With businesses more entwined globally, events happening worldwide can buffet the fortunes of companies ever more, and a CFO’s role in helping to steer the direction of organisations through a vigilant and proactive approach is imperative, says Anil Patwardhan, Chief Financial Officer at KPIT Technologies Ltd. Having worked with the Raymond Group, Praj Industries and the Kirloskar Group earlier, he speaks from a vast and varied experience of working in industries across sectors
With over 25 years of rich experience in leading companies such as the Raymond Group, Praj Industries and the Kirloskar Group, Anil Patwardhan, a qualified Chartered Accountant, is the Chief Financial Officer (CFO) at KPIT Technologies Ltd. As part of the leadership team, Patwardhan is responsible for various functions of KPIT such as Accounts & Finance, Legal & Secretarial, Investor relations, Mergers & Acquisitions and Commercial and includes the deliverables--Financial Performance, Reporting and Governance. Over the years, Anil has contributed towards improving fiscal discipline within KPIT by establishing global budgetary processes, improving the control environment, initiating tax planning measures, and driving effective treasury and forex management.
Anil has been recognised for his contribution to the Corporate Finance & Accounting fraternity and has been awarded with the Best CFO award 2010 in the Information Technology Sector by ICAI New Delhi for 2010. He has also been conferred with the ‘Recognition of Excellence’ at CFO India’s 2nd Annual CFO 100 Roll of Honor 2012 for “Winning Edge - in Mergers & Acquisitions” and also received the Chairman’s Award as well for Best Enabling Function of the Company in 2008.
In an in-depth and insightful interview with Corporate Citizen, Patwardhan spoke on how the dynamics and business complexities are changing the role of a chief financial officer in today’s times, while also touching upon his professional life, personal world, and offering few tips to the younger generation. Excerpts:
I did my schooling from Sakharwadi Vidyalaya, in district Satara and did my Bachelors in Commerce from BMCC College in Pune. Thereafter, I completed my Chartered Accountancy in 1983 while working with a CA firm. Here is where I built my foundation. The first job I picked up was with the Kirloskar Group as a Finance Manager. Since I was very young then, I used this opportunity to build a strong domain knowledge of Finance and grow. In 1986, I moved on to join a larger organisation, the Raymond Group and worked there for ten years, in the area of Accounts & Finance. My role there was challenging, as the objective was to decentralise the Accounts of all the divisions and drive the consolidation process at the corporate office. This required deep knowledge of the entire Accounting process, and some planning and execution skills. Post decentralization of the Accounts we (my colleague and I) worked at 24-hour stretches to complete the consolidation of the Accounts of 18 divisions and tallied the financial statements in the first attempt! In 1995, when I joined Praj Industries, the Group was going through tough times due to very high interest rates and recession in the manufacturing industry. There were business challenges and in order to exercise controls over Business Operations and Stores & Purchases, computerisation was the need of the hour and we streamlined the Finance, Commercial and Purchase functions through computerisation, under my leadership. After spending four years in Praj Industries, I decided to move on to KPIT Technologies and have been associated with them since the past 17 years.
It’s been a very exciting journey in KPIT and I’ve been very happy to be part of it. When I joined KPIT Technologies back in 1998, the company was then coming up with an IPO (Initial Public Offer). This IPO got oversubscribed by 42 times and changed the market sentiment then. There were about 250 employees and the turnover of the company stood at Rs 16 crore then. Today the company has close to 11,000 employees and the turnover is over Rs 3,300 crore. I feel fortunate and lucky to have got a chance to work with some of the leading corporate honchos such as Ravi Pandit and Kishor Patil, founding directors of KPIT, Pramod Chaudhary and Shashank Inamdar of Praj Industries and Gautam Singhania and Aniruddha Deshmukh from Raymond. These gentlemen have helped in shaping my career and I must say they are my ‘management gurus.’ At the same time, I have also shown a willingness to learn and kept a positive attitude all the time. That apart, I also owe my success to my family as well, for all their help and support. In KPIT, I gained varied experience of heading Accounts & Finance, Legal & Secretarial, IR and M&A of a global IT company.
‘As a CFO, one must be very proactive and quick to respond to the macro parameter changes in the global economy, try and protect the operating margin of the company and secure its cash flows’
As a CFO, one must be very proactive and quick to respond to the macro parameter changes in the global economy, try and protect the operating margin of the company and secure its cash flows. Firstly, he should hire the right talent and build a competent team and train his existing workforce well. It is important to identify the right avenues for investments and set the target ROI to drive the margins of the company, comparable with the best in the industry.
