Anil Khandelwal, CFO,
Joint MD and ED, REEL
More than almost anything else, Covid’s impact will be felt in terms of liquidity and the consequent financial distress. Amidst all the chaos, the CFO will play a central role in stabilising the business and positioning it to thrive when conditions improve. The CFO must demonstrate strong leadership by optimising cash flows, planning a range of scenarios, communicating clearly and proactively with internal and external stakeholders, rationalising costs, improving efficiencies, adopting technology and taking strategic bets. At Ramky Enviro Engineers Limited (REEL), a 60% KKR owned Hyderabad-based waste management firm, which handles 65% of total Waste in India and one of the Asia’s biggest in this space, Finance – under the leadership of Anil Khandelwal, its CFO, Joint MD and ED – is not only helping to manage the crisis at hand, but is also building a strong foundation for the ‘next normal’.
Despite being in the essential services space, REEL faced operational disruptions during the lockdown. The impact became evident in Q1 FY21, which saw a 25-30% dip in revenues. However, the company is confident of getting back on track in Q2 and onwards. Under Mr Khandelwal’s watch, the Finance function has set up the first line of defence by ensuring a heightened focus on cash flows and shifting from the annual budgeting approach to a three-month rolling budgeting and cash-flow approach, with a focus on identifying cash-flow and EBITDA risks. Organisation-wide curbs have been imposed on spending. During a crisis, it is important to communicate clearly and proactively with internal and external stakeholders. Finance has ramped up the frequency and transparency of communication with employees, suppliers, customers, lenders and financial institutions, and regularly updates them on operational and other issues. At the same time, investors, Auditors, the Board and Audit Committee are proactively briefed on actions taken on liquidity, forecasts and other matters.
Employee health and well-being is paramount for REEL. To ensure workforce safety, the back-office was quickly virtualised. The Finance team worked from home efficiently, closing the books of accounts on time. Many initiatives were taken to keep employees engaged, including regular training sessions, one-on-one discussions and ‘fun connect’. Presently, 35-40% of the Finance staff is back in office. Going forward, the plan is to ensure that about half the team will permanently work from home. To that end, investments will be made in remote management productivity and monitoring tools.
To plan for the next normal, the Finance function has embarked on a journey to optimise all costs – both direct and indirect. Operational efficiencies, procurement terms and overheads are all being meticulously analysed. In the medium- to long-term, REEL aims to triple its top-line and bottom-line. To enable that, it is considering strategic bets, such as increasing its stake in other firms, and seeking M&A opportunities, including through strategic acquisitions. REEL will be going ahead with both its short- and its long-term Capex plans, valued at Rs 500 crores and ~Rs 3,500 crores, respectively.
In a candid conversation with CFO Connect, Anil Khandelwal, shared his insights on the CFO’s role in leading through a crisis.
India’s largest waste to energy plant located at
The waste industry in India is highly fragmented, unorganised and in its infancy. The impact of Covid on the industry is much lower than other sectors, given the essential and emergency nature of the services. However, the sector has had its share of challenges in terms of workforce availability and their motivation to perform. Specifically in terms of the impact of the pandemic on REEL, there was some disruption in operations in the first few days, when we saw a dip in the waste generated. However, things improved quickly and we got the required support from the government and local authorities. Evidently, the Covid-related waste has gone up since May. Specifically, the waste generated by commercial establishments and industries is seeing a gradual uptick, not counting multiplexes, food joints, bars, etc. The waste now generated is close to 85-90% of the pre-Covid levels.
Despite being in the essential services space, REEL had its share of challenges during the lockdown. The medium to long-term outlook remains good.
We closed FY20 with a turnover of Rs 2,500 crores (including Rs 700 crores of revenue from overseas operations). Revenue and profitability in the first quarter were impacted by about 25-30%, but are expected to be near normal levels in July. We are confident to be back on track from Q2 and onwards. In spite of an impacted Q1, we are reasonably confident to grow the year by around 15-20%.
We see a lot of opportunities to emerge in cross-section of the market including handling of Covid waste and sanitisation services.
In such times, the key challenges include keeping the work environment safe, the workforce motivated, and ensuring optimal use of resources, including the availability of manpower – which is the main raw material for the business we are in. In fact, we see a lot of opportunities that will become available in a cross-section of the market, including the handling of Covid waste and sanitisation services, among others. Our medium- to long-term plan is to triple revenues and EBIDTA within four years by expanding our business both domestically and internationally.
