April 2005. At the time, things were not as smooth as they are now.
Seth says he believes true team effort translates into maximum returns. So brainstorming is common, resulting in many ideas that are eventually implemented. One such idea was to invest in markets where returns are high, and risks minimal.
So the team would weigh mutual fund options, typically fixed maturity plans. Last year, this strategy enabled Seth to increase returns by around Rs 50 crore, or 0.75 per cent on cash of about Rs 7,000 crore. Another brainstorming session focused on improving tax efficiency, and on borrowing funds in ways that would save on cost.
On the treasury side, Seth considered buyer's credit, which lets the company borrow more cheaply. For example, the interest rate on a loan from an Indian bank may be 9 per cent, but borrowing in yen could reduce the interest payout to 7 per cent. "The company is so big that you tend to miss out on certain things if you don't brainstorm," says Seth.
However, over the same period, the company's EBITDA margin has fallen, from 15 per cent in 2005/06 to 10.2 per cent in 2009/10. Seth blames this on currency fluctuations. "If the exchange rate was at the 2007/08 level, our margins would have been six percentage points higher," he says. But he has taken this as an opportunity to learn, and is focusing on improving localisation. His target is to reduce imports by 50-60 per cent in three years. Currently, Maruti's imports are worth Rs 6,000-7,000 crore.
Seth says the economic downturn was a massive opportunity for Maruti. "That's when we created our niche in the rural market," he says. A quarter of Maruti's revenues are from rural sales - a remarkable jump from three to four per cent before the downturn.
Maruti has cash reserves of Rs 7,000 crore, of which Rs 4,000 crore will be used for capital expenses. Seth says the only way to stay ahead is to invest. "The competition is going to get more and more intense, and the market is getting more cluttered, with so many players," he says.