One has to be well versed with compliance for doing business in both the domestic and international markets. Handling compliance is a tough job because of the business presence across geographies and ever increasing regulatory requirements. Under the new Companies Act 2013, the Board of directors and the management team (the key managerial personnel, or KMP) are responsible for the design and operating effectiveness of internal financial controls over the business operations of the company. Corporate laws have become very stringent today. Hence you need the right resources, right compliance processes and the right professional consultants to help you remain compliant. For instance, foreign currency transactions need to comply with FEMA regulations and therefore you need a competent team in Treasury & Compliance to execute all foreign currency transactions and implement a foreign exchange risk management policy to safeguard the margins of the company. Risk identification, risk measurement and risk mitigation is the most important dimension of the compliance process.
In the last five years, particularly post the global meltdown in 2008-09, the business dynamics of global operations have undergone a significant change. Business complexities are ever increasing and there are macro and micro economic factors that need to be monitored closely to understand their adverse impact on business operations. Currency risks, slowdown of the Chinese economy and devaluation if its currency, the Eurozone crisis, oil prices, terrorist threats are posing serious ongoing challenges for the stability and growth of the global economy. A CFO’s proactive approach and diligent response is needed to help the company absorb the shocks and come through the turbulent business environment.
The role of a CFO has got even more complex after the 2008-09 Lehman crisis. It did create an adverse impact on all the economies globally. The response time to global events became very critical for companies with a global presence, and the lead role was with the CFO to drive the change. Implementation of short and medium term strategies became extremely important for the survival of the organisation. The role of a CFO is not just confined to that of a book keeper and releasing financial statements – there is more to it… to participate in setting the strategic direction of the company with focus on margin improvement. CFOs need to focus on team building, particularly training and development of leaders so that this team remains agile and develops a strong domain knowledge of finance.
‘A leader has to demonstrate a strong value system and the ability to walk the talk. Personal and professional priorities should be clearly stated and the leader needs to be a good human being. He needs to be clear on what he wants to achieve as his professional goal. As long as you have clarity in your thought process, and you are enjoying your work with passion, it will not create stress’
‘Post the global meltdown in 2008-09, the business dynamics of global operations have undergone a significant change. Business complexities are ever increasing and there are macro and micro economic factors that need to be monitored closely to understand their adverse impact on business operations’
If he is a team member, he has to possess strong domain knowledge and is aligned with the job description, demonstrates leadership qualities, is able to take tough decisions, energise the team members, and have an edge in the core knowledge. A leader has to demonstrate a strong value system and the ability to walk the talk. Personal and professional priorities should be clearly stated and the leader needs to be good human being. He needs to be clear on what he wants to achieve as his professional goal. As long as you have clarity in your thought process, and you are enjoying your work with passion, it will not create stress, and will not keep you awake at night.
Well, having a work-life balance is easier said than done. One has to decide his/her priorities in life. At every stage in life – the first ten years of your career, the next 15 years, followed by the remaining 15 years (assuming an overall 40 years of professional career), one has to drive changes in the thought process and priorities in life. There will be changes in your priorities and lifestyle at every stage. Most importantly, give 100 percent every time in whatever you do—whether you are investing time with colleagues, at work, with family, with friends, on professional forums and so on. When I am at home, I only focus on investing time with my family and deliver the best value as a family member, and when I am at work I only focus on my deliverables as a professional and try and achieve my professional goals.
I am blessed with a wife and two sons. My wife, Sandhya, is a diligent homemaker, and my sons, Shreyas and Anurag are well educated, have now started working. Shreyas, my elder son, completed his MBA in Finance and pursued a Functional Consultant course in SAP. He is German-language literate, and working as an Associate Consultant in the SAP business unit of KPIT, while Anurag has completed his Inter-CA and ICWA, completed his articleship with Deloitte and is preparing himself for the final CA exams. My wife has truly been my pillar of strength. She’s the one who has stood by me at all times, devoted all her time with commitment for the well-being of our family and helped me in shaping my career path. I still continue to invest 12 to 14 hours a day to my professional work; she takes care of the responsibilities on the family front and keeps the atmosphere at home very healthy and friendly.
Youngsters today are extremely ambitious and talented. While it is difficult to plan one’s entire career graph, I think a youngster must try and look at the career in three broad buckets of ten years each. The focus needs to be on building domain knowledge, managerial skills, leadership skills, global outlook with a continuous learning attitude. Focus on learning soft skills such as writing, reading, communication, interpersonal skills is important, they should be treated as hygiene factors. Keep revisiting your plan, be ready to take up the newer challenges.
The IT industry will continue to be on a moderate growth path and those companies who have built niche skills and have strong value propositions for customers will survive and grow. Investment in the right areas is the key for driving growth.
KPIT has presence across 15 countries globally and we will continue to invest on the front end team in the key markets for our growth.