Covid-19 crisis will lead to a greater appreciation for the environment and will drive greater investments in environment, sanitisation and health space.
Covid-19 crisis will lead to a rethink of the entire economic development trajectory. There will be greater appreciation for the environment and sensitivity of the impact that businesses have on the same, leading to a better focus on investments in environment, sanitation and health. Waste Management will be a direct beneficiary. Significant opportunities will emerge in the municipal, bio medical waste and associated businesses. Further, overall focus on regulation and regulatory compliance will move the sector up.
REEL’s workforce requirement for operations could get impacted if the pandemic prolongs or a vaccine gets delayed. Risk management including suppliers and customer liquidity is critical.
If the pandemic continues or worsens, or if a potential vaccine does not come on time, REEL’s workforce requirement for operations could get impacted. The risks due to supply-chain disruption, though not significant, cannot be ruled out. In the recent lockdown, the speed of the banking sector, in particular the PSU banks, was slow, which impacted timely approvals of funding requirements. If this continues, the availability of liquidity for increased business requirements will get constrained.
Finance will need to play a critical role and focus on liquidity by working closely with banks to enhance working capital limits and proactively ensuring cash surplus all the time (even at a cost). Additionally, Finance needs to monitor critical supplier bankruptcies and more importantly, ensure suppliers are paid on time and their critical performance parameters are reviewed vigorously. In these tough times, liquidity concerns of customers may also need to be factored in.
The focus today is on preserving cash, rationalising costs, managing risks, communicating seamlessly with internal and external stakeholders and motivating the employees – big time.
My top business concerns include employee well-being, safety and survival. Other than that optimisation of liquidity, collections, supply chain and labour availability remain the top concerns. Broadly, there are macro-economic challenges around the inability of the corporations to pay in case subsidies are withdrawn or tax collections remain low.
As a CFO, the priorities have changed in the following ways:
We have enough cash buffers to keep us afloat for another three quarters.
At REEL, we have a strong capital structure which was further enhanced by KKR’s primary infusion of USD 100 million in 2019. REEL’s strategy as a growing company is to remain liquid with a focus on tapping into adequate working capital. It has paid well for us and we are confident that the present resources will keep us in good stead for another three quarters. We are also in advance stages to close additional WC lines both in India and overseas.
The pandemic has given us more time and opportunities to explore restructuring parts of the business, process improvements and automation.
We were already exploring restructuring parts of the business by aligning business verticals within companies. The pandemic has given more time and focus to the issue. Cost and Capex optimisation measures have been developed, and goals are set to target higher efficiencies and lower per-unit procurement costs. Process improvement and automation initiatives, such as improved usage of SAP and other tools, are under implementation, while the process to implement additional modules is being finalised.
We will be rationalising all costs – direct and indirect – though people costs are unlikely to be cut
People cost, fortunately, is not a candidate for a cut, though cost increases are being rationalised across the board. Since we are a growing organisation, any optimisation in manpower efficiencies will not result in lay-offs. We have massively embarked on a journey to optimise all costs – direct and indirect. Operational efficiencies, procurement terms and prices, and overheads, are all being meticulously analysed. We are confident to add significant savings.
Going forward, close to half the Finance staff will work from home permanently.
To our surprise, productivity levels were, in fact, higher than normal. With work from home, the time spent on travel and the resultant fatigue added to working hours, leading to higher productivity. All meetings started and finished on time and added to improved productivity.
In spite of REEL being a multi-location company with operations, subsidiaries and associates, both in India and abroad, as well as multiple auditors, the books were closed on time and the annual accounts were adopted on schedule in May by the Board. In fact, the Audit Committee was pleased with the quality of the work, including IFC and the adoption of the new accounting standards. We had no ‘emphasis of matter’ from the auditors, apart from the normal Covid disclosure.
In terms of the current status, 35-40% of Finance staff are back in the office. Going forward, our plan is to ensure that 40-50% of the Finance workforce permanently work from home. The modalities to enable them to work effectively from a remote location and to monitor productivity is now under evaluation.
To improve employee engagement, we have taken many initiatives, including regular training, one-on-one discussions, and ‘fun connect’.
We have undertaken many initiatives to keep the team engaged. For instance, we are conducting regular training sessions – both subject matter and cross-functional, soft skills and leadership development – for which I am personally ensuring attendance. We are promoting the learning of SAP and other tools, including the promotion of good accounting practices and review of processes/MIS for improved bookkeeping. Lastly, the focus is on improving the quality and frequency of communication through structured team meetings, one-on-one discussions and initiatives like ‘coffee with management trainees’.
