CFO: A ‘Hot Seat Position
Gone are the days when the Chief Financial Officer of any organisation was responsible only for financial management. Today, the modern day CFO along with his conventional responsibilities also plays a paramount leadership role in the decision-making and strategy execution of the organisation
The fundamental principle of life is that change is the only constant. Change is at the core of evolution. Even the role of the Chief Financial Officer (CFO) of an organisation has made headway and advanced over the years. Back in the day, CFOs would inconspicuously operate in the background, tending to the accounting books, budgeting, financial reporting and statutory compliance. Today, the modern day CFO along with his conventional responsibilities also plays a paramount leadership role in the decision-making and strategy execution of the organisation.
If for any reason the Chief Executive Officer (CEO) suddenly tenders his or her resignation out of the blue, the CFO is most likely voted as the interim CEO by the Board of Directors. This is because in the present day and age, CFOs are most visible to the stakeholders of a company immediately after the CEO. In the course of time, there has been a rapid paradigm shift in the expectations placed on the CFO. Simply put in the words of Paul Ainsworth, an international CFO with experience at various MNCs, “While the CFO of yesterday was more of a support function, the CFO of today and of tomorrow is of strategic relevance to a company. Today’s CFOs drive the direction and success of the organisations they work in, and rightly so, given the ever-changing business environment we operate in.”
The CFO’s position demands more than the customary technical and fiduciary expertise accounting in skills. A CFO must be dynamically competent to utilise financial data to influence strategic operations and decision-making, thereby duly guiding the CEO in the right direction. A CFO is a catalyst for driving business transformation and links strategic objectives with the financial goals of the organisation. The CFO furnishes a voice of reason through effective and impactful leadership by translating complex information into concise and crisp communication.
Today’s CFO no longer possesses a narrow financial focus. He holds a strong understanding of the industry, the company’s business model and macroeconomic trends. This empowers him to offer a fresh perspective and further build on to an organisation’s durable moat by ensuring solid financial footing. The CFO plays a central role in ensuring proper capital funding of an organisation’s strategic expansion plans without compromising on capital structure. A CFO understands risk through a financial and regulatory viewpoint. Therefore, he efficiently manages risk while executing operational strategies and maintains a robust financial reporting and internal controls’ environment.
CFOs recognise key opportunities for long-term sustainable growth which enhance profitability not just through the traditional methods of cost control but by benchmarking against industry peers and regional or product line profitability analysis. According to a recent Price Waterhouse Coopers’ survey that took into consideration the CFO views of 330 finance leaders, including those from Fortune 1000 companies, revealed that CFOs will change their plans for rebuilding revenues – around 63 per cent of the respondents proposed changes in products and services; 41 per cent wanted to modify pricing; while about 36 per cent of the leaders altered their channels of distribution.
"Today, I think a CFO needs to be more of an operating CFO: someone who's using the financial data and the data of the company to help drive strategy, the allocation of capital, and the management of risks."
-Anthony Noto, CEO SoFi & former COO of Twitter
In the current scenario, the pandemic has wreaked havoc across sectors and led to massive financial losses and fallouts. As such, CFOs have had to step into the spotlight and into the thick of action as companies craft their responses to the ongoing crisis. Supply chain disruptions and cost overruns were some of the ubiquitous challenges that faced CFOs globally as revenues were under tremendous pressure. Now more than ever, CFOs are responsible for not just managing catastrophe such as the current pandemic, but also ensuring that all other divisions in the organisation are thoroughly prepared to take on any uncertainties or unanticipated black swan events that come their way. The pandemic has presented an opportunity amidst the disruption for CFOs and their respective teams to effectively leverage automated technology solutions.
"Previously, the CFO was seen as the person “doing the math” and managing accounts, now the CFO is seen as the leader that thinks about the value from first principles, working alongside these other C-level leaders."
