Sustainable leverage is the touchstone for incremental fundraising at Nayara Energy says CFO Anup Vikal
Anup Vikal, CFO, Head of Legal and Corporate Social Responsibility (CSR) at Nayara Energy, has more than two decades of finance function experience that spans interesting corners of the economy from e-commerce (Snapdeal), telecom (Aircel) and hospitality (InterGlobe Enterprises) in the past to energy nowadays .
Vikal shares his thoughts on topics ranging from risk management and fund raising to CSR priorities and metrics. Nayara Energy owns and operates India’s second largest, single site refinery at Vadinar in Gujarat.
Peering into the next few quarters, Vikal said, “The CFO has to play a strong central role, more so today, to protect and stabilise the business, while enabling it to prepare for the future.”
Edited excerpts:
A: The fundamentals of the Indian economy are robust and India still remains the destination of choice for investors. I am optimistic about India’s prospects, once uncertainties around COVID-19 recede and global economies, including India, gradually return to their pre-COVID growth trajectory.
For the economy to recover from the slowdown, a combination of structural reforms in industrial and agriculture sectors, better fiscal management and a gradual increase in manufacturing and infrastructure initiatives is important. Leaving more money in the hands of consumers will pave the way for future growth.
India’s current economic growth is driven by consumption, which has been redefined by the technology revolution we have witnessed. We have the largest youth population in the world at over 65 percent, thriving on pace and change.
Today’s youth are consuming everything, ranging from food to shopping, banking, healthcare to even dating by using technology. Even at a moderate 6-7 percent growth in consumption over the next 5-10 years will provide a huge boost to the overall growth.
The other key driver of economic growth is the agricultural sector. The government’s initiatives in addressing the issues confronted by this sector will lead to demand growth.
The pandemic has also opened an opportunity for India to build a resilient economy and spur economic growth by harnessing its manufacturing potential. The pandemic has disrupted supply chains worldwide due to state-imposed lockdowns. As companies look to de-risk their global supply chains, India can position itself as an attractive alternative to become a global manufacturing hub. India’s abundantly skilled workforce and strategic location, combined with a vibrant democracy, makes it a compelling manufacturing proposition.
Q: The energy sector is currently experiencing some long term changes in terms of geopolitics and climate change. What is then the future that a company like Nayara Energy is looking at? Is diversification the way to go? What is the future of energy companies?A: India's energy requirements and GDP growth move parallelly. The Indian government's investor-friendly policies, strong relations with crude oil suppliers and a series of energy reforms in recent years will provide the required impetus to push growth in one of Asia's fastest growing energy markets. Nayara Energy is well positioned well to tap into this growth.
We are accelerating our retail expansion. Currently, Nayara Energy has grown the number of retail fuel stations to over 5,700, making it the biggest in the private retail fuel segment. We have robust plans for more growth.
Q: In a big surprise, oil futures went negative in April. Are you also watching out for any dislocations in the global currency markets as a result of COVID-19 within the next 18-24 months? What is it that you are doing to protect Nayara Energy from any such volatility?A: Volatility in commodity price and currency are two key risks which are inherent to the nature of our business. We have a comprehensive risk management framework in place to address these risks.
Nayara Energy has followed a prudent hedging strategy to mitigate risks arising due to fluctuation in oil prices as well as foreign currency. We do not believe in taking any speculative positions. Our philosophy is to use the hedging instruments available in the market as a tool purely for protection against risk and focus on our core business, which is refining and marketing of oil products.
As regards global currency markets, we do not see any major disruptive movements, as the dollar has been relatively stable over the last few months. The rupee has also been hovering around the same level for the last four-to-five quarters. Our forex reserves are at record highs and have crossed half trillion dollars. We expect the rupee to remain stable and rangebound over next 12-18 months.
Q: Is Nayara looking at fund raising in the next couple of quarters?A: While I am unable to make any forward-looking statement, what I can say is that Nayara Energy is focused on strengthening its Balance Sheet as part of its financial transformation journey. We are continuously looking for opportunities to optimise our interest cost by refinancing old high cost debt with new cheaper debt without increasing overall debt levels. However, any incremental fund raising for any fresh investment or capex will be based on maintaining a sustainable leverage in line with the Board’s guidance.Q: How are you viewing the fundraising prospects both globally and domestically in India? How do you look at the cost of capital over the next 12-18 months?
A: Nayara Energy is constantly looking for innovative ways to meet our funding requirements. The company is seeking ease of restrictions on foreign loans from the government. We hope the government will reassess end-use restrictions and pricing cap on External Commercial Borrowings (ECBs) to maintain the financial health of oil companies.Q: Nayara Energy often uses the term HSEQ priorities for its health, safety, environment and quality agenda. And these values resonate in post COVID-19 times. What influence can a CFO bring to this area?
A: Nayara Energy’s commitment to safe and reliable operations remains paramount for its employees, contractors, communities and stakeholders. The company prioritises health and safety above all and has calibrated its interventions across the value chain, right from refining to supplies and distribution to marketing.
Our refinery operates an integrated health, safety, environment and quality (HSEQ) management system compliant with the ISO 9001:2015, ISO 14001:2015 and ISO 45001:2018 standards. The refinery also has a robust Emergency Response and Disaster Management Plan (ERDMP) in place and conducts mock-drills periodically to check and evaluate the effectiveness of the risk control systems in place.
While I manage organisation-wide controls, risk and planning frameworks, I also have the opportunity to lead the company’s corporate social responsibility initiatives, which form a prominent part of the company’s sustainability journey.
Nayara Energy appreciates the social and economic diversity in the country and has consciously embedded the community engagement dimension in its business planning, risk and reputation management processes. The company’s CSR initiatives have played a pivotal role in improving the quality of life of the communities living in the vicinity of operations of the company.
Q: As head of the CSR activities at Nayara Energy and wearing your CFO hat, how do you bring the financial rigour to the CSR activities? What in your opinion are good metrics to judge CSR activities?A: At Nayara Energy, the past two years have been transformational in nature. Performance and sustainable development have been central pillars of our growth journey. Our CSR strategy is deeply embedded into our core culture and values, and we incessantly work towards socio-economic upliftment of the communities spread across 15 villages in Jamnagar and Devbhumi Dwarka districts. The social initiatives we nurture span across areas of sustainable livelihoods, environmental sustainability, education, skill development, and health and sanitation.The metrics we use to measure our CSR work includes the way we are sustainably impacting people’s lives and how we are being a responsible ‘neighbour of choice’ for the communities around us.