Nitin Parekh, CFO Zydus Cadilla, excerpted from his speech on the Rise event in Ahmedabad.

You all know there is a significant difference between profitability and liquidity. There is a difference between money in your bank and money in your books. So, liquidity is very important. That is the chief reason why certain companies get higher multiple valuations. Managing cash flow requires an eye on working capital. Cashflow, tax, and various other payments are there. However, managing working capital is a day-to-day task. So, businessmen should be concerned that what is the holding period of inventory, what is the number of days of credit you allow to your customers, and the number of days of credit you enjoy from your purchases from your creditors. This management of working capital on a day-to-day basis is important. Let me give you the context of Covid. During the Covid time, everybody was very concerned about of sustainability of business and management in cash and working capital. In March 2020 when the epidemic started, my management asked me to work out a strategy to achieve three objectives. 1) continuity of business, 2) conservation of cash and 3) rationalisation of cost and fortunately we could achieve all three objectives. What we did was we immediately established a liquidity management office. The office worked with all the business heads, and finance officers in the entire organisation, both in India and abroad in twenty-five different subsidiaries across the world. Working with all of them, including the challenges of a time job. We got the information, and we decided on payment priorities. Five priorities. Not saying this is how you do work normally, but during a difficult time how do you conserve the cash, The priority is payment for raw materials, your inputs, and packing material that is required for running your business. Second, employee payments, wages, and loans for medical purposes. Third, payment for transporters, and insurers which are key to continuing the business. Payments of income tax, GST, freight etc. and fifth was debt servicing and debt payments. These were entities that were monitored on a day-to-day basis. In that exercise we learnt about payment practices, inventory holding periods and various things about all subsidiaries in the US, Brazil, Philippines, South Africa, and Mexico, as to what are the practices there and where can we possibly bring best practices for our growth. In that process, we developed a matrix, which is a very powerful matrix, and all the businessmen can do is to daily monitor four parameters 1) collection v/s sales what is your today's collection and what is your today's sales? 2) sales v/s production, how much are you producing in value how much are you selling today? Third production v/s purchase are you producing over production requirement and fourth purchases v/s payments. If you can master these four parameters and monitor daily, I think you will have complete control over working capital. And we run various scenarios - optimistic scenarios, what will happen what will not happen. How deep-rooted covid would be, and how long will it continue, we ran all kinds of scenarios.

The net result of it is that from April 202 to December 2020 we could repay our debt of 2100 cr in these nine months. That is the power of managing working capital. We talked about two trade-offs - one debt v/s equity and profitability v/s cash flow. But as a businessman, you would have much more trade-offs and you need to decide, your priority, your choice, based on overall organisational objectives and risk-return payoffs.

Some of them risk v/s return how much risk you want to take from your return. There have to be some guidelines available for your organisation and available for your team members. This is what we are and this is what we are not for. So what would you do and what would you not do both are important. Second, whether you go for short-term borrowing vs long-term borrowing, interest rate keeps on fluctuating. Should you go for a fixed interest rate or a flexible interest rate? Should you concentrate more on domestic sales or export sales would you like to take more credit and take more credit risk vs loss of business? These are trade-offs daily many of you would have to do, it would make sense for you to have your bible on how you want to approach all these trade-offs.

Some advice for you as a businessman and for your businesses.

First, let me talk about you as a businessman, trust yourself and your business instincts, leap of faith situations are very common in business where data would not support you, judgment will have to be exercised, Don't allow success to go over your head. Don't be complacent, never lose the fighting spirit embrace change with open arms and consider your health no less important than business health. Talking of businesses does allow enterprise-building orientation to take the risk that is not justified most entrepreneurs have this ambition of creating a big empire and doing that the big mistake many times is the sales orientation or revenue orientation, revenue orientation if there is no light at the end of the tunnel of profit is dangerous. Don't allow them to come to you. Keep revisiting your business model every time. Are your business models still sustainable, when you talk about sustainability you are also thinking of profit with purpose and concern for the planet. The world is changing, and climate change is important in the minds of all the authorities, and some of the businesses, if you are engaging with a problem or concern with the planet, you should believe more restrictions are bound to come and some of the businesses will not be allowed. So, revisit your business model, keep track of the technology, and go for simplification, and automation wherever required. In Zydus most of the routine task is done by workflow or RPS. Many people think things like automation are buzzwords only for large companies' work – no, smaller companies also can work question is how do you take technology not allowing you to be a master but as a servant? if you can make it work you will be able to reap its benefits.