-Wailun Chan, CFO Plastiq
Companies worldwide have been striving to scale up their online channels to mitigate the adverse economic impacts of the pandemic and CFOs are leading these digital transformation initiatives. They have served as the ‘first movers’ of digital solutions and working with functional leads to quantify the benefits and demonstrate productivity gains. More and more CFOs are now planning to increase spending on digital empowerment than any other part of the business in 2021. Workday, an American on-demand financial management and human capital management software vendor, surveyed more than 260 global CFOs to better understand the challenges they faced during the pandemic.
The survey findings showed that nearly 60 per cent of CFOs are investing in reimagining finance operations in the cloud and deploying artificial intelligence and machine learning solutions to address financial digital transformation. CFOs globally are viewing technology as a competitive differentiator that can widen the performance gap between them and their peers. Ergo, as the CFO role takes centre-stage, we speak to the power players of India’s top ranking and esteemed companies operating in diverse industries to understand their strategic objectives, outlook on the sector, impact of the second wave of the corona virus and the key challenges they have successfully faced as CFOs.
What is your outlook on the plastic products sector?
We are very bullish on the plastic products sector. If you see the global trend our country is far behind in consumption of plastic. Secondly, plastic material is recyclable so it’s good for the environment. Also, plastic is more durable, easy to transport and installation is very easy, hence it is a most preferred material for all stakeholders. We are seeing a very bright future for this sector and particularly our pipe sector because the government is fixing BIS standard for various categories of pipes which will be a game-changer for all organised players. Majority of unorganised and organised players are selling non-standard pipes which government will put on ban. This will help all the good organised companies to get a market share of these unorganised and organised players.
Astral posted 241.3 per cent jump in consolidated net profit to Rs 176.1 crore on 79.3 per cent rise in net sales to Rs 1,127.80 crore in Q4FY21 over Q4FY20. What factors have contributed the most to help report such stellar earnings?
If you see our last 10 years’ growth we are consistent in our performance. Q4 was excellent mainly because of a base effect and shift in industry from unorganise to organise. We are of the view that we will maintain our consistency in the coming years also. With continuous addition of new products range we are quite confident that we will keep growing at a decent pace. Brand Aastral is getting stronger and stronger with decentralisation of plants and spreading across geography which will help us to maintain our high-growth trajectory in the coming years.
How will contributions from value-added products and decentralization of plants aid margin expansion?
Over the last few years our focus has shifted to this area and you can see we are continuously adding new products and in the near future also we are having a pipeline to add few more new value-added products as well as new verticals in the building materials space. Recently we have added plastic water tank. It’s obvious that this move is going to help us in improving our margin profile, which you can see in the last five years’ numbers. We are constantly adding to our gross profit as well as EBIDTA margins.
What are your top three strategic objectives?
• Our next level of growth should be more of system-driven than human-driven. We are making ourselves a more technology-dependent company in the coming times.
• We want to grow our market share in all the segments in which we are engaged. We are at a very low market share compared to the opportunity available in the market, whether it is pipe, adhesives, infrastructure or tank.
• We want to add new verticals and product baskets within building materials which can take the brand Astral to a new height which will help us in maintaining consistency of our performance and higher growth.
What are your growth levers?
The biggest growth drivers will be our adhesive and tank business where Astral has just begun the journey and we are expecting huge growth in the next 3-5 years’ time. Cross-selling synergy post the merger of pipe and adhesive business will help us to grow further. The addition of new verticals and value-added products along with our entry in the eastern market with our new plant at Bhubneshwar will be the biggest growth driver in the coming years.
How do you see your growth journey in the adhesive and sealant business as you have tough competition?
We have done excellent growth double digit in adhesives in the last 6-7 years post acquisition of Resinova. We are quite confident that this business will be at a new scale in the next 5-7 years. We have done lots of hard work which has started paying us now. Our aim is to be the fastest growing company in this category as our base is still very low. We are targeting to double the top-line in the next 4-5 years.
How do you see the future of the plastic storage tank business?
This business is the natural extension to our existing product portfolio. Majority of our distributors (900) and dealers (33,000) are selling this product of other brands. If Astral offers this product to them I am sure they will be more delighted to switch to our brand. Brand Astral is the most reputed brand in the country awarded by TRA. The plastic storage tank market opportunity in India is more than Rs 5,000 crore. Even if Astral takes 5-7 per cent market share in the next five years it will be good achievement and growth for the company.
