The Presentation made in the GRC forum on 26th April in Mumbai.

1. R.Kannan
Hinduja Group
GRC Forum
26th
April 2013

2. Global Economy
IMF projects global growth at 3.3 per cent in 2013 and 4 per cent in
2014.
Recovery is not consistent in the affected advanced economies.
US growth continues to be steady.
For the first time in the Economic History many of the well developed
countries are finding it difficult to come out of the crisis and the
viable solutions are still not in sight.
There is an increased volatility in all the asset classes and it is very
difficult to predict even the immediate short term developments in
the asset price movements.
Uncertainty in the performance of Governments as well as corporate
had increased.

3. Global Economy
The focus of growth had shifted to Developing and Developed
countries.
There is an increased protectionism in most of the countries and
many countries in the world had drawn up plans to encourage Small
and Medium Enterprises.
At regular intervals, economic and financial system failures are being
reported. There is an expectation which country will fail and how the
crisis developing could be resolved.
Europe’s continued under performance.
Reduced growth in international trade.
The countries which were depending on Trade saw their growth rates
declining.
Banks are not willing to lend . Banks do not even believe other banks.
Banks invest in government bonds instead of lending.

4. Indian Economy
 The potential for growth had come down from 10% a year to 8% a year now
due to structural changes in the Economy.
 The actual growth rate at around 5.0 per cent is much lower than what was
projected, while the CAD is likely to be considerably higher at about 5 per
cent of GDP.
 PM’s Economic Advisory Council projects a GDP growth of 6.4% in F 14.
 The cost levels have gone up substantially in the last three years and the
inflation has impacted almost all sectors of the economy and had reduced the
purchasing power of individuals.
 There is a considerable slow down in most sectors of the economy including
the key industries and infrastructure due to slow down in decision making by
the government due to competitive politics, active socialism and sensational
press reporting.
 The government had taken lot of new initiatives to kick start the growth rate
and realising the situation we are in all the parties should cooperate with the
government so that India’s long term competitiveness is preserved.

5. Performance of Corporates
 Many companies have witnessed falling sales and profits.
 By developing internally excellent operations alone will not help corporates
to report good performance.
 Today many of the variables affecting the performance of companies lie
outside the control of corporate.
 The developments in the Environment has a great bearing in the performance
of the companies.
 Many of the profitable sectors in the last few years have become unattractive
for doing business. The sectors like Micro finance, Power, Mining, Mutual
Funds , Infrastructure and Real Estate , Telecom , Life Insurance have seen
their fortunes fluctuate.
 Performance of companies are determined by the developments in the Global
Economy, Domestic Economy , Government regulation, supply chain issues
and competition rather than an excellent operation.
 Preparing long term plans have become a big challenge.

6. Performance of Corproates – 4200
companies in Q3 – F13
Particulars
Quarter Ended
Oct 12 - Dec 12
Latest Full Year
Rs Crore Var (%) Rs Crore Var (%)
Sales ** 1354120 8.6 4889882 21.4
Other Income ** 40964 41.2 113819 14.1
PBIDT 343402 16.0 1187568 17.6
Interest 173899 17.2 ; 577821 44.0
PBDT 169503 14.7 609747 0.3
Depreciation 36170 10.2 129183 11.1
PBT 133333 16.0 480564 -2.3
Tax 31798 -0.0 129726 -1.0
PAT 101535 22.2 350838 -2.8

7. Types of Risks
Political
Economic
Social
Technology
Legal
Environment
Financial
Operational

8. Risk Management Process
To focus on the following components
Corporates have to focus both qualitative and quantitative risk
Internal Environment
Objective Setting.
Event Identification
Risk Assessment
Risk Response
Control activities
Information and Communication
Monitoring and course correction.

9. Benefits of the process
 Will complement Internal controls, code of ethics and compliance culture.
 Can help to develop sound corporate governance practices.
 Better Informed decisions.
 Greater management consensus
 Increased management accountability
 Smoother compliant practices.
 Ability to meet strategic goals
 Reduced earnings volatility
 Increased profitability
 Competitive tool
 Risk based pricing strategy.

10. Risk Management
 There is a conflict between risk management and profit maximisation.
 There should be proactive approach to managing risk
 It has become a board level issue and monitored at regular intervals by CEO’s.
 Have become one of the important functions in the volatile Economy.
 Many large corproates have created a full fledged function at senior levels to manage
risks.
 Helps to create competitiveness for the corporate.
 Rating agencies give a higher weight age for companies which have a well organised risk
management system.
 Revise the risk practices in line with the emerging trends.
 Create a risk aware culture.
 Create risk management owners at the enterprise, division, and unit level.
 Encourage firm wide communication on risk management.
 Maintain a level of risk that aligns with the company’s risk appetite.
 Scenario Planning and identify action plans all the visualised scenarios.
 Use strategic plans as basis for risk management programmes.

11. Growth Strategies
Companies have to be very careful in deciding the growth strategies.
The sectors and countries which were attractive are no more
attractive today.
The sectors which are very attractive today will not be attractive in
future.
Careful evaluation of countries, products and customer segments is
required.
Mergers and Acquisitions to be done with extreme care.
Focus should be on short term growth and generation of cash flows.
Long term commitments on investment have to be taken with big
caution.

12. Operations Management
Explore the scope for higher capacity utilisation.
Adopt lean management principles.
Focus on productivity of all the available resources.
Reduce cost of operations.
Explore the scope for outsourcing.
Convert Fixed costs into variable costs.
Follow an Asset light model.
Addition to the capacity to be undertaken only after getting a full
visibility of using the total available capacity.
Closely monitor the suppliers and their adaptability to changing
demand conditions.
Closely monitor the change in Customer behaviour and accordingly
change product, pricing, distribution and promotion strategies.

13. Organisation Structure
 Large corporates should have a focussed risk management function.
 Risks have to identified up to the level of each unit operation and for each
level , an owner has to be identified for managing the risk.
 The people in charge of managing risks at different levels have to be
empowered through well defined powers of authority.
 There should be a constant and transparent communication to all the
stakeholders.
 Communicating the perceived risks to all the levels would help to get ideas to
managing the perceived risks.
 Risk aware culture has to be created.

14. Financial and Funds Management
 Close the accounts every month .
 Develop a robust criteria for new investments and portfolio diversification.
 Strictly adhere to the criteria for investments.
 Focus on Cash generation.
 Conserve Cash
 Reduce the credit cycle time.
 Reduce the dependence on high levels of debt.
 Deleverage the Balance sheet if high levels of debt.
 Follow natural hedging strategies for forex exposure.
 Hedge the receivables and payables at a budgeted rate.

15. Reporting and Monitoring
 Financial statements have to be prepared at regular intervals.
 Key parameters to be monitored on a daily basis.
 Early warning indicators should be developed ( leading, lagging indicators to be
monitored to spot the warning signals).
 The tools like Leading indicators, Risk Inventory, Sensitivity analysis, Scenario analysis
could be used for reporting.
 The reports should be made at least once in a month.
 The parameters for monitoring could include Trends report, KPI’s , P&L , Balance sheet
and cash flow.