The new Middle India is dramatically different-it is more self-aware, confident and self-sufficient. This has implication on business models that can efficiently and effectively be built to service them, brand propositions required to attract them, and the marketing and communication strategies needed to engage with them.

The impact of Middle India is already visible on category growth-categories that historically have had low penetration are now growing fast. Owing to this change, corporate India is being forced to recognize Middle India as a driving force of the new consumer economy. This is happening in six distinct ways:

Ways to be innovative in leveraging balance sheet & operating environment To stay ahead of the game, leading organisations are finding new ways to remain liquid. Reliance Infrastructure, among other things, distributes electricity in Mumbai and New Delhi, and both businesses have come under cash-flow pressures in recent years. While the cost of purchasing power has continued to rise since 2008, there was a freeze in tariffs in Mumbai until 2011. In the process, the firm accumulated 'regulatory assets' - the gap between the actual cost of supply and the average billing rate - amounting to over Rs 3,500 crores in Mumbai and almost Rs 10,000 crores in New Delhi.

While waiting for cost-recovery orders from the regulators, Reliance tided over its funding gap with commercial paper, unsecured loans, and buyer's credit. It also raised some money from banks by giving 'letters of comfort' from the parent company. The Maharashtra order finally came through last August, allowing Reliance to recover these regulatory assets, plus interest, over a period of six years; the Delhi order is still awaited. Now, with an approved recovery plan in hand, the company will be issuing a bond to convert its short-term borrowings into credit of a matching maturity of 5-6 years.

Another viable option for raising money is to securitise one's future receivables. TVS, for instance, until recently had a wholly-owned power generating subsidiary, TVS Energy, which had power-purchase agreements with the state government. It ended up leveraging the anticipated revenues from this project to raise securitised loans. On a different note, firms that have exhausted their working capital limits can look to augment their WC lines with general-purpose corporate loans. If the company anticipates that its cash flows will smoothen out fairly quickly - say, over 2-3 years - a long-term general-purpose loan can help take care of such temporary mismatches. On the other hand, when it comes to capex, it is useful to look at options such as asset financing, leasing, and hire-purchase. Most companies that undertake capital expenditures use traditional pari passu structures, but leasing and hire-purchase not only allow for higher funding amounts, but are also more tax-efficient.

Yet another way to raise money is to extract more 'juice' from existing assets. In structuring loans, banks traditionally look at the historical book value of an asset, rather than its market value - which is often considerably higher. For their part, firms tend to have too many banking relationships - and in the process, tie up their assets in return for relatively small loan sizes. By cleaning up one's banking relationships, and at the same time getting the banks to assign higher, more realistic values to one's assets, it is sometimes possible to get a significant 'bump up' in loan sizes. At the other end of the spectrum, at times, it makes sense to actually draw down one's assets, selling off the less productive, or non-core ones, to stay liquid. Reliance, for instance, inherited a large number of properties from the state-run Delhi Vidyut Board, when it began distributing power in Delhi. By monetising some of them, it was able to pass on lower tariffs to consumers. TVS, meanwhile, chose to divest most of its stake in the energy business when it realised how much additional debt it would have had to take in order to keep it going. Rather than doing this, it brought the focus back to its core business - automotives - and in doing so, removed a large amount of debt from its balance sheet.

The new Companies Act makes it much more difficult than before for parent firms to give loans to their subsidiaries. (There are still some grey areas about the rules, but it may in fact become impossible, going forward, for firms with common Directors to lend to each other - unless giving loans is in the ordinary course of business of the parent firm.) Offering loan guarantees may also become trickier, so in some cases, letters of comfort by a financially-sound parent may have to suffice instead. However, for these to be acceptable to banks, it will help enormously for the two sides to have a strong, transparent relationship in the first place. When a bank is comfortable with an organisation and trusts in its 'pedigree', it is likelier to accept a diluted letter of comfort; if not, it will probably require guarantees. Again, this underscores just how important it is to have a good relationship with one's bankers.

Last but not least, companies should be having a good, hard look at their capital structures while they still have time to set them right. It is not enough to merely run the standard sensitivity analysis; what is needed, instead, is a more rigorous stress-test that takes into account the more extreme scenarios. Some companies would be well served to raise equity or quasi-equity today, even if they feel that they do not need to do so. Planning 6-12 months ahead, and shoring up one's capital structure while there is still some appetite in the market for it, could well work for many organisations.

(Source & Extract : CFO Connect - March 2014)

& Software Exporters Association in Pune ( SEAP)

For the benefit of Software Exporters Association in Pune ( SEAP Forum),was the lead sponsor alonwith knowledge partner - Aditya Birla Money/Birla Sun Life MF for small workshop on the theme - Integrating business & finance - Role of a CFO.

Programme was very well attended by CXO's and well appreciated in terms of speakers quality, presentation and providing learning curve on role of CFO, networking/collaborative opportunity to all the participants.

Please see attached are the photos of the event.

https://www.facebook.com/media/set/?set=a.605014852900407.1073741831.1523987

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