Published: April 01, 2013
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.
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.[[[PAGE]]]
In our experience, establishing a clear understanding of finance at grass roots level is often a step that is missing from financial literacy programmes. For example, treasurers and finance managers often first look to their banks and external partners for opportunities to add value to the business, when often the opportunity comes from within the business. This was the challenge we set ourselves, with a number of initiatives to build awareness and knowledge of finance-related issues. For example, our ‘Nukkad’ programme is a corner to share developments, while ‘Udaan’ is a platform to disseminate financial domain knowledge and build competences. These initiatives have been very successful in promoting engagement and informed discussion.
This approach, i.e., to promote engagement and collaboration, is also something we use in our external relationships. As a responsible business, we value our supplier relationships and sought to insulate them from interest rate volatility and potential liquidity constraints. We therefore made the decision to launch a supply chain finance programme, but with some notable differences. Firstly, the programme is entirely e-enabled, with no exchange of physical documentation. This makes it easy for our suppliers to join the programme and to derive benefit from it, whilst enhancing the efficiency with which the programme is managed. Secondly, the programme is centred on the needs of our suppliers. The key performance indicators that we track relate to the value that the programme adds to each supplier, not simply the benefit to M&M. For example, insulating suppliers from interest rate increases adds considerable value, and provides greater certainty of costs. Furthermore, receiving payments earlier helps them to manage working capital more effectively and provides essential liquidity.
Our focus on successful, cohesive relationships also extends to bank relationships. With over 100 diverse businesses across a wide variety of industry sectors, over half of which are located outside India, selecting the right relationships to meet a vast spectrum of banking needs is essential. We have a wide base of banking partners, and we aim to leverage the strengths of each one. We try to recognise the support that our banks provide to us: for example, we may reward our Indian banks with some international business; meanwhile, we may offer some domestic business to our international banking partners. This provides us with a rich mix of banking partners both domestically and internationally, which bring a variety of ideas, approaches and innovations.
As corporate treasury extends the range of services it offers to group companies, and deals with increasingly international business requirements in an uncertain world, the technology required to automate processes and provide visibility over information also needs to change. In the past, a market information terminal such as Bloomberg or Reuters was sufficient; today, we deal with manifold challenges. The treasurer is a process owner and therefore has to consider control, auditability and documentation of processes as well as ensuring that transaction decision-making and execution is conducted appropriately. We are therefore building a robust treasury technology platform based on an ERP platform , with a view to implementing a full treasury dashboard approach. From a banking perspective, we have now fully converted our payments process to electronic payments, and a large part of receivables are also collected electronically. Innovations such as our supply chain finance programme are entirely e-enabled and we expect to have a fully automated, paper-free treasury environment in the near future.
It is often said, quite rightly, that the only certainty in today’s world is uncertainty. At M&M, we recognise the need for flexibility, speed and pragmatism in our decision-making. This is an adaptive, not speculative process: we do not seek to ‘guess’ the market but to respond quickly to changing market dynamics. For example, by issuing foreign currency convertible bond call six months ahead of time, we were able to achieve a conversion rate of more than 99%.
Innovation is at the heart of our ability to create certainty and clarity in an uncertain environment. This often requires originality of thought, looking beyond familiar business practices. At M&M, this culture is often referred to as the spirit of ‘Rise’: “Accept no limits.” One such example was the KRW bond issuance which was beneficial both for the company that we acquired, SsangYong, and the group as a whole. To ensure that the SsangYong was not required to pay high bank financing rates, we issued a KRW-denominated bond at a competitive rate and injected the cash into SsangYong. By then hedging the bond, the annualised yield to the company was higher than potential investment returns on surplus funds. To achieve this required regulatory approval and rapid decision-making and execution to leverage a favourable exchange rate environment at that point in time.[[[PAGE]]]
Treasury needs to respond to changing market dynamics but also look ahead to anticipate the changing needs of the business, and the evolving market environment. For example, cash pooling is already achievable across the Eurozone and United States to centralise liquidity. At M&M we have more than 100 bank accounts, and we need to gain visibility and control over this cash, and ensure efficient deployment of funds, so the opportunity to pool cash more effectively would be extremely valuable.
We are also continuing our initiative to dissipate finance knowledge and awareness around the group, with a focus on financial inclusion. We are working on implementing a payments factory to centralise payments across the M&M group, and automate internal payments processes. Alongside this, we are looking to consolidate our banking structure across the group. The Mahindra way is ‘journey to excel’ and for the team at Group Treasury the mantra is ‘nothing else will do’.
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