What is your outlook on the Indian natural gas sector? What impact did the second wave of Coronavirus have on the sector?
Currently, natural gas accounts for 6.3 per cent of the total energy consumption in India. The Government of India is focussed on increasing this share to 15 per cent of the energy basket. India is expected to be the largest source of energy demand growth by 2050 while the country’s primary energy demand is expected to grow more than 100 per cent. Also, in the new economic order, energy-intensive activities are expected to shift to developing countries from the developed countries. So, 15 per cent of this huge energy basket is a big positive for the natural gas sector in India as this is a crucial source of near zero-carbon energy. The first and the second wave of Coronavirus did slow the journey towards the goal of a 15 per cent share of the energy basket but directionally, we remained on the track. The gas volumes have already surpassed the pre-COVID levels and I expect that the impact of the second wave of COVID-19 will be mitigated by Q2 of FY22.
GAIL India saw Q1FY21 net profit jump 500 per cent to Rs 1,529.92 crore. Which factors have contributed the most in helping you record such a turnaround?
The major factors that helped in this quarter are the robust physical performance despite the intermittent lockdowns by various states throughout the country during the second wave of COVID-19. GAIL also did well in the gas marketing & petrochemical segments and posted better margins on the account of efficient gas trading and favourable product price realisation. The various cost reduction measures that we initiated during the last year also started showing results and added to the good profitability in this quarter.
What are your growth levers?
As I mentioned earlier, increasing the contribution of natural gas from 6.3 per cent of the energy basket to 15 per cent offers huge opportunities in itself. Being a flagship company in the sector, GAIL will be the natural beneficiary of this change. GAIL continues to rely for growth on the upcoming fertiliser plants in the short term as well as the city gas distribution (CGD) sector in the long term for growth in the natural gas offtake. For the petrochemical segment, in India, the rate of increase in demand is a bit higher than the supply and we still have a sizeable import of petrochemicals in our country. Therefore, the growth in the petrochemical segment is sustainable, provided we maintain the right pricing, product mix and margins.
What are your top three priorities as Director Finance of GAIL India?
• My first and foremost priority as Director Finance is to accelerate the future Capex so as to ensure that the company keeps growing in terms of good assets creation in all segments i.e. pipelines, petrochemicals, renewables, etc.
• My second priority is to keep GAIL’s bottom-line higher by taking various measures like efficiency in gas marketing, cost efficiency to boost the margin and efficient borrowing at reduced cost with better treasury management.
• My third topmost priority has been digitisation through a mission called ‘Digital Yatra’, which not only helped boost efficiency in the company but also, provided work-life balance to the employees.
The next generation GAIL would be a digitally-driven organisation, where most of the processes have already been digitised or is in process of being digitised and where the bots will play a vital role in the execution of routine activities, leaving high-end quality work to the individuals. I have worked relentlessly towards these goals during my entire career and especially during my tenure as Director Finance with GAIL.
Can you describe your experience as CFO (DF) at India's leading natural gas company, so far?
Also, highlight the key challenges that you faced during your tenure? This post is a privileged position that comes with a lot of responsibility. During the last couple of years, there was an extraordinary business situation prevailing in both domestic as well as international markets. The volatility in the commodity price is a big challenge facing the energy companies in our country. Therefore, internal & external borrowers’ environmental management has been important and challenging for us. Investing for future projects, payment of dividends to the shareholders, and maintaining the profitability of the company were some of the major challenges.
HFCL reported over threefold jump in its consolidated profit after tax in Q1FY22. What factors have contributed the most to help chart a turnaround?
It is a mix of long-term strategic factors as well as immediateterm activities both falling in place together, in a synchronistic manner. From the tactical standpoint, the operating environment, revenue mix as well as cost structures were far more favourable in Q1FY22 over the corresponding quarter of FY21 and this contributed to a significant spike in profit growth. Optimum utilisations across manufacturing capacities and EPC projects aided increased revenue.
