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Shyam G. Menon
Latha Venkatraman

Mumbai , Nov. 18

MR B.R. Jaju, Chief Financial Officer, Crompton Greaves Ltd, recently won the CFO Award for 2003 for facilitating closure and exiting certain under-performing businesses and for employing innovative fiscal measures to reduce borrowings and interest costs. Crompton Greaves had reported losses to the tune of Rs 220 crore during 1999-2000 and 2000-2001. Mr Jaju told Business Line in an interview that the company is back on track having got out of many `non-core' businesses and is expected to forge ahead.

Excerpts:

How is the current fiscal expected to turn out for Crompton Greaves?

The first half has gone by with a topline growth of 4.5 per cent. Our consumer products and industrial systems divisions have grown very well. We had initial problems in the power division as one whole month went in the truckers' strike. This disturbed the supply chain at a time when growth was not there. But now things are picking up, especially if you look at the second quarter when the company grew by 8.5 per cent. In terms of bottomline, the company has grown handsomely from Rs 1.75 crore to Rs 28 crore at the PBT (profit before tax) level. That was a spectacular turnaround. We have a comfortable order position and overall there is a feel-good factor with good agricultural production.

If you look at the power sector it is not so much dependent on GDP growth rate as much on restructuring at State levels. Therefore, how is your business poised?

It depends on how much the Government spends on power generation, distribution and the overall development of infrastructure. Unfortunately in the last couple of years, growth has not been in line with our expectation. Maybe there is some thing structurally wrong. But with changes in the Electricity Act and other regulatory issues, the near future for power looks bright. In our power division we are also looking at exports, considering that we are able to compete with global players in terms of acceptability and technological superiority both in case of transformers and switch gears. I think we have a good opportunity to grow this power sector business in the international market.

Over the last two years you have been carrying through a restructuring exercise. What were the main parts of this restructuring exercise?

In FY 2000 the company had posted a monumental loss of Rs 146 crore. Next year it was down to Rs 73 crore. Put together it was an accumulated loss of Rs 220 crore. So we had to put in place a major turnaround plan, which included an improvement in employee productivity. First, we had to exit business from high-cost Mumbai to Goa and Ahmednagar. Second, we increased productivity levels by implementing a numerical-driven productivity method. Productivity rose by 50-100 per cent across the company. Third, we took strict action on our working capital. We also carried out cost cutting across the company. We became more rational while accepting orders for materials. We also put in place value engineering, which entailed intelligent product substitution resulting in lowering of MS ratio from 72 to 68 per cent.

The other important cost reduction that resulted out of the shifting of some of our facilities outside was lowering of the workforce. From a level of 10,600 people in March 2002 our employee strength was down to 6,400 in March 2003 through an efficient VRS. It was a painful and unpleasant task. The cost of this VRS was met through our divestments and partly through a structured loan on short term. This has brought down personnel cost by almost 23 per cent in two years.

All our efforts have been taken with the aim of becoming positive EVA (economic value added). We reduced our debt which stood at Rs 850 crore in 2000 to Rs 457 crore by March 2003. This was possible by getting out of non-core investments like SkyCell, CG Glass and divesting non-core assets like surplus land in Mumbai. We also put in place an effective and efficient treasury and cash management. We had effective negotiations with our bankers on the terms of the borrowings like interest, bank charges. We exited those banks that did not show flexibility or did not agree with our terms.

From a CFO's point of view what do you term as a proactive response from the bank?

Businesses have to be competitive not merely within the country but globally as well. Factors like timely availability of funds and cost of funds are crucial for companies. A company could lose an opportunity if there is a delay in sanctioning funds. Some lenders are very proactive because of their mindset, IT support, etc. Some lenders have not responded to the changing needs of the time. This attitude does affect our plans. Wherever things were not working out we have exited banks and lenders.

You spoke about the average cost of capital and MS ratio, reduction in debt, workforce? Can one put an ideal figure to it?

Gone are the days when you have conventional type of financial products. Now there are multi products because bankers and lenders have also to compete with each other. They are coming out with newer innovative financial products. Today you can refinance debt in your export trade. We can raise money through unconventional instruments at reasonable rate like FCNR loans. We could repay and prepay our high debt, that's how we have been able to bring down our cost of borrowings. Right now we are below two digits. Previously our cost used to be as high as 14 per cent. Factors that contributed to lowering our average cost of borrowings are effective treasury management and overall decline in borrowings.

By the end of this year how much further are you planning to bring down your borrowings? What is the debt-equity ratio you would be comfortable at?

From a debt position of Rs 857 crore in 2000 it was down to Rs 627 crore in 2001, Rs 571 crore in 2002 and to Rs 457 crore at the end of March 2003. We are growing at a respectable pace, therefore we may need some funds to meet our incremental working capital requirements. We need funds to invest in quality initiatives, technology, marketing and logistics. We may not need to invest in creating new facilities but need to invest in all-round upgradation. Our debt has come down to a good level but one need not remain complacent. Our debt-equity ratio used to be 2.5.

Now it is 1.4. This has provided us with enough leverage to raise funds to meet our requirements for organic and inorganic growth.

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