Best CFOs winners in each of the categories
April 12, 2012
CATEGORY: Sustained Wealth Creation (Large Companies)
Brand Asian Paints has played a significant role in the company's growth. So have the distribution network and supply chain efficiency. Corporate governance and transparency have been critical: seven independent directors play an active role in the company.
We are conservative in our policies, but that does not mean that we are not aggressive in investing. When we fund projects, we don't go in for exotic instruments. We are only in debt funds for whatever surplus we have as a company. We are sensitive to working capital management. All our capex is funded through internal accruals.
Our working capital terms for the last few years have been substantial. That helped us fund operations as well as take care of future requirements. We try to balance dividend, expansion plans and growth over a period of time. We consider the environment and market, and whether we can fund plans from cash accruals. By and large, you won't find bad debts as far as we are concerned.
As told to Geetanjali Shukla
CATEGORY: Sustained Wealth Creation (Midsize Companies)
We manage 437 of our 439 stores. Only the Mumbai and New Delhi airport stores are franchises. Our model helps us operate with negative working capital. Our consumer insight has been accurate. For example, in 2008 we observed that people were looking at the price, not the product. So we brought in the Rs 35-pizza. This coincided with the slowdown. Same-store sales grew six per cent that year, when most other categories contracted. Our hub-and-spoke supply chain model saves on expenses and helps negotiate better prices. The EBITDA in 2010/11 was 17.7 per cent, and in December 2011 it was at 18.8 per cent YTD.
Inflation is a challenge. We raised prices 12 per cent in 2011/12. We have grown at a compound annual rate of 48 to 50 per cent in the last five years. We haven't passed on the full impact of inflation to customers.
We expect Dunkin' Donuts' store-level profitability at the same benchmark as Domino's Pizza - payback of three years or less.
The CFO's ability to influence decisions across the value chain is tremendous. On the cash outflows front, I keep an eye on capital allocation. Thus, amounts spent as capital expenditure, acquisitions, R&D, litigation and intellectual property management are subject to rigorous review on expected returns.
When returns are not easily quantifiable, we calibrate risk taking. Capex and R&D spends that do not meet criteria are dropped. On the M&A front, capital allocation takes into account the return on investment and ensures that the outlay on individual acquisitions is calibrated in terms of risk. We dropped projects in Latin America, West Asia and China, when they did not measure up in terms of risk.
From 2007 to 2011, the company grew by more than double its size, and still managed to reduce its consolidated debt-to-equity ratio from 0.6 per cent to 0.5 per cent. Two areas of focus played a key role in balancing leverage: one, operational cash flows and divestment of non-core assets and core investments; and two, aggressively looking at acquisitions and new investments.
In 2007, for instance, we made a strategic acquisition in Russia for our electro-mineral division, as production cost was lowest there. The finance department ensured that benefits were realised.
You need a vision, strategies for it, and a sustainable competitive advantage. Finance plays a key role. Our 25 per cent year-on-year growth is due to this.
CATEGORY Consistent Liquidity Management (Large Companies)
Mining is a challenge in India, where there is a lot of population pressure, and in Goa, where there is pressure from villages. We expect to start mining soon in Karnataka. Margin pressures are there, primarily because of regulatory costs and royalties. Our working capital management has always been focused.
For a long time, we did not borrow for this purpose, but recently we started borrowing because we have invested cash in strategic assets. Our rate of return is not that great because we think our hard-earned money should remain safe. But at the same time, we do not want to compromise on returns. So it must be the best product with little or no risk.
CATEGORY Consistent Liquidity Management (Midsize Companies)
Liquidity management is important for bringing down operating cost, especially in FMCG where consumer demand shifts erratically. In a slowdown, good liquidity management systems work like a saving device, and can help counter inflationary pressure. In terms of liquidity management, we have a robust system in place. We have set realistic norms for working capital management. On the debtor side, we operate on 100 per cent advance payment terms. As a consumer company, we make only optimum investments in fixed assets.
The CFO has to work with and within the company's strategies. And, before an acquisition, it's very important to have a financial plan for the company. We need to know what will increase profitability and what we can leverage. During the Zandu Pharma acquisition in 2008, we kept a close watch on every transaction.
In the fast-moving consumer goods business, you have to keep marketing aggressively, even when you are leading. You have to keep ploughing back profits. More than 80 per cent production comes from excise exemption zones; you have to leverage those benefits.
The prices of some materials are volatile, and that must not affect quality. Long-term engagement for procurement is better than looking for the lowest current prices. In raising prices, we have to be judicious.
CATEGORY Best CFO of an MNC
The CFO must keep majority and minority shareholders at arm's length. We pay royalties, but as a multinational company, what we get back is even more important: global best practices and the range of offerings of the parent. When you get external commercial borrowings from the parent at a favourable interest rate, it is immaterial whether you lose some to forex fluctuations. If repayment is after five years, you must not look at this year's fluctuation. You must hedge against currency fluctuation only if necessary. You have to stay vigilant and not be carried away by a boom or slowdown. A CFO must stay calm. You have to think long term and seek opportunities for top-line growth. A slowdown is a good time to trim the fat. Cash is important at such times to stay steady.
As told to Anand J.
CATEGORY Best CFO of a PSU
We invest a lot in parallel infrastructure. We are helping state governments build ports, roads and railway infrastructure.
Transparency is very important in this sector, as you deal with citizens' resources. Environmental issues must be taken care of at every step, too. Investment in these will pay off handsomely.
I try to keep fixed cost constant, and input cost at optimum level. If I increase my top line, the bottom line will also grow.
CATEGORY Best Woman CFO
To reach the top in a man's world, a woman has to work twice as hard. I moved from Pune to Singapore to Mumbai to build my career. But today, industry is quite receptive to a woman CFO. Challenges are there, but you have to overcome them by focusing on work and being a thorough professional.
NRB Bearings has been performing well. In the past year, we recruited four more women on my team. In 2011/12, revenues have grown to Rs 540 crore from Rs 467 crore last year. EBITDA is expected to grow around 20 per cent this year. We have performed consistently because of highly engineered niche products and few competitors. Our working capital cycle is down to 87 days in 2011/12 from 115 days in 2010/11 and 194 days in 2008/09, because of improved collection.
I don't just crunch numbers. In my spare time, I work to set up rural libraries. The experiment is under way at my village Sarafwadi, in Maharashtra.
The second factor is whether we can make the acquisition faster and with a better output than before. For instance, the Ssangyong integration was part of the acquisition from day one.
We like to follow this: one-third of the team should drop off once the acquisition is over, one-third should be involved in passing the baton, and the last third should be assimilated into the acquired company. The key thing is whether you look at it as an acquisition or a partnership.
We are interested in education and health care. Most of our CSR spend is in India but we also have initiatives elsewhere. For instance, after the Chile earthquake, we supported relief and rehabilitation efforts.
We sustain our programmes. I'm still in contact with a school we helped establish in Chennai in the mid-1990s. Even in difficult times, CSR is not the first activity to be curtailed. In 2009, we had a big cost management programme and, over five quarters, we improved margins by 410 basis points. Even then, we stayed committed to CSR.
As told to G. Seetharaman