CFOS contribute towards creation of shareholders’ wealth behind the curtain
Rajiv Kumar Chandiok, Director (Finance), NFL
As a Director (Finance) of National Fertilizers Ltd, can you please elaborate on your top three key priorities taken in last two-three years?
As a Director (Finance), my priority area was to arrange the funds bytimely submission of loan request, negotiating better terms and lower rate for capex programme. The other priority was themanagement of working capital, involving timely submission of subsidyclaims with GOI, earliest realization of subsidy, reduction in interest cost and reduction in avoidable expenses. As fertilizer industry is highly controlled industry,timely release of subsidy bygoi plays an important factor in day-to-day working capital management.it was my priorityto arrange funds for the working capital requirements at cheaper rates and get improved credit ratings of NFL. Ultimately, my thrust was to enhance the profitability of the company through interest cost reduction and cost savings through effective utilization of resources.
Can you highlight the strategic initiative which paid off well for your company during your tenure as a Director (Finance)? How did it help the company and also investors who have parked their money in your company’s stocks?
Although this being a permanent job of CFO to work towards increasing the wealth of shareholders, the strategic decision taken was to restructure the existing External Commercial Borrowings (ECBS) with new ECB with reduced all-in cost and restructured repayments by back loading to match with the cash flow requirements/ projections of the company leading to saving of around Rs20 crore to the company. Further, the prevailing composition of short term borrowings through various instruments was reviewed and harder option of raising Commercial Papers (CPS) frequently was chosen instead of easy option of availing short term loans/cash credit from banks limits at higher rate of interest. Further, for raising short term/long term loans, the credit rating of the company was got reviewed and upgraded. The utilization mix of cash credit facility, commercial papers and short term loans, etc. was aligned to expected cash flows to reduce the overall cost of funding.
Further, Inter Corporate Deposit Schemes was developed after pursuing with many PSUS for availing short term funds at a lower rate of interest as compared to STL/ CC etc. At times, ICDS were raised at par/ lower rate than overall CP cost. The policy for investment of surplus funds was also reviewed and revised for optimizing the return by investing strategically in FDS with public and private sector banks andmutual funds within the guidelines of DPE.
NFL has achieved tremendous savings infinance cost in the last 2~3 years. What specific strategies have led to such savings?
The savings in finance cost directly improve the profitability of the company. The holistic approach was adopted to use each and every factor which could result in reduction in the finance cost.change in the mix of instruments by using higher volume of cheaper Commercial Papers, availing higher credit period from suppliers, used Mibor-linked loans as against Mclr-linked loans, negotiated lower rate with existing banks, adding new banks with lower rates etc.further, negotiated terms for repayment of loan without prepayment premium/ penalty. Most importantly, after lot of persuasion with DOF and DEA Special Banking Facility (short term loan) was got implemented for all urea manufacturers at a cheaper interest cost of 1.75% p.a. to the company, pending release of subsidy for want of budget by GOI.
NFL has turned around in 2015-16 and financial performance of the company has improved.what factors have played a role in such huge turnaround by NFL?
NFL incurred losses in 2012-13 and 2013-14 and earned a meagre profit during 2014-15.However, in 2015-16 and 2016-17, the company has turned around andearnedhandsome profits. For any turnaround, the availability of cheaper funds at right time is the key factor. Further, the urea fertilizer industry, which is a highly controlled industry, the availability of working capital to support production and investment activities is a challenge. As a CFO, I worked tirelessly for reduction in the cost of funding and matching the cash flows. It resulted in huge saving in finance cost which added to profitability of the company. The finance cost was Rs301 crore in FY201415 and was reduced to Rs228 crore in FY2015-16 and further reduced to Rs190 crore in 2016-17 with concerted efforts. The falling interest regime also helped. It is important to continue to focus in reducing interest cost because it is not reimbursable as a part of urea cost and therefore any savings adds to profitability of the company. Further, with the policy initiative, notified by GOI such as modified New Urea Policy – stage-iii and New Urea Policy -2015, sustained plant operations were achieved leading to increase in production, productivity and profitability.
What are the long term plans to maximize the wealth of the shareholders?