From the strategic standpoint, enablers of profitable growth that we have worked passionately over the last 10-12 quarters have started to deliver handsome results now. Our revenue mix is steadily shifting towards margin accretion, be it in terms of product to project ratio or even within our product mix, the conscious effort to move up the value chain, becoming technology-centric, innovating for a better future and be selective in the EPC and turnkey projects. Going forward, we will continue to see all these factors contribute to our profitability.
Can you shed some light on your order book?
Our approach to order book is undergoing a conscious change. We are steadily expanding development of own designed products with our own IPR backed by intense research and development initiatives. We are also becoming selective on EPC projects with a sharper focus of profitability and capital efficiency. We are also mindful of deepening diversity in our order book. Diversity in terms of user industries and customers, geographic regions including overseas, product mix in terms of legacy and next-generation solutions, and so on. Our current order book stands at around Rs 6,000 crore and comprises a range of orders from telecom, defence, railways and surveillance projects. In addition, we have participated in new bids worth Rs 6,000+ crore and are confident of converting a good size of it into firm orders in due course.
HFCL currently exports optical fibre cable (OFC) and telecom products to more than 30 countries. How do you plan to expand market reach in the coming years? What are the global opportunities you are focusing on?
Our export growth strategy is twin-fold. On the one hand, we are working to deepen our presence in established geographies with prolonged OFC supplies. We plan to start supplying more products and solutions from our wider bouquet of offerings. Our EPC exposures in two overseas locations, Bangladesh and Mauritius, add to our credentials and opportunities. On the other hand, we have chalked out a detailed expansion strategy where we intend to enter into many new geographical territories. We are putting up the necessary resources towards this end and expect to raise our presence globally.
HFCL aims to generate 50 per cent of revenues from higher margin own designed products in the coming years. What steps are you taking to realise this goal?
We have invested significant attention and resources towards creating a technological niche for ourselves over the recent 4-5 years in particular. And, going forward, this momentum is slated to intensify all along. All the hard work that our research and development teams, internal as well as collaborative ones, have been putting in is strengthening our product and solutions basket with a range of next-generation offerings in line with contemporary opportunities. On the back of superior technology and cost-competitive manufacturing, our supply opportunities across 4G expansion, 5G roll-out, modernisation and self-reliance of defence procurements, etc. are significantly bigger. In addition, many of our new product roll-outs are deployable in the global markets and we would be pursuing those opportunities across our export geographies. We are confident of raising the share of higher margin products. In order to stay ahead of the innovation curve, we intend to invest in excess of Rs 150 crore towards research and development in the current year itself.
What are your growth levers?
I have already covered many of our growth levers while answering earlier questions. Let me recollect them to present them all in a nutshell. The first growth lever is the opportunity landscape. We are present across telecom, defence, railway and surveillance segments and all of them brim with opportunity and growth, in India and elsewhere. Our next lever is our competence, one that continues to sharpen by the week – the competence to innovate, commercialise and commoditise innovations. And manufacture them at a scale that serves market demand and offer them at a cost that is globally competitive. Another lever that I think very high of is our diversity – across offerings, user industries and geographies.
How has the role of a CFO evolved in light of the ongoing pandemic?
From the usual fatherly prudence that CFOs were always expected to demonstrate to embracing motherly compassion, the role of the CFO has undergone a sea change thanks to the pandemic. Balancing business prerogatives with social needs of compassion, the future CFO would be the manifestation of sustainable development at the top of the company – balancing profit with people and planet. It is about bringing environment and people on the same pedestal where profit is going to be placed.
What are your top three strategic priorities as a CFO?
Today, HFCL is standing at an inflection point. As its CFO my core responsibility is to steer the company along its path of profitable growth. Accordingly, my top three priorities are sustained growth in revenue and profits, driving an inside-out digital transformation and sustained improvement in shareholders’ value. A lot of groundwork has already been done. And we shall all discover a transformed HFCL much sooner now.
