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Best CFO Awards 2016-17 | Healthy Numbers Are Vital
Every small bit matters for Nitin Parekh, the finance czar at Cadila
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For Nitin Parekh, CFO of Ahmedabad-based drug maker Cadila Healthcare (or Zydus Cadila), a healthy balance sheet is a passion. When Parekh joined Cadila Healthcare in 2009, the company’s annual turnover was Rs 2,948 crore and its net profit was Rs 303 crore. While it closed the financial year 2015-16 with a net profit of Rs 1,553 crore on a turnover of Rs 9,932 crore. Its share price was Rs 36 as on 31 March 2009 and it was Rs 317 on 31 March 2016 and currently hovering around Rs 450. “This, by any standard, is an impressive track record. The capital appreciation of more than 12 times in a span of eight years, over and above dividends earned during the period,” says a proud Parekh.
Regarding the functions of a CFO, Parekh says it is the core function of a CFO to conceive, build and institutionalise a systematic way of thinking. “A CFO has to ensure that the organisation does not compromise on long-term health in its zeal to secure short-term advantage,” he says.
Cadila Healthcare, with more than $7 billion market cap and 19,500 employees, is India’s fourth largest drug maker. “Parekh’s contribution in shaping the vision for Cadila’s finance function has been important and significant,” says Chairman Pankaj Patel.
Some of the best initiatives that Parekh introduced in Cadila to achieve the company’s goals of maximising wealth of all stakeholders include formulation and implementation of a debt mix policy, a continuous improvement in capital expenditure policy and a debt-equity and debt to Ebitda multiple policy.
The debt mix policy and its strict adherence have allowed Cadila Healthcare to have very low and enviable cost of debt. The average interest cost on plain basis for 2015-16 was 1.61 per cent annually and, including the impact of foreign exchange fluctuation, the interest cost was 1.70 per cent.
Under the initiative for continuous improvement in capital expenditure plans, Cadila Healthcare had consolidated capex of about Rs 1,000 crore in 2015-16. As a group that markets its products in over 90 countries, capex is a recurring phenomenon and thus rational capital allocation process, criteria for approval of capex, authority levels for approval of capex, monitoring, and control and performance evaluation of capex are very important process parameters.
Similarly, the debt-equity and debt to Ebitda multiple policy also insulated the company from global regulatory changes and other external risks.
“It is the CFO’s job to maintain balance between the operating leverage and financial leverage and arrive at a prudent debt-equity policy, which can insulate and protect the company from any market or regulatory challenges,” Parekh adds regarding the role of a CFO. “Thus, we have a written policy on debt-equity ratio to guide us in terms of the borrowings which we can do at any point of time,” he adds.
Parekh also believes that cost control and management are very important areas for continuous improvement in operational earnings for any company.
“This is more relevant for generic pharma companies like us in view of continuous pressure on selling price of finished products. In India, we have seen that the National Pharmaceutical Pricing Authority (NPPA) has issued several price ceiling notifications to reduce prices of essential medicines.
These challenges make it imperative for the companies to continuously work on initiatives leading to cost control,” he adds.