3/4/2016

CFO Connect

Partnering Farmers in Progress

S.Chandramohan,PresidentandGroupChiefFinanceOfficer,TractorsandFarmEquipmentLimited(TAFE)
TractorsandFarmEquipmentLimited(TAFE)startedoutasamanufacturer
oftractors,withjustonemodel,in1961.Firmlybelievingthattractorsalone
cantransformthedestinyoffarmersandtherebytheeconomyatlarge,
TAFEhasstrived,rightfromthebeginning,tobuildmachinesthatgivethe
greatestoutput.Thisfamilyownedenterprisewasincorporatedin1960,
nearly55yearsago.Sincethen,ithasstucktoitsroots,butwithanopen
mindtochangeandinnovatealongtheway.Today,TAFEistheworld's
thirdlargesttractormanufacturer,India'slargestexporteroftractors,and
secondintermsoflocalmarketshare.Backedbyover1,000dealersin
morethan75countries,itsthreeiconictractorbrandsMasseyFerguson,
TAFEandEichercontinuetoenjoycustomers'trustfortheirqualityand
lowcostofoperation.
Today,tractorsareusedinnew,multipurposeapplicationsbeyondfarming,
yetTAFE'smandatetostayefficientyetprofitableinaneverchanging
businessenvironmentremainscentral.That'swheretheroleofS.
Chandramohan,PresidentandGroupChiefFinanceOfficer,becomes
critical.MrChandramohanjoinedthebusiness16yearsago,andhassince
playedakeyroleinhelpingTAFEreinventitselfthroughacquisitions,
alliancesandstrategicinvestments.Hehashelpeditsustainitsleadershippositionintheindustrybyputtinginplace
bestpracticesinenterpriseriskmanagement,treasury,strategicplanningandbudgeting,aswellasoverseeingthe
entireoperationsofitsenginedivisionatAlwar.
TherearemanythingsthatpositionTAFