CFOS con­trib­ute to­wards cre­ation of share­hold­ers’ wealth be­hind the cur­tain

Ra­jiv Ku­mar Chan­diok, Di­rec­tor (Fi­nance), NFL

Dalal Street Investment Journal - - COMMUNICATION FEATURE -

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?

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