Amritasa Financial Solutions Pvt. Ltd. (AFSPL)-Value Proposition
As lenders of fund, Banks / FIs are entitled to be more aware of the end use of funds they have lent. The present system does not oblige the Borrowers to apprise about the end use of funds. Based on the stock and receivable statement-the authenticity of which cannot be vouched always, the funds are lent. Also the criticality of cash flow monitoring is not given its due.
The usage of funds, especially the working capital funds are at the mercy of the Borrowers and the lenders have very limited scope to monitor the end usage.
Irregularities in the account(s) is only a manifestation of things not being good. The position in most of such cases become more difficult to salvage.
The methodology that Amritasa is proposing is more direct and almost real time approach towards supervision and follow-up in which the Borrowers are mandatorily required to apprise the lenders of the current health of operations, what they are doing to cope up with the challenges they are facing and / or what they are doing to make their operations / growth more sustainable. In so doing all stake holders are virtually on the same page and they can take necessary preventive action on time.
We feel that at the core of everything is the actual operating performance, which needs to be monitored differently for knowing the status of "lent funds under threat or at risk". Borrowers in this methodology need to spell out the current status of their operations and how do they see the next few quarters in numbers. In so doing not only are the lenders abreast of the developments, it also makes the Borrowers more accountable.
Our value proposition:
We are therefore proposing a more collaborative approach towards supervision and follow-up that does not infringe upon the operational freedom of the Borrower yet enjoins the Borrowers to apprise the lenders of their true position and prospect. It also proposes a jointly agreed Performance Status cum Measurable Operation Improvement Plan (PSMOIP), where lenders are well informed and aware of the committed improvements and what has been the progress and realignment needs against those commitments. In view of the volatility in the operating milieu, we propose the unit of measurement to a Quarter which eventually will be monthly.
Now a few lines about our approach:
I. Our Approach-Diagnostic:
- Discussions with Bank officials-at least 2 Rounds. Documents/ Papers to be submitted including perusal of the Credit Audit Report, other Audit Reports, other such documents.
- Discussions with Company's key functionaries-at least 2 Rounds getting their view point, approach and perception on reality check and the way ahead,
- Joint Discussion with Company and Banks to arrive at a common PSMOIP for at least 2 quarters, if not 3.
Back-up papers to be submitted in advance to make the discussions focussed and more meaningful.
Normally each of these discussions take a couple of hours.
Things to be discussed for working on PSMOIP- illustrative not exhaustive:
- Stock Audit Report– for reality checks. The Zoning tool.
- Account Receivable and Account Payable Audit Reports – for reality checks and action plan.
- Secretarial Audit for compliance, Statutory Dues and Compliance status.
- Statutory compliance of HR.
- Credit Audit & Inspection Audit Reports review including Consortium Minutes’ Review.
- Financial Statements Review, Scrutiny of history of CC and Current Accounts, Cash flows Review -fortnight/month/quarter.
- Review of credit facilities including non-funded facilities.
- Financial statements, Quarterly Statements, FFR Reviews
- Cash cycle – Purchase and Sales including payment terms and contract terms.
- Costing Review and way ahead. Continuance / Exit from orders.
- Operational Review-MM, Strategic Sourcing, Yield Improvement, Stores & Consummables, Power cost, Manpower Nos. & productivity, Internal and External Rejections, Quality Standards, etc.
- Pipeline Business review/ Blue Sky orders-conversion/strike rate, expected time line, Profitability thereof.
- Procurement review.
- Manpower numbers and productivity and improvement plan.
- Review of Cash Flow vis-à- vis the Cash Budget-based on data submitted by the Company-historical for past two quarters as well as forward two quarters. Asset stripping/slow non moving stocks/ essential cash deficit.
- Additional security / fund commitment if additional fund is needed.
Tools to be used:
Two broad tools proposed to be used (at the end of the day everything manifests into numbers and the sustainability of the numbers):
- P&L quarterly projection status for at least three quarters based on historical performance and environmental / sectoral prospects. Aspirational P&L where improvements in individual components of P&L are committed by Corporates. Supporting tools to be discussed and KRA alignment to be done by Corporates- Lenders will only restrict itself on the changes in the individual components of the P&L.
- Cash flow forecast for next three quarters. Control the cash. Release based on the cash budget only. Debtors realisation to be mapped. Defer the creditor payment and pre-pone the debtors collection, cut short the cash cycle.
These will help take necessary proactive steps than the existing SMA guidelines
Banks also will need to accept reality- can take more considered decision.
II. Reviewing the Performance Status cum Measurable Operation Improvement Plan (PSMOIP) not only to arrest further slippages but for Inducing Growth-illustrative checks for Company Management:
- Controlling entry and exits at Gates and Plants. Streamlining Inventory position, proper accounting for WIP & FG and Rejections. Strengthening systems & Controls- Strengthening usage of IT.
- Collection plan for old debtors with fortnightly reviews vis-à- vis agreed targets.
- MM reviews, Yield Improvement plan.
- Middle line cost optimisation.
- Business Development reviews including pipeline and on-radar target business, Competitors' analysis, cross selling opportunities, Environmental scanning, Product Costing and Customer Profitability-the segregation into Must Have and May Have categories, Drawing the Market and the Product segmentation matrix, Customer Relationship and Targeting, Business Forecasting.
- Reviewing the Aspirational P&L and Cash Flow with an eye on identifying performance gaps and potential improvement opportunities (e.g., cost reduction and/or revenue enhancement), Identifying and/or challenging potential synergies. The rich operational experience of the special team from Amritasa with hands-on approach brings speed to execution. This is a holistic, cross-functional approach evolved by Amritasa that focuses on quickly identifying high impact opportunities for EBITDA and cash flow improvements across the entire organization through identification and quantification of performance improvement opportunities related to revenue, cost of goods sold, selling general and administrative expenses, working capital and cash management. Strengthening systems & Controls- Strengthening usage of IT. Controlling entry and exits at Gates and Plants. Streamlining Inventory position, proper accounting for WIP & FG. An action plan is designed with assigned roles and responsibilities along with an implementation schedule. Low hanging fruits are addressed first for quick gains. All actions are done in conjunction with management before transferring ownership and knowledge to client personnels.
- Its broad features are:
- Seeing baby steps improvement with course corrections methodology.
- Its Unit of review moves from fortnight to month to quarter to half year to year with recalibrating option.
- It covering all facets of operations.
- It differentiates between Cash flow impacters viz; the accumulators and the drainers and goes forward to draw action plan
- Human Resources Assessment-fit and proper, KRAs, Productivity, Numbers, Job clubbing, Training, Quality Circles, Suggestions Scheme, ESI/EPF, Health & Safety, Administration, etc.
- Cost base and Capex requirements-Product Costing & its optimisation-target fixing and reviews, Capex-review/balancing equipments, new capex, obsolete, Repairs & Maintenance, Old/obsolete Idle Assets Monetising, Diversification opportunities, new opportunities exploring, make or buy review.
- The comprehensive review that Amritasa does with the help of specialists and performers from the domain of: Business Development, Shared Services and Outsourcing, Sourcing and Supplier Management, Quality Improvement, Service and Warranty Optimization, Finance cost reduction, etc.
- No commitment-even implied is given on behalf of Amritasa that additional funding, if needed, will be guaranteed by this engagement.
- The Company will keep Amritasa and its employees fully indemnified against any claim.