Coca-Cola in India refreshes millions of consumers with a range of beverages including Coca-Cola, Diet Coke, Thums Up, Fanta, Sprite, Limca, Schweppes, Maaza and Minute Maid brands through a network of more than 2.2 million outlets. The company provides extensive support for community programmes across the country, with a focus on education, health and water conservation, and has already undertaken over 500 rainwater harvesting structures in 22 states of the country. It also runs its flagship programme – Support My School – which aims at creating happy, healthy and active schools. So far this programme has created 200 such model schools in the country.

Volatility in the market, whether commodities, currencies or interest rates, regulations and counterparty risk are three things that might keep Gunjan Dhawan, Coca-Cola’s India Treasurer, awake at night. “As the saying goes: ‘I sleep like a baby’. But babies do wake up almost every hour,” he jokes.

When Gunjan Dhawan joined Coca-Cola India in August 2006, the company’s balance sheet was awash with cash. “It was very exciting to join a cash-rich company, but quickly I realised that we were running a seasonal business. The cash levels would vary depending on the time of the year,” says Dhawan. The off-season is the time when the company invests in capital equipment and expanding the business.

Before joining Coca-Cola, Dhawan oversaw business planning and treasury at Yamaha Corporation. It was an interesting move in two ways: firstly, from the automotive to beverages industry; and secondly from an Eastern to American company. He applied his experience from the automotive industry to guide automation at Coca-Cola. “The business environment was changing in India and banks were launching a number of new corporate products. The central bank Reserve Bank of India (RBI) had introduced a number of automated instruments for corporates. As a result we were able to demonstrate, slowly with each small success, that it is possible to automate treasury,” explains Dhawan. He began by sweeping, using zero balance account (ZBA), and then moved onto automating collections, which is an ongoing project.

The treasury team plays a critical role in engaging with their bankers and also making the stakeholders aware of the pace of change in India, as banking and payments systems in emerging markets (EMs) are evolving quickly. Some changes, which maybe took ten years in the US or Europe, are coming to fruition in only three years in the EMs. “If a corporate is keeping track of all the things coming over the horizon and engaging with the banks, then it is much easier to be prepared,” he says. “In the past seven years we have completely changed the way we work – it’s almost all electronic now.”

When he first arrived at Coca-Cola India, the treasury function was mostly transactional – overseeing basic roles such as daily fund transfers from more than 100 different bank accounts. “We have worked to transform treasury into a more analytical function,” he explains. “We are now seen as a strategic business partner, with other parts of the business looking to us to find innovative solutions for their issues.”

Treasury performs a wide array of functions, including cash management, liquidity planning and control, corporate finance, manages foreign exchange (FX) intra-stage and helps the commodity team. It manages surplus cash, as well as interacts with banks and credit rating agencies (CRAs). It also deals with the insurance companies and manages the pension funds and schemes. Treasury is responsible for debtors and credit management, and oversees the supply chain finance (SCF) programme.

He believes that the treasurer’s prestige has risen since the global financial crisis, when CEOs and CFOs started to look towards treasury to add more value to the business. “The key critical functions of treasury are to help create, grow and protect value,” he explains. “The role of treasurer has become more strategic and important in terms of decision-making to ensure that growth is sustainable and the company is not losing market value.”

The pull of the profession

After doing an MBA and a Masters in Finance and Control, Dhawan joined Yamaha as a trainee. At the time, he was “fortunate enough” to be asked what role he wanted to take. He said he wanted a role in which he could: do something new almost every day; engage with people who actually do the business; go right to the basic process of the company, which is procurement, planning, supply chain and manufacturing; and work with service functions such as legal and HR, or go out into the field. The CFO at the time said: “The only function in which you can do all this is treasury.” So Dhawan decided to give it a try.

Since then he has been with treasury “enjoying each and every day”. “During the past decade, India – and the region as a whole – has experienced major change, and the treasury team has been at the forefront of rolling out innovative cash management solutions, whether that is mobile banking (m-banking), mobile payment (m-payments) platforms or a 24-hour National Electronic Funds Transfer (NEFT). We’ve ensured that treasury can implement platforms and solutions which not only benefit treasury but can make a difference to the business.

“We are now seen as a strategic business partner, with other parts of the business looking to us to find innovative solutions for their issues.”

“For example, if a corporate has a collection system which is state-of-the-art and ahead of its time, it can support the sales function to perform much more efficiently. Sales doesn’t need to be concerned about whether or not the money was collected from goods sold the night before. Treasury can also work with purchasing to ensure that the right materials are purchased at the right time. Then purchasing doesn’t have to worry whether or not treasury will be able to make timely payments.”

Dhawan firmly believes that improving communication with the other stakeholders is the key to success. He gives the example of procurement, who may be working with a strategic vendor to price a deal which could help a corporate buy six months of stock at an attractive rate; whereas treasury is working on optimising working capital and ensuring that the company does not carry extra inventory in its balance sheet. Even though both are working towards optimising value for the company, they are using opposing metrics. “If we talk together, we can ensure that we synergise our efforts. Treasury can bring to the table the expertise of cash forecasting and better pricing through the banks, and procurement can add negotiation skills and expertise on that particular product.”

If it is not a new challenge within the organisation, then treasury spends its time addressing external issues, such as regulatory change and volatility in currencies and commodities. “No two days are the same – that’s the exciting part of the job,” says Dhawan.

Riding the crisis wave

Every company has been adversely affected by the global financial crisis, according to Dhawan. “Even if not directly, then probably it has affected a company’s high growth expectations, in the situation where they are still growing but not at the same rate; some, on the other hand, are not growing at all.”

