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Preparing For A V-Shaped Recovery?
CFOs Anurag Mantri of Jindal Stainless and Dharmender Tuteja of Dalmia Bharat Group discuss the preparation for a V-Shaped recovery, the non-compromisable values and look back on their immediate reaction to the pandemic.
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As nation-wide cases pale in comparison to the peak of the gripping second wave of infections, people, companies and optimism continue to collect in numbers despite naysayers warning a third wave. Wishful thinking and a steady hope for recovery dominate collective consciousness. And CFOs are no different. Speaking to BW Businessworld, Anurag Mantri, Group CFO at Jindal Stainless and Dharmender Tuteja, Chief Financial Officer at Dalmia Bharat Group unpack their immediate covid reactions, manpower changes, the technological impetus and the factors they didn’t compromise on.
UBS Securities India, a Swiss brokerage firm predicts that the state-wise lockdowns in the months of April and May has led to an economy contraction of 12 percent in the June quarter as opposed to 2020 June quarter of 23.9 per cent. It goes on further to say that the contraction will signal the lack of a V-shaped recovery due to weak consumer sentiments and impending worries. Concerns over an uncertain global recovery is not limited to the securities firm as G20 finance ministers expressed concerns over rising new virus variants and uneven pace of vaccination in developing countries on Saturday in Venice.
While global recovery and an impending uncertainty looms over, CFOs have taken cautionary steps to prepare for all eventualities. The pandemic has served as a contingency planning exercise and has put blinders on organizations to focus on immediate stability and adjustment to ensure business continuity.
Near-Term Business Needs
Discussing business continuity, Jindal’s Mantri explained, “We had to keep the organization wheel moving, so we prioritised three things- One, was looking after the immediate safety and well-being of our employees. Two, stabilisation of the business and lastly, making the organization ready for recovery. We were hopeful that after such a long pandemic, the recovery would happen in a V-shaped manner. However, we didn’t know which sector would first open up so we had to be flexible and agile.”
Specifying numbers, Dalmia group’s CFO Tuteja pinpoints, “We were able to reduce working capital by about 750 crores despite challenges, which is close to 45 percent of gross current assets from the working capital and that was because of a focused approach towards prioritizing payments, keeping inventory norms, data serialization, etc.” He continues, “In terms of cost reduction, the finance team became the fulcrum of all financial decision-making support. We renegotiated and reset the terms, shifted to repo rate loans which reduced cost by 1.7 percent. Tax costs were analysed and we shifted to a new tax regime wherever it made sense. And of these measures reflected when the industry de-grew to a negative growth of 7 percent last year, our turnover increased by 9 percent. Our vector margins increased from 22 percent last year to 26 percent this year and we were able to reduce the debt by 2200 crores. As the saying goes, never let a crisis go to waste, this time we were able to translate that in actual terms.”
Manufactures such as Jindal report that while debt grew by 5 percent from March to September’20, the subsequent period from September’20 to June’21 saw a debt reduction of 33 percent due to prudent cash utilisation. Paying off near term instalments, the CFO explained how the company prepared to use incoming cash for capex and increasing product range ahead of surging local demand as well as high quality international supplies. He explains how stability was treated with cash conservation by prioritising liquidity and cash working cycle. Debtors gained cash incentives and creditors were negotiated with for deferment of payments during the complete lockdown and the company aimed to maintain a lean supply chain, adaptable to whichever sector open up first.
Similarly, the Dalmia group CFO explained how P&L items were revisited individually and objective based discounts for customers, stricter logistics cost, smarter packaging and a shift to greener fuels gained precedence. However, one of the biggest organisational changes as he perceives was the shift of the forecasting cycle- from an annual budgeting and monthly financial review to that of a quarterly budgeting and weekly financial reviews.
While the pandemic wreaked havoc of what people and companies can do and cannot do, organisations have drawn hard lines on what they need. Experiencing a limited manpower to deal with a full capacity during the second wave, Mantri explains that agility and ESG remained as top priorities while people grew flexible around technologies. Speaking on spends that weren't compromised, Mantri elucidates, "What we didn't compromise on is ESG. This helped us to be ready in the second wave to supply oxygen, previously we never produced medical oxygen and ours was industrial oxygen captive for plant. This was the societal and environmental aspect.” Jindal Stainless was one of the corporate players who supplied medical oxygen during the distressed periods of the second wave as per Government directives. Mantri goes on to explain that all stakeholders whether it was the nearby community or their employees, all of them were communicated to and investor relations activities and local CSR activities continued undisturbed to maintain the company’s ESG focus.
Tuteja observes that investments on marketing were replenished as soon as business inflow began. He explained, “Marketing has always been prioritised as an investment and not a cost. Second is the digitalisation of processes. As much of analysis work, automation of MIS reports and agility of operations through remote applications became mainstay, it has been one of the key investments.”
Investment On Digitization And Technology
Technology for digitization has been reported by CFOs across domains and individual functions and supply chain management, sales and finance are some of the visible gainers. Tuteja observes that the Dalmia group’s switch to technology was also similar. Finance teams worked on live EBIDTA models for daily updates, forecasts donned sensitivity analyses with SAS based tools and recurring reports were automated ClickView. Top management began using dashboards to view profitability and growth improvement budgets and access information immediately. Sales, too gained new customer sales applications that streamlined processes and e-bidding and reverse auction turned supply chain around. He adds, “We’ve also been using augmented reality as well as virtual reality to remotely see and give instructions to solve the problems in Plants. Through these tools, problems are identified and solutions are given even if experts are not physically available. In the same way, the mines also use drones and excavators to improve operations.”
Mantri adds that digitization and AI help control margin costs by the rupee. “We are in a very tight margin business and we need to watch our cost at each and every process level and that's always been our target. And this cannot happen without using AI sensors and advanced digitization on both sides, in terms of the hardware as well as on the backend software with data analytics,” he surmises.
The last two waves of the pandemic has taught us that while the role of the CFO has changed from financial stewardship to becoming the true business partner to CEO in decision making with one eye on costs, it raises the more important question of whether crises such as these highlight the future CEOs. CFOs and the finance team are involved in all major areas of business transformation especially in driving cost efficiencies and managing business and litigation risk and now also in digitising the various process of businesses. While we might not know how lasting the recovery momentum is, it is evident that the role of the CFO has been recreated and reclaimed by individual CFOs who are now charting their own territory to impact their respective organisations.