The M & A man in M & M

Uday Y. Phadke is President, Finance, Legal and Financial Services Sector and Member of the Group Management Board, Mahindra & Mahindra (M&M). If you think that's a mouthful, well, that designation just got longer last fortnight.

The day this writer met the CFO of the flagship company (Bharat Doshi is the Group CFO), which makes tractors and automobiles, Phadke was given additional charge of the corporate mergers and acquisitions (M&A) cell across the group, whose interests range from real estate to software services to financial services.

"There will be a larger scope for integration and I will be able to ensure better interaction between various departments involved in such (M&A-related) decisions and achieve higher transaction efficiency," says the 60-year-old chartered accountant and company secretary who has been with the M&M Group for almost four decades.

If Phadke has been handed charge of group M&A, it's clearly on the back of several initiatives at inorganic growth, most of which were executed by the CFO's team, and a few would have originated in the CFO's office, too. Doing M&A transactions isn't rocket science these days-but making acquisitions when liquidity is tight and conservation of cash is top priority calls for a sharp sense of sniffing out the right opportunity and a stomach for risk. And the Phadke-led finance team at M&M-doubtless egged on by Vice Chairman & MD Anand Mahindra-would seem to have dollops of that.

In August 2008, M &M kicked off a consolidation exercise, when it merged group company Punjab Tractors-which it had acquired in March 2007 for Rs 1,000 crore-into the flagship. This move is expected to benefit M&M shareholders as a common management will be able to do better justice to efforts at integration between the two companies.

In August 2008, M&M acquired a 51 per cent stake in China's third-largest tractor company, Jiangsu Yueda Yancheng Tractor Manufacturing, for $28 million. A month before that, in July, the automobile maker announced a foray into two-wheelers by buying into the Firodia-owned Kinetic Motors (a new company, Mahindra Kinetic, was floated for this purpose in which M&M owns 80 per cent and Kinetic Motors the rest).

According to Phadke, M&M could do all of this because of the buffer created during the good times. As of September 2008, the group had Rs 1,000 crore as liquid funds. "We didn't feel the need to apply the brakes on M&A activity as per our strategic needs," explains Phadke. "But the challenge at that time was to assure the group companies that their financial needs could be met. We had to prioritise fund disbursals, and phase out some long-and-short gestation projects," he adds.

To ensure that banks kept the funds' tap open, Phadke met a host of senior bankers to provide that extra level of comfort, says K. Chandrasekar, Senior Vice President, Corporate Finance and Investor Relations, M&M. He further explains how Phadke ensured regular fund supply to all business units. "We had just one instruction: Get monthly sales estimates from all units and provide finance accordingly without any delay," adds Chandrasekar.

At a time when liquidity had virtually dried up at the peak of the slowdown, Phadke and his team were able to unlock around Rs 500 crore worth of working capital from the books of Punjab Tractors by holding discussion with its vendors and dealers. Also, the CFO's work doesn't end once an M&A deal is signed. He's also got to ensure that such transactions start delivering projected revenue estimates-especially during the tough times.

Occasionally, Phadke's role in an M&A transaction has extended beyond financial complexities. When acquiring the Chinese tractor company, for instance, the CFO had to, besides managing currency risk, deal with the language barrier, the banking system there as well as government officials. "It was a unique experience," says Phadke.

S. Ramesh, Chief Operating Officer, Kotak Investment Banking, has worked with Phadke on many a deal. He believes that Phadke's strength is his ability to seamlessly integrate and balance strategic imperatives and the financial control aspect in decision making. In other words, he can take financial decisions without undermining the strategic benefits of a transaction.

That's why Phadke can be often seen telling his group colleagues: "You grow the business as much as you want, but first ensure it is financially viable." Now that the economy is in recovery mode, one is tempted to assume that CFOs can breathe easier. Phadke doesn't think so. When the upturn comes along, it's important to ensure that the frugal mindset is maintained, he insists.

Even when the cash registers start ringing, the rigour on the fund disbursal or project approval fronts must not ease up. Phadke also believes that Indian companies need to step up their engagement with overseas analysts and investors.

His team has done at least 13 domestic and international roadshows for investors in the past year. While his job takes most of his time, Phadke believes that the CFO has to constantly upgrade his skillsets, given the complex and rapidly changing financial environment. Scouting the globe for more M&A targets is just one way to pick up those skills-on the job skills.

Best Transformation Agent (Large Company)
UDAY PHADKE President/ Finance/ M&M

• Background: The ICAI member started out in the internal audit division of M&M in 1973. Headed various finance departments.
• Winning move in 2008-09: Keeping financial balance while meeting funding needs without leveraging.
• Challenge ahead: Staying abreast of changing external tax policies.
• Most likely to be heard saying: "Grow a business as much as you want, but first ensure it is financially viable."

CFO MANTRAS

• Create a buffer during the good times to pursue your strategic needs in the rough times.
• Supply funds to all businesses, but prioritise disbursals. Don't hesitate to phase out projects.
• Constantly upgrade one's skill-sets to be in step with a complex financial environment.