Anil Patwardhan presented some wonderful insights at a recent conclave and spoke in depth on some of the crucial topics in today’s times such as the role of finance professionals in dealing with the dynamic business world, macro and micro factors that impact the business, global events that are putting pressure on the GDP growth of India, the importance of Enterprise Risk Management, hedging policy for managing foreign currency exchange rate movements and investment policies of companies.
The global economy is going through a dynamic phase and hence the macroeconomic environment is becoming more challenging and complex. The European (EU) countries are still facing tough economic challenges and time and again the European Central Bank (ECB) has been supporting the affected countries (Portugal, Ireland, Greece and Spain, or PIGS) by providing them financial assistance. Greece was on the verge of collapse but with the help of $25 billion bailout from eurozone funds, they manage to survive.
The economic situation in emerging countries is equally challenging and they are struggling to get the desired growth. China is playing a very vital role in the world’s economy, but recently we witnessed a major fall in China’s equity market arising out of the decline of its GDP, and the world’s financial community is not sure of its data integrity and expect that the worst is not yet over in China. This has created a significant adverse impact on the global economy. In a desperate move, China’s central bank came out with the decision of devaluing its own currency. This has put pressure on the Indian rupee and other Asean currencies. On the other hand, the United States is the powerhouse of all the economies and can drive the currency and financial markets in any direction.
India’s economy got more connected with the world, post liberalisation. It started in 1991 with Dr Manmohan Singh, then Finance Minister in the PV Narasimha Rao government, who triggered the liberalisation process, which was a landmark step. After 20 years, we are getting into the process of liberalisation once again. We need certain policies that are globally connected, so that we are able to drive business in India in a competitive manner on a global platform. We’ve seen the biggest slump in the Chinese equity market, where they had to suspend equity trading for some time, recently. They had to revisit their currency and their currency strategy. The Chinese currency is a pegged currency; after evaluation they found that their exporters were not competitive and were not able to sustain, and hence the devaluation decision was taken, which I think was unique.
If you see the macroeconomic environment today, the GDP growth rate, inflation, foreign currency inflows through capital markets or FDIs, the way interest rates are moving, unemployment, current account deficit and balance of payments, foreign currency reserves, in India—the steps triggered by the government in the last few years have given a very strong message to the world that we are committed to the development of the country and hence there’s no going back on the development agenda. Our policies have been made visible to investors today, more and more processes are getting online, thus reducing the kind of permissions needed to trigger any business venture today in India. We are sending out the right signals to the business world globally, which is helping and will help in driving economic growth.
If China is devaluing its currency, why do you think the Indian rupee is suddenly impacted? If we have to stay competitive in the global world, we have to take cognizance of all the economic events that are happening globally. If China is getting more and more competitive in its export business, India cannot stay behind. Hence, we’ve seen a depreciation in the Indian rupee. Again, when you drive a business, you must take into account the markets you are operating in and the dynamics of those markets. Largely, the markets are divided into four different buckets—America is one market which includes North America, Brazil, Mexico, Canada, next is Europe, then Asia Pacific and India. When we do business, we need to spread our business risk. In case there is an adverse impact in one of the geographies stated above, it should not impact our entire business and growth opportunities. Thus, if your business is concentrated in one particular geography and there comes a turmoil, it will impact your business significantly. We need to work on an enterprise risk management framework which will help the organisation to identify the risk, measure the impact and come out with a mitigation plan. Later, we should create the risk indices and do the trend analysis on an ongoing basis.
Enterprise Risk Management (ERM) is the responsibility of the Board and the executive management of the company. An ERM framework will enable the top management team to overcome the challenges arising out of a dynamic business world. The executive management team has to review the ERM and the top ten to 12 business risks at regular intervals of say 18 to 24 months. Post the global meltdown of 2008-09, most large and medium corporates cut down their IT spend by more than 50 percent in a span of two to three months as a response to the financial crisis. From the perspective of businesses in India, most of the players could handle this situation reasonably well due to their ERM framework and the conservative economic policies of the central bank of India (RBI). Thus, the variable cost in the business was immediately bought under control and most of the companies used innovative ways of addressing this issue. What IT companies did during this period was that they moved onsite business activities to the offshore region in India and delivered business result to its customers by spending less -- by almost one-third. Thus, a business problem was converted into an opportunity and it provided a win-win solution to the customer. We were also able to win the confidence of the customers that even in difficult times we were with them, providing the right support and solution, despite reduction in their IT budgets. It is important that the company’s business model should be capable of absorbing all such shocks and still deliver business results and help achieve its objectives.
‘When we do business, we need to spread our business risk. In case there is an adverse impact in one of the geographies, it should not impact our entire business and growth opportunities’
This is another important area in risk management. Most Indian companies have global business presence, and deal with multi-currencies. We are getting into long-term commercial contracts with our customers where the revenue is frozen upfront. This will define the customer’s spend well in advance, say three years, whereas you are managing your cost for the entire period of execution under inflationary pressures, in this case, for three years. In India, due to inflation, the costs go up by almost 8-10 percent year-on-year. So when revenues are frozen but costs are variable, protecting margins is the most difficult job. In order to protect realisation from US dollar denominated contracts, the executive management and the Board need to approve a foreign currency exchange risk management policy and trigger hedging activity under the said policy. Your foreign currency hedging policy has to reflect the management thought process which will safeguard the top-line and bottom line of the company. This policy should allow the company to participate in the market, say, to the extent of 25 percent of inflows, and balance 75 percent to hedge to reduce the volatility in foreign currency realisation. We need to insulate the company from foreign currency exchange rate shocks.
This policy will help the company define its major capital expenditure (capex) and the investment of its surplus cash reserves. The capex needs to be planned based on the medium-term business plan of the company for capacity creation. One has to commit the capex proactively and incur the actual cost before the growth is realised. Therefore the executive management team has to ensure capacity creation and chart out the capacity utilisation plan at the same time and reduce the gap between the two without hampering growth opportunities. The cash reserves of the company need to be invested following the principles of safety, liquidity, and return in the same order. Stakeholders’ money can’t be subjected to market risk and the principal amount has to remain safe while liquidity should be available based on the business needs. The return on investment should help realise additional income without compromising business needs. The investment policy of the company should be part of the overall risk management policy.
Every corporate has to have a vision. Vision is the long-term direction of the company in which you want to drive the performance of your business—say in the next five or ten years from now. Do you believe that the business strategy followed by the company would remain relevant three years down the line? Or would you have to revisit some of the components of your strategy? How would you pick up the thread and the pulse from the marketplace? How do you ensure that the company remains competitive in the marketplace? Why would customers come to you over the competition, and what are the differentiating factors compared with competition? What is the value you bring to the table for the customer? All of these should get translated into a vision statement of the company. In order to drive this vision, you also have to create a mission statement, which is an execution plan. Only having a vision will not help. It will then only be a wishful statement. A mission is a roadmap to travel along the path of the vision. That is how you will address the challenges coming out of the dynamic business world. Today, India is connected globally and therefore the vision and mission statements need to be relevant for global business. Both organic and inorganic growth is necessary to drive the vision and mission of the business.
‘The steps triggered by the Government in the last few years have given a very strong message to the world that we are committed to the development of the country and hence there’s no going back on the development agenda. We are sending out the right signals to the business world, globally, which is helping in driving economic growth’
Finance professionals are considered as the most trusted members of the management team. Our integrity and commitment have to be at the highest level. We get into a trusteeship role with the company. So every dollar earned and spent by the company should be judiciously managed in the interest of the company and all its stakeholders. Stakeholders include the customers of the company, shareholders and investors, vendors and employees of the company. It is important for the company to build a long-term relationship with these stakeholders. The fourth set of stakeholders is your employees. They are your assets and an important set of stakeholders. All government agencies with the help of whom we run the business are also very important stakeholders for the company. As finance professionals, we have to work towards wealth creation for the company on a sustainable basis which will meet and exceed the expectations of all the stakeholders. Every stakeholder does have his own set of expectations. We need to articulate and understand those expectations and continue to deliver on the lines of these expectations. A finance professional should create an internal mechanism to show the mirror to the executive management and the business leader at all times, and also directly participate in improving the experience of all its stakeholders. As a finance professional, you should be able to see much ahead of the time as compared with any other business leader. You should try to predict the short and medium-term business trend for the company, and trigger corrective actions proactively. As a finance professional, if you are not able to figure out macro trends in the economy or didn’t predict them, you have failed in your duty. Despite all the challenges and triggers in the marketplace, which are not directly under our control, the impact on the company and its business should be handled well by the finance professional. Once you identify this link, you can get into a more meaningful role as a finance professional. You should drive deeper into analysing the data and transforming all the information into the MIS (Management Information System or Meaningful Information System). One of the important objectives of the corporate finance function is to drive transaction processing online, improve business processes and controls, and demonstrate thought leadership. Despite an increase in the business volumes and complexities, a finance professional should demonstrate confidence and conviction in his/her actions and adopt a continuous learning approach, to move up the knowledge curve. The day you believe that you know everything, your career progress will get impacted. There is so much happening in the capital market and Corporate Laws-- new regulations such as Companies Act 2013, IFCOR, Ind AS, IFRS, ICDS, SEBI Regulation Act 2015 and now GST that finance professionals have always got to be ahead of the learning curve to sustain in this demanding role. So, one has to give his/her 100 percent every time to remain on top of the learning curve and career path, and stand ethically committed to its professional standards.
By Mahalakshmi Hariharan