We are actively looking for strategic bets for future growth and will be making investments as planned. Our AA Rating is a big tool for us.
We had our operations running even during the lockdown as the company is in the essential services space. For us, survival meant ensuring high productivity and keeping costs in check while aiming to get back to normal revenues to circumvent the impact of fixed costs and an increase in welfare and other expenses. In the medium- to long-term, we aim to triple our topline and bottom line. For that, we have signed agreements in ventures overseas to increase our stake. We have also closed deals with banks in this pandemic time and are actively looking for M&A opportunities with a small size strategic acquisition expected to close soon. Our Capex/investment plan of close to Rs 3,500 crores in the next 4 years is on and even in the current fiscal year, we are on track to invest/spend over Rs 500 crores.
We are confident that the our Rating of AA by India Ratings will be amply proved since business is robust with strong competitive advantage
For a greater impact during such times of crisis, CFOs must demonstrate skills in change management, talent development, strategy execution and technology savviness.
CFOs can have a huge impact on change management by finding the problems that are holding the business back from reaching its full potential, diagnosing why these are occurring, and evaluating the scale of change that is required to solve them. Second, nurturing talent is an essential skill for any CFO. Third, CFOs should be able to effectively implement the mission, vision and strategy of the company. Lastly, CFOs should be tech-savvy and push for greater automation of key business processes and digital initiatives for remote working.
At this point in time, Finance leaders must avoid doing the following:
More than almost anything else, Covid’s impact will be felt in terms of liquidity and the consequent financial distress. Amidst all the chaos, the CFO will play a central role in stabilising the business and positioning it to thrive when conditions improve.
Sujit Vaidya shares his journey and the lessons learnt along the way
Today’s CFO has a multi-faceted role and is expected to be a performance leader, a steward of control, a catalyst of change, an operator of efficiency and a strategist of growth.
Adit Jain, Chairman and Editorial Director, IMA India
Covid-19 is unlike any other recent crisis. So far, it has killed many more people than SARS did, and this time, the recovery will not be V-shaped but far more hesitant.
Mark Oliver, Founder of MarkTwo Consulting
In today’s tough times, CXOs must not only captain the ‘organisational ship’ from a long-term strategic point of view, but in the short-term, ensure that the ship stays afloat.
Ramesh Venkat, Founder and Managing Partner, Fairwinds Asset Managers
India’s financial sector, which was already grappling with NPAs to the tune of 12-13% of assets before Covid-19 hit, is likely to see these ratios worsen in the coming months.
Gautam Khanna, CEO, PD Hinduja Hospital and Medical Research Centre
A crumbling economy, lengthy lockdowns, social distancing, a scramble to develop a vaccine, and varying perspectives on how to manage the crisis: there is much in common between today’s situation and the Spanish Flu of 1918, which killed millions.
Sandeep Chilana, Managing Partner, Chilana & Chilana Law Offices
The GST has remained a topic of debate and, in many cases, trauma compounded by frequent changes in tax rates, confusing and sometimes conflicting rules on input credit and the continuing threat of anti-profiteering action by the authorities.
Manish Sabharwal, Chairman and Co-founder of Teamlease Services
The Covid-19 crisis has unleashed mayhem on the world of business. While the initial response focussed on employee safety, supply chain disruptions and business continuity, the longer-term implications will be profound. Many companies have moved to complete, almost overnight, digital transformations that they may have been planning
Rajat Sethi, Advisor to the Chief Minister of Manipur and Senior Research Fellow, India Foundation
In managing a crisis like Covid, governments have no rule books to follow. In both scale and complexity, the challenge is unprecedented and the response must combine boldness and caution in equal parts. Narendra Modi’s government has imposed a strict, nationwide lockdown, which has been twice extended.
Richard Martin, Managing Director, IMA Asia
As Asia emerges from the shadow of Covid-19, there will be disparity in economic performance across the region. Some markets will count out stronger, others weaker. Over time, there will also be an economic and geopolitical ‘rebalancing’, not just within Asia, but between the region and the world at large.
Ananth Narayan, Associate Professor of Finance at SP Jain Institute of Management and Research
Unlike with the 2008-09 Global Financial Crisis (GFC), India entered the Covid-19 crisis on a weak footing. Growth was slowing, the fiscal position was precarious, a number of key sectors were distressed, as was the financial system.