Implementing a ‘One Mahindra’ Culture for Local and Group Benefit
by V.S. Parthasarathy, Group CIO, EVP – Group M&A, Finance and Accounts, Member of the Group Executive Board, Mahindra & Mahindra
M&M is a federation of companies with a decentralised approach to treasury management. There are some companies that Group Finance is mandated to support from a treasury perspective. However, typically each subsidiary company has its own CFO who is responsible for day-to-day management of cash and risk.
Despite our decentralised organisation and the diversity across more than 100 group companies, we are proactively developing a culture of ’One Mahindra’ with treasury acting as the centrepoint. Our aim is to achieve synergies across the group, leverage our scale and reach, and standardise the approach to treasury across the group. One of the ways in which we are achieving this is through a structure that is essentially an in-house bank, enabling subsidiaries to borrow from, and lend to each other. This is an attractive proposition for group companies, as they can achieve a yield on surplus cash of around 100 basis points higher than on the external market, while borrowers also achieve a financing rate at around 100 bps lower than external financing rates. Corporate treasury acts as the facilitator of these arrangements, identifying and executing on opportunities for intercompany borrowing and lending. Cash remains within the group, there is a balance sheet advantage, risk is eliminated, and there are no guarantees or covenants required for external lenders.
Another way in which corporate treasury adds value to the M&M group is to leverage the scale and reach of M&M to ensure that we source the most attractive commercial conditions and gain economies of scale. During 2012, we refinanced two bond issuances totalling INR 12 bn on behalf of two group companies. As well as issuing these bonds at a far lower rate than group companies would be able to achieve independently, the need for financial covenants is reduced. Therefore, by negotiating financing centrally, we are able to achieve a positive financial result both for individual group companies and for the group as a whole.
Corporate treasury facilitates best practices in treasury, risk and cash management across the group, and seeks to build commonality in policies and procedures. For example, group companies have a largely standardised approach to FX risk management and execution. We do not impose policies on group companies, but by acting as a trusted advisor, facilitator and executor, we hope to encourage greater collaboration and harmonisation. This approach is entirely proactive, and requires a depth of understanding about the needs of group companies, which are effectively our internal customers, and a pragmatic approach to addressing these requirements. It inevitably takes time to develop this level of trust, which becomes easier as the benefits of a combined approach materialise. However, this process is well in progress, and we are focused on supporting our group companies in achieving both their strategic and operational objectives.
Building awareness and engagement
As part of our treasury vision, we recognise that a successful treasury function is not one that operates as a silo from the rest of the business, but seeks to partner with both internal and external stakeholders. In many cases, this represents a major cultural and organisational shift, but it is an essential transition for today’s treasury to make an impact as ‘treasury of tomorrow’. At M&M, we are achieving this transition by proactively addressing the unspoken needs of our stakeholders in a variety of ways. For example, amongst our internal stakeholders, we are promoting greater financial literacy across the business. By raising the level of awareness and expertise in treasury and cash management, we are able to realise potential benefits.