What is your outlook on the Indian footwear industry? What are the opportunities you are focusing on?
India is the second-largest footwear manufacturer in the world with 9 per cent of the annual global production of 22 billion pairs. Presently about 90 per cent of the footwear produced in India is consumed by the domestic market and the rest is exported. India’s consumption stands at about 2.1 billion pairs and is the third-largest globally after China and the US. The Indian footwear market is under-penetrated with per capita consumption of only 1.7 pairs per annum against a global average of 3 pairs, while the developed countries average is around 6-7 pairs. However, the last decade or so has witnessed a sea change in the footwear industry from a basic need-based industry to a fashion, style, and performance-focused industry.
Abundant raw material and cost-efficient skilled labour provide a distinct competitive advantage to Indian footwear manufacturers over their international peers, enabling them to tap the huge domestic market. Given the right market access and incentives, the industry is well-poised to even target global markets and transform India into an export hub for footwear. However, the pandemic has caused unexpected economic impact worldwide and the footwear industry is no exception. Despite the subsequent ease of restrictions, the business landscape is far from normal as people still hesitant to step out. With greater incidence of remote working and settling in for work-from-home culture, consumption pattern has undergone a change, impacting both product mix and volumes in the footwear industry in past one year. Growth in retail business is likely to remain subdued at least in the near future before normalcy resumes. Relaxo Footwears with four decades of experience in manufacturing and marketing of footwear is better placed than its peers to counter these uncertain times. Our focus, priorities and opportunities include new omni channel sales through e-commerce and large retail format stores to reap the current trend, tapping the international markets and shift from a functional need to a fashion accessory and style statement.
During Q1FY22, Relaxo Footwears witnessed a 36.73 per cent YoY rise in total sales revenues and net profit also grew by 27.83 per cent on YoY basis despite the disruptions caused by the second wave of the pandemic. What factors have contributed the most to help you outperform?
The strong revenue growth is partially due to the following factors: low base of Q1FY21 as sales were impacted in Q1 of last year due to lockdown, increase in pricing and increase in revenue of shoe segment. Moreover, lockdown this year had less adverse impact as most of the Plants and logistics were operational as compare to last year. This growth has further resulted in better absolute margins.
Do you think e-commerce channels are changing consumer buying habits? How is your company aligning its product portfolio with evolving consumer needs and trends?
Increased internet access and evolving digital technologies has created a new class of consumers more aware, ambitious and early adopters – driving the change. Relaxo Footwears too was quick to spot this emerging segment and adapted its strategies to tap this market. With growing consciousness among consumers about the latest trends, we have added more fashion and style along with the functional benefits of comfort and durability.
What are your growth levers?
The lockdown measures have been eased and the temporary shift in the lifestyle in comparison to the pre-pandemic times cannot be ignored. Though the e-commerce space is gaining attention of the consumers, the market may still take time to revive to its earlier potential. Relaxo Footwears has always believed in innovation and is quite active on new product development. New product development is one of the key growth levers for any fashion segment company. So, we are highly focused on this particular area taking into account the growing fashion consciousness and change in lifestyle, growing young population and change in demographics, availability on e-commerce platforms & large format stores along with increase in disposable income.
What are your top three strategic objectives?
Relaxo Footwears positions itself as a leader in the ‘value’ segment by providing quality products at affordable prices. Its most popular brands – Relaxo, Sparx, Flite and Bahamas – are among the leading brands in their space. It has aggressive brand spending agenda as part of its topmost strategic objective with top-notch film stars such as Salman Khan and Akshay Kumar endorsing the brands. The footwear industry has been recognised by the Government of India as a focus sector in the ‘Make in India’ mission. We are well-placed with a cluster of manufacturing units to take advantage of such a situation. Creating more capacities and reducing dependence on imported products shall be another topmost priority. We are also exploring newer and untapped markets, both domestic as well as international.
