Volume 1
Issue 1
May 2013
From the Vice President’s Desk
Greetings from mjunction! The global financial markets crisis and a lacklustre economic growth has led to a corporates focusing on optimising their working capital. The credit squeeze has highlighted the need for improved liquidity management by mitigating supply chain risk through new alternative finance models like supply chain funding. financejunction’s singular purpose is to make the client’s sales and distribution channel more robust by ensuring a steady cash flow. financejunction’s diverse supply chain finance solutions are designed to aid clients by providing credit to their supply chain partners at competitive rates. This allows buyers to extend their payment periods (increasing days payable outstanding) and shortens the payment collection period for suppliers (reducing days sales outstanding). Our quarterly newsletter, financejunction Connect is a product of that same enthusiasm. In its first issue we are bringing to you current economic & market analysis and RBI updates that would help you gauge the market situation. By integrating our case stories with in-depth analysis, financejunction Connect also aims to help businesses understand how we directly impact their bottom line and net realisation by improving the cash flow. We hope this newsletter will leave you richer by quite a few ideas and strategies for your business. Regards,
Vinaya Varma, Vice President, mjunction
GLOBAL ECONOMIC SCENARIO While predicting the year ahead, the World Economic Outlook report said, “Global prospects have improved again but the road to recovery in the advanced economies will remain bumpy.” Keeping with the trend, IMF has projected the global economy at 3.3% in 2013 in tune with the 3.2% growth seen in 2012. 2014 is projected to have a growth of 4%. In tune with the rising consumer demand, supportive macroeconomic policies, and a revival of exports, the economies of the emerging market and developing economies has already on the path to recovery. Growth in emerging market and developing economies is expected to remain robust, strengthening from about 5% in 2012 to 5¼% in 2013 and 5¾% in 2014.
Latest IMF Projections The IMF projects a bumpy recovery for advanced economies, while emerging markets and developing countries pick up steam (in percentage change)
GDP • International Monetary Fund (IMF) said that Asia’s Gross Domestic Product (GDP) is likely to be 5.7% in 2013 6% in 2014. • Projecting a modest pick-up in economic activity in the coming months, the Reserve Bank of India (RBI) pegged GDP growth rate for 2013-14 at 5.7%, significantly lower than the Finance Ministry's forecast of 6.1-6.7%. • In the third quarter of FY 13, India’s GDP growth was 4.5%, the lowest in around three years. India: Real gross domestic product (GDP) growth rate from 2003 to 2013 (Compared to previous years) GDP growth rate from 2003 to 2013 Compared to previous year
PART 1 ECONOMY & MARKET REVIEW
Vinaya Varma, Vice President, mjunction
12.50% 10% 7.50%
9.04% 9.53%
7.59%
6.9%
4.50%
0%
2003
2004
2005
-6
2010
2011
2012
2.2 -0.6
6
6.2
4 3
1.9
10 8
8.2 5.7
1.8 1.4
2013
Difference from January 2013 WEO projections
4
-2 -4
2009
Source: IMF
8
7.8
7.7
2
India
2008
Projections
4
China
2007
9.3
6
Euro Area
2006
India: International Monetary Fund
8
Unites States
5.90%
5.88%
2.5%
10
0
7.90%
6.58%
5%
10.09%
10%
2 1.1
-0.3
-0.2 -0.2 -0.1 -0.2
-0.1 0
0 -0.3 -0.1
-2 -4
2011
2012
2013
2014
2013
2014
-6
•
•
•
The annual rate of inflation based on monthly Wholesale Price Index (WPI), slowed for a third straight month to 4.89% in April, the lowest since November 2009, decelerating from 5.96% in March and 6.84% in February 2013. Consumer Price Inflation (CPI) fell for the second straight month to 9.39% in April from 10.39% in March. The CPI stood at 10.91% in February. Core inflation (which leaves out volatile food and fuel prices) is projected to have slowed to 3.5% in March, the lowest in more than three years.
INDEX OF INDUSTRIAL PRODUCTION (IIP) • •
For FY 13, growth in the IIP declined to 1% from 2.9% in FY 12. Showing signs of a stabilizing economy, IIP in 2013 picked up pace to 2.5% in March from 0.45% a month earlier. IIP had seen a contraction of 2.8% in March last year.
India Inflation Rate - Annual change on Consumer Price Index 12
12
GDP growth rate from 2003 to 2013 Compared to previous year
PART 1 ECONOMY & MARKET REVIEW
INFLATION
10 9.56
9.51
8
9.78
10
10
9.87
9.36
9.46 7.74
8.07 7.23
7.56 7.69 7.5
7.55
7.45 7.24 7.18 7.28 6.62
6.87
6
8
8.07 7.55
6
5.96 4.89
4
4 Jul/11
Jan/12
Jul/12
Jan/13
Source: tradingeconomics.com | Ministry of Commerce & Industry
Source: IMF
India Industrial Production - Percentage change year over year 10
10 9.5
8 6 4 2 0
8
8.3 6.2
6.1
5.3
4.2
3.7 3.4 2.5
2.7
-1.3
-2 -4
2.7
2.5
1 -2.8
-1.8 -0.2
2.4 -0.7
0.5
2.5
-0.1 -0.5
6 4 2 0 -2 -4
-4.9
-6
-6 Jul/11
Jan/12
Jul/12
Jan/13
Source: tradingeconomics.com | Ministry of Statistics and Programme Implementation
PURCHASING MANAGER INDEX (PMI) •
•
•
HSBC Manufacturing PMI fell for the second straight month in April to 51.0 from 52.0 in March, the weakest pace in over four years. Growing at its slowest pace in one and half years, the HSBC Services PMI fell for a third straight month to 50.7 points in April, compared to 51.4 in March. The composite PMI for India was down to 50.5 points in April from 51.4 in March, lowest since October 2011.
INDIA INC BUSINESS CONFIDENCE The recent macro-economic data seems to have had a negative impact on the country’s business climate as corporate India’s optimism index for the second quarter of this year has declined and turned “cautious”. Business Optimism Index (BOI), which measures the investor confidence, decreased by 5.6% to 141.6 points during the second quarter of calendar year 2013. In comparison to the first quarter of 2013, the BOI was down by 3.5%. The subdued business confidence of India Inc was reflected in new order expectations, which declined 4% points as compared to Q2 of 2012. The optimism for selling prices also registered a yearly fall of 9% points.
Key Points
HSBC India Composite Output PMI
Output expands at slower rates in the manufacturing and the service sectors New business growths at private sector firms decelerates for the third month running
50= no change on previous month, S.Adj. Increasing rate of growth 65 60 55 50 45
Rates of input and charge inflation cool
Increasing rate of contraction 40 2006
2007
2008
2009
2010
2011
2012
Sources: Markit, HSBC
NOT QUITE THERE Ecomomic Confidence in Asia 2012
2009 Japan
Pakistan
Ecomomic Confidence Worldwide Difference
-49 -56 -44
-7
World
-7
Europe
China
Difference
10
8
18
-51
India
2012
2009
-34
-1
-35 7 16 65 73
9
8
Americas
Asia
-7
24
17 27 32
5
PART 2 RBI POLICIES
The Reserve Bank of India released its Annual Policy Statement on 3rd May, 2013. The highlights were• RBI cuts interest rate by 0.25 per cent -
- The Reserve Bank of India (RBI) announced changes to the Priority Sector Lending (PSL) norms.
-
- RBI proposed to double the limit for the Micro Small and Medium Enterprises (MSME) advances to the services sector from Rs 2 crore to Rs 5 crore per borrower.
• Monetary and liquidity conditions -
India's inter-bank call rates hovered around 7.30%-7.35% at current levels. The trend line shows that call rates remained volatile during the last 3-4 months and fell from levels of 8.1% to 7.3% in May. 8.5 8 7.5 7
• Banks yet to revise base rates No banker has passed on the May 3 rate cut to base rate and said RBI’s rate cut does not make any difference to their cost of funds.
-
IDBI Bank cut its fixed deposit rate offering in two maturities by up to 0.50% in the first such move since RBI cut its key rates in May 3.
Base Rate 10.5
10.2 10 9.8 9.6
10.2
10.5 10.2
10.5 10.2
10.5 10.2
10.5 10.2
10.5
10.4 10.2
10.2
10.5 10.2
10 10 9.7
9.7 9.75 9.75 9.75
9.6
9.4 9.2 9
HDFC BANK
STATE BANK OF INDIA
ICICI BANK
31st March 13
AXIS BANK
BANK OF BARODA
BANK OF INDIA
31st March 12
CENTRAL BANK OF INDIA
27-Apr-2013
22-Apr-2013
17-Apr-2013
7-Apr-2013
12-Apr-2013
2-Apr-2013
28-Mar-2013
23-Mar-2013
18-Mar-2013
8-Mar-2013
13-Mar-2013
3-Mar-2013
26-Feb-2013
21-Feb-2013
RBI’s Outlook
-
10.6 10.4
16-Feb-2013
6-Feb-2013
11-Feb-2013
1-Feb-2013
27-Jan-2013
Source: RBI
22-Jan-2013
6.5 17-Jan-2013
Weighted Average Call Money Rate
- RBI has also proposed to raise the limit on pledged loans from 25 laks to Rs 50 lakh as direct agricultural for individual farmers and as indirect agriculture loans in the case of corporates, partnership firms and organisations in agriculture and allied activities.
7-Jan-2013
- They have also suggested an increase in loan limit from 1 crore to Rs 5 crore in the cash limit for dealers/sellers of fertilisers, pesticides, seeds, cattle and poultry feeds, agricultural implements and other inputs which are classified as indirect finance to the agriculture sector.
RBI has cut the Key Interest Rate by just 0.25% to 7.25% and kept the liquidity enhancing cash reserve requirement unchanged. RBI reduced the Repo Rate to 7.25%, from 7.5%. The Reverse Repo Rate was reduced to 6.25%. The Bank Rate was reduced to 8.25%. The Cash Reserve Ratio is left unchanged at 4%. The Repurchase Rate was lowered to 7.25% from 7.5% taking this year’s reduction to 75 basis points.
12-Jan-2013
• RBI steeply hikes cap on MSME credit
PUNJAB UNION NATIONAL BANK OF BANK INDIA
DENA BANK
CANARA BANK
CORPORATION BANK
Source: BANKS
RBI has pegged the growth rate for the current fiscal at a conservative level of 5.7% and said that economic activity is expected to show only a modest improvement over last year, with a pick-up likely only in the second half of the year. Their assessment of the growth-inflation dynamics yields little space for further monetary easing. Justifying the limited easing, RBI said "monetary policy action, by itself, cannot revive growth. It needs to be supplemented by efforts towards easing the supply bottlenecks, improving governance and stepping public investment".
Supply Chain Finance (SCF) is an innovative way for large companies to optimize working capital throughout the end-to-end supply chain for both buyers and sellers. Aberdeen Group defines SCF as “a combination of Trade Financing provided by a financial institution, a third-party vendor, or a corporation itself, and a technology platform that unites trading partners and financial institutions electronically and provides the financing triggers based on the occurrence of one or several supply chain events.” Supply Chain Finance creates a unique situation where everyone – buyer, seller and bank – benefits
Buyer
Seller
Bank
Reduce the cost of goods purchased
Reduce the cost of capital through improved Days Sales Outstanding (DSO) and lower finance costs.
Build stronger, collaborative relationships with customers.
Reduce working capital requirements through improved Days Payable Outstanding
Generate flexible, predictable cash flow
Enhance customer retention
Enjoy a more stable supplier base
Gain access to low-cost finance rates
Increase bottom line by supporting customers’ entire supply chain from end to end
Improve relationship with sellers
Acquire more secure source of Working Capital
Increase reach of Trade Finance organization
Improve visibility across the financial supply chain
Gain visibility into the payment process
Expand profile of Trade Finance organization
Supply Chain Finance Trends in 2013 2013 may seem like a gloomy year for business but trends like new technology driven SCF models seem to have the momentum to break out of the gloom. A recent global report from the International Finance Corporation (IFC) indicated that in 2013, the SCF market is expected to grow (in terms of turnover) by between 10%-20%.
Factors for adoping SCF
Percentage of respondents
Trading partner pressure to adopt supply chain finance Inability to self-fund the growth of the business
17.00% 19.00%
Insufficiency of availabile information when making trade financing decisions
21.00%
Difficulty obtaining finance on acceptable terms
Large SCF programmes are now reaching an annual turnover of over €300m. Dependent on technologydriven platforms, corporates are seeing the benefits of helping their suppliers with working capital challenges and the process efficiencies and cost savings of B2B integration and e-Invoicing.
22.00%
Risking of trading partner default
33.00%
Demand volatility’s impact on avaliable cash
46.00%
The financejunction Solution A recent survey claimed that more than two-thirds of companies report that they are “investigating or putting in place SCF programs to lower end-to-end costs.” mjunction, realised that in order to make the sales and distribution channel more robust and to strengthen relationship with buyers and sellers, it is very important to make finance and payment available to the supply-chain efficiently, and at competitive costs. To cater to these needs, financejunction was formed a decade ago. With its array of services like Channel Finance, Insta-Loan and Buyer Finance, financejunction aims to provide online finance solutions (credit line and transaction status visibility) at attractive terms to the buyers & channel partners (Distributors / Dealers / End Users) thus enabling them to fund bigger buys. This converts the corporate’s traditional credit into cash sales thus improving their cash flow and directly impacting their bottom line and improving their net realisation. By partnering with financejunction, corporates can also free their bandwidth to focus on their core business. financejunction has tied up with a number of banks & NBFCs to provide an integrated single point platform for online finance and payment which is available on a real time basis which has brought about greater financial inclusion as segments of borrowers who were not covered by the banking system. financejunction has been working as a growth stimulus for corporates by making their supply chain robust. Since inception financejunction has arranged over Rs 25,000 crore of organised finance to distributors and retailers in the steel and coal supply chains. financejunction has recently started selling Commercial Papers & Bonds on the behalf of corporates via the online auction mode which ensures transparency and the best price through competitive bidding. 6649
6500 6000
Transaction value in INR cr
PART 3 SUPPLY CHAIN FINANCE
BENEFITS ACROSS THE SUPPLY CHAIN
What is Supply Chain Finance?
5886
5500 5000 4500 4000 3500
3584
3000 2500 2438
2000 1261
1000
Financial Year
2289
1890
1500 500
2631
1468
INR-Crs
761
0
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
PART 3 SUPPLY CHAIN FINANCE
The financejunction Success Factor
Case Study: financejunction improves process efficiency via its Channel Finance Service through the eFinance mode
Achievements
Facilitated online finance of more than INR 30000 Cr. till date
Industry
Iron & Steel
Geography
India
Department
Sales & Distribution
Problem
Limited buying power of distributers and substantial credit periods
Solution
Supply Chain Finance
Results
i) 100% coverage of channel partners- financejunction cover more than 200 distributers across India ii) Throughput increased from Rs.60 crores in Fy02 to Rs.5000 crores in Fy12 iii) Optimized the supply chain performance iv) 50% y-o-y growth in sales for the clients due to easy availability of finance at competitive rates through multiple banks v) Streamlined the payment and collection process- 100% timely payment
More than 250 distributors / dealers /customers on board
7 banks and financial institutions on finanjunction platform provide access to capital at essential points in the transaction lifecycle
The Client An Indian Steel Major with operations in 27 countries and having a total crude steel production capacity of around 30 million tonnes. Running successfully in Tata Steel, SAIL & Coal India Ltd and other reputed corporates
0
The Business Challenge They operate through 6 profit centres, each having its own distribution chain through which their finished (prime) products were sold. Before 2001 the prime products were sold to the distributors on interest free credit terms. The credit tenure used to vary from 15 days to 90 days depending on the geography in which the distributors used to operate. Credit Sales translated into high debtors and fear of bad debts in a falling market scenario impacted the top-line of the company adversely.
Zero delinquency record since inception
Value PropositionA transaction facilitator A Financial Aggregator A Single Online platform available on real time basis- online visibility of transactions across locations
Solution- financejunction launches Channel Finance financejunction launched online Channel Finance solution - a short term revolving line of credit for the Steel Major with an objective to convert its credit sales into cash sales thus improving the margins. This also translated into better supply chain visibility for the company. financejunction’s online Channel Finance solution has been widely successful with transactions growing from Rs.60 crores in Fy02 to Rs.5000 crores in Fy12. The scheme initially targeted for the big ticket size distributors of the Steel Major soon became so popular that eventually it was extended to all the distributors across India. Today financejunction’s channel finance covers a pan India distributor network of more than 200.
Secured and timely conversion of sales to cash Enabling the customers (buyers) across the supply chain to buy larger quantities Increased buying power of customers (buyers) due to added liquidity Competitive cost of Funds financejunction addresses the twin challenges of Visibility of the Supply Chain and Liquidity of Cash Flow
The Approach- Delivery Mechanism Unlike traditional channel finance the online or e-channel finance solution designed, developed & hosted by financejunction (e-finance arm of mjunction) is a customized online platform based financing solution to cater to the requirement of an organization which has global operations with multiple sales points. The application is integrated with the ERP system of the Steel Major on one side and on the other side it has a back-to-back integration with the Core Banking System of various banks (both Indian and Multinational) which makes the transaction seamless without any manual intervention. financejunction acts as a financial aggregator for the Steel Major where with a single integration touch point, the company & its distributors have access to multiple banks for their financing need and requirements.
PART 3 SUPPLY CHAIN FINANCE financejunction Diary Events that kept us busy
Results & Achievements Through financejunction’s Channel Finance service, the Steel Major achieved• 100% coverage of channel partnersfinancejunction cover more than 200 distributers across India • Throughput increased from Rs.60 crores in Fy02 to Rs.5000 crores in Fy12 • Optimized the supply chain performance • 50% y-o-y growth in sales for the clients due to easy availability of finance at competitive rates through multiple banks • Streamlined the payment and collection process- 100% timely payment
Accolades
Penetration of financejunction’s Channel Finance service in the Steel Major’s Supply Chain 120 100 80 60 40 20 0
2003
2004
Credit Sale
2005
2006
2007
• ejunction was adjudged the National Winner in the “Information Technology” category for Best Use of CSR Practices in IT Industry at the Global CSR Excellence and Leadership Awards, on 18th February 2013.
2009
2010
2011
2012
2013
Financial Year
Channel Finance
Events
• Mr. Viresh Oberoi, MD & CEO, mjunction services limited, was elected Deputy Chairman of the CII Eastern Region for 2013-14.
2008
Client Appreciation
•
Channel Finance Distributor MeetWestern Region- 5th March 2013 - Held in Mumbai at the Tata Steel Office - Attended by Tata Steel distributors and our partner banks
•
Channel Finance Distributor MeetSouthern Region- 18th March 2013 - Held in Bangalore at the Tata Steel Office - Attended by Tata Steel distributors and our partner banks
“financejunction has ensured seamless integration between manufacturers, distributers and bankers. It is a transparent platform enabling us to raise capital at negotiated rates without hassles.” Raghav Bihani, Rohit & Co.
“Thanks for all the efforts being taken by Mjunction in propagating Dealer Finance Scheme to SAIL Retail. It now appears to be catching up.” Pritam Saha, AGM Marketing- Retail, SAIL
Mr. Viresh Oberoi, MD & CEO, mjunction services limited
mjunction is the largest ecommerce company in India.It is a 50:50 venture promoted by the Steel Authority of India Limited (SAIL) and TATA Steel.
shamim.ahmed@mjunction.in subarna.gupta@mjunction.in
www.mjunction.in www.buyjunction.in
corporate office
Registered office
mjunction Services Limited Godrej Waterside Tower – I, 3rd Floor, Plot No. 5, Block – DP Sector – V,Salt Lake City, Kolkata – 700091, WB, India Tel: +91 33 6610 6100 Fax: +91 33 6610 6187/ 6179 / +91 33 6601 1719 / 1720
TATA Centre, 43 Jawaharlal Nehru Road, Kolkata 700 071 Tel: +91 33 6610 6100 +91 33 2288 2606 Fax: +91 33 2288 2078