Close to three years ago, treasury led the implementation of an enterprise risk management (ERM) programme, which engaged with senior management, the Board and all the functional heads. Treasury ran a five-day workshop to identify the company’s top risks. Obviously, the global financial crisis and volatile markets were identified as key risks to business’s profitability. “We started with risk awareness and mitigation, and then moved on to drawing up long-term contracts with a number of strategic vendors to avoid being subject to price hikes. We also worked with HQ to put in place an adequate hedging programme.”

Regulatory changes, specifically around tax, remain an area of concern for Dhawan, as does currency and commodity volatility. “Many of our ingredients are agricultural commodities, eg sugar cane or corn, and if these prices start rising then it is not easy for us to increase the end product price. The consumer is not going to pay the price for a hike in the price of our commodities or currencies.

“If the China slow down eventually occurs, then commodities might decrease in price, or at least become less volatile, which could help us in the long-term,” he says. “But as a strategic treasury, we can’t base our plans on macro events; instead we take certain steps to mitigate these risks, such as hedging, long-term contracts for certain commodities, etc. If we expect the prices to go up, then we will try to purchase materials six or nine months in advance.”

Sustainable relationships

Treasury deals with seven global partner banks, and the number has remained stable over the past seven years that Dhawan has been with the company. Working with banks as business partners has always ensured that the company is better off than taking an opportunistic approach and changing banks whenever it sees a small benefit with another bank. “We expect them to profit from the relationship as well because only then will it be sustainable.”

He expects these banks to play a major role in the company’s SCF programme. “Many of our vendors in the mid-market segment can’t gain access to banking facilities, whereas as a group we are well provided for. If mid- and small-market vendors struggle, then ultimately that becomes a problem for us because their sustainability is key to our future growth.”

He also wants the banks to continually develop cheaper and alternative sources of funding, as well as provide guidance in managing FX volatility.

Over the past two years, treasury has started generating cash from operations, which has reduced its dependency on bank credit. This will put the company in good stead in a rising interest rate scenario.

Despite this, treasury has to ensure that the cash flow forecasting is robust and needs to maximise results, even with a cash surplus. “We work with 25 operating units in the field, who are the ones either generating cash or using the cash for purchases, to develop a rolling estimate for a 12-month cycle. We then break this up into a detailed three-month cash flow cycle, which is again broken up into a monthly and then a weekly forecast. We check the rolling estimates accordingly, which helps us either place more deposits because we know cash is coming in, or we use shorter-term bank deposits because we aren’t generating a lot of excess cash at that time.”

In India, companies are restricted to physical pooling, as notional pooling is not allowed. Dhawan expects that within a year, treasury will have a physical cash pooling structure in place. However, “physical pooling is not operationally convenient because we actually have to move funds in and out of accounts on a daily basis.”

Technology and innovation

Because Coca-Cola India has grown at a rapid rate, treasury is keen to move away from spreadsheets due to the issues associated with manual input, resources, etc. Nirvana for Dhawan, as with most treasurers, is to remove all manual processes and become 100% automated. However, although Dhawan would like to implement a treasury management system (TMS), there is a cost attached to it and treasury would need to do a cost/benefit analysis in order to vindicate the investment.

“At the moment, the way we are structured, I don’t think we can justify a TMS. We are using our banks’ technology and data linkages with our corporate system. For many banks, we have a host-to-host connectivity.” Treasury also has specific modules plugged into its enterprise resource planning (ERP) system.

Coca-Cola’s global treasury has recently implemented a TMS, based on SunGard and Reval, so Dhawan is hopeful that the Indian operations can make use of some of the learnings and possibly gain from the benefits of automation and at the same time minimise the cost.

Currently, treasury spends most of its time focused on automating collections, which is spread across 300,000 retail outlets and 5000 distributors. The second area of focus, as mentioned above, is the SCF programme dealing with small and medium-sized enterprise (SME) suppliers.

In terms of collections automation, Coca-Cola’s India treasury is working on a mobile solution to eliminate collecting cash from 300,000 outlets. In partnership with its banks, the company is engaging with the RBI to ensure that over the next three to five years most of its cash can then be moved through mobile and not be physically collected in the marketplace. “Why is it so critical for us? In India, there are more than 900 million mobile phones compared with 400 million bank accounts. Therefore the one thing that connects everyone in the country is a mobile phone,” explains Dhawan.

The treasury team has been working on this project for the past three years and received help through the Immediate Payment Service (IMPS) platform, launched by the National Payments Corporation of India (NPCI). This platform allows customers to transfer money instantly within banks across India. Today, instead of collecting cash from its retailers, treasury asks them to pay through a mobile phone and their bank account. “As the system works 24/7, we don’t have to worry about whether the banks are open, nor carry cash late at night, which eliminates security risk. The cost of handling cash goes down and we can cover more outlets in the same number of working hours.”

Coca-Cola India is also gaining traction with its online payment portals for its distributors, and is planning to route almost 80% of its collections through this channel. The portal works 24/7 and distributors can sit in the comfort of their air-conditioned offices, log-on to a website and make a payment using their existing bank.

These are the two big areas of innovation: automating collections and SCF. “As the Canadian hockey player, Wayne Gretzky, said a great hockey player is where the puck is going to be. The Indian treasury team has been performing like a great hockey player and is ahead of the times. It is a challenging place to be, but we are reaping significant benefits,” says Dhawan.