Demand level continues to be robust while momentum in speciality sales is expected to continue, says Neeraj Jain (CFO, Cosmo Films). The company plans to have our 80 per cent of the sales through speciality line in the next two years. Packaging films maker, Cosmo is looking to go big on sustainability and planning to save Rs 40 crore on an annualised basis in the long-term, said its CFO Neeraj Jain as he discussed his priorities and the company’s growth prospects for the current financial year. Cosmo clocked over Rs 2,000 revenue in FY21 and a net profit of Rs 237 crore.
How is the business looking in the aftermath of the second wave and the possibility of the third wave?
Growth prospects are looking good as demand remains fairly robust. Especially, people from rural areas are getting conscious about food packaging, which is adding to further demand. Besides, our main speciality business continues to grow. It has shown a 20 per cent growth in the last financial year and we expect a similar momentum to continue this fiscal as well. The speciality business presumes significance as it gives us high margins.
The two new businesses that we forayed into last year - speciality chemicals and pet care are also faring well. In the speciality chemical business, we have launched a B2C product ‘Fabritizer’, which kills Coronavirus on the clothes. We are selling it on online channels like Amazon. We expect this business to add between 8 per cent and 10 per cent to the top-line this financial year.
In the pet care business, we are seeing good traction. We are running a month late as per our own schedule but intend to catch up quickly. The industry has been growing about 25 per cent yearon- year, and the pandemic has further increased the prospects. We have seen a surge in the adoption of pets at this time. Cosmo plans to tap on these opportunities by providing an integrated offering.
Your FY21 profit more than doubled to Rs 237 crore from Rs 113 crore in FY20. Can we expect the same run rate in FY22? It will be difficult to share any forward-looking guidance, but having said so, we have our own reasons for profitability to continue. Factors contributing to profitability remain intact. Demand level continues to be robust while momentum in speciality sales is also expected to continue.
How much Capex is planned for FY22? Also, what are your debt reduction plans?
Our FY22 Capex is planned at about Rs 270 crore. We will be adding capacity by about 20 per cent. We plan to fund this Capex via low-cost debt, which will flow in the balance sheet this financial year.
However, at the same time, we have cash and cash equivalents to the tune of Rs 300 crore as of March 31, 2021, and the company will also use robust cash accruals from operations towards reducing other debt.
Therefore, we don’t expect any major change in the net debt position despite increased Capex. Anyway, our finances are strong. Recently, our credit rating was upgraded by CRISIL to AA (-) stable from AA+.
What will be your top focus areas in the upcoming quarters?
The first and foremost will be to increase our speciality business. We plan to have our 80 per cent of the sales through this line in the next two years. The second priority area will be to grow the two new aforementioned businesses i.e. speciality chemical and pet care.
Last but not least, our key focus would also be to drive the company’s comprehensive sustainability programme.
Cosmo has four plants, three in India and one abroad. We are increasingly focussing on water conservation, as well as on the use of solar or wind power at our plants. We are also installing noise reduction equipment, and rationalising container space by stuffing more material. Furthermore, Cosmo has plans of using a monolayer structure of packaging food, which is 100 per cent recycled. All these efforts can help us save Rs 30 crore-Rs 40 crore on an annualised basis long-term.
At the same time, we have planted 5,000 trees. This would all help in benefitting the environment. So, overall, it is a win-win situation for everyone.
GST regime completed four years recently. As an exporter, what has been your experience with it?
We have had a good experience with the GST law. Processes seem to have been streamlined now. As an exporter, we are receiving refunds on time. On the compliance side as well, our compliance has slightly decreased.
Methodology
To compile the CFO rankings, DSIJ examined the performances of companies listed on the BSE across market capitalisation. The financial performance was examined over 12 months ended March, 2021. DSIJ evaluated the financial chiefs on twelve financial metrics. Equal weightage was given to the increase in market capitalisation, followed by growth in sales, operating profit and net profit. Return ratios were considered for the ranking purpose as well. The segregation of companies into large-caps, mid-caps and smallcaps was made based on DSIJ's definition of market capitalisation. For the purpose of ranking, the best performing CFOs in six major sectors were considered, along with creating one special category for women CFOs
Roll of Honour
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