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Stay in shape

It is important to stay positive during the downturns and be in reasonably preserved shape for the uptick as and when growth conditions return, says R. Shankar Raman, CFO, Larsen & Toubro.

R. Shankar Raman, Director & CFO, Larsen & Toubro

R. Shankar Raman, Director & CFO, Larsen & Toubro

There is a near-complete consensus in Corporate India. We are passing through a phase of economic turbulence which has severely tested our business plans shaped in the post-crisis period of 2009 to 2011. Back then, it was believed that India got past the aftermath of the global economic turmoil of 2008 almost unscathed thanks to its prudent fiscal policy, robust business models, mature capital markets and the vast growth potential of its economy. Frankly, Corporate India did not anticipate that its growth engine could slow down so significantly in just a matter of a year or two and that risk capital would make such a hasty retreat. There was an inherent belief that policy making, bureaucracy and political consensus will ensure that timely measures would be taken to keep India insulated from the growth meltdown affecting the rest of the world. After all, India along with China and a few other emerging economies was expected to play the growth healer's role on the world stage.

Since there are no "ifs" and "buts" in the real world and the present reality is strikingly different, we are realigning our plans to the new business environment. New conditions demand new approaches and, hence, we are retooling our strategies. While some of our businesses are reviewing business value propositions, some others are relocating their operations to more cost-efficient locations. Many are reassessing their supply-chain efficiencies, time-to-market plans and so on. Some are taking their business international and to relatively more rewarding geographies. New positioning, additional product functionalities, revised execution strategies, larger customer accreditations, multiple alliances feature our newly coated business plans. It is recognised in board rooms that it is important to stay positive during the downturns and be in reasonably preserved shape for the uptick as and when growth conditions return.

The Numbers
#Revenue: Rs 64,313 crore, up 23.5%
#EBITDA: Rs 10,562 crore, up 16.4%
#Net Profit: Rs 4,702 crore, up 5%
#ROE: 17.3%
(Figures for 2011/12; Source: Annual Reports)

#Cash and cash equivalent of Rs 3,379 crore
#Working capital cycle at 9.63 days, down by 21 days from 2010/11
#Year-end unexecuted order book position increased 11% to Rs 1,45,723 crore

As flexibility in approach and strategies are key prerequisites when faced with uncertainties, the finance leadership needs to strive for balance in its financial policies and processes. In both good and bad times, certain aspects such as quality of governance and regulatory compliance are non-negotiable features of finance administration. We have been backing the maturity of our organisation to take business calls balancing the near and long-term objectives. We believe this to be a key differentiator between successful and sustainable organisations and the rest. We have made significant investment in robust risk management policies and processes to keep our organisation on course. While risks are inevitable and often elevated in volatile times, planning for them, mitigating them and pricing them appropriately are what smart organisations do.

The ability of the finance function to contribute for timely business decisions would be driven by a good understanding of both the business dynamics and the competitive landscape in which organisations operate. We try and define appropriate performance measures in these turbulent times and steer reviews in their correct perspectives. Benchmarking for best practices should enable us to learn from others' experiences and help us in dealing with our future better. We believe that insightful analytics embedded on robust enterprise-wide software platforms and customised review tools would augment business intelligence and facilitate strategy making. Navigating in unchartered waters can turn profitable if corporations are blessed with right mindsets and skills. Ironically, these have to be developed by organisations during their good times when a growth tide makes even the ordinary look extraordinary and, at times, perhaps even invincible. 

R. Shankar Raman is CFO of Larsen & Toubro. He has been adjudged Best CFO in the category - Consistent Liquidity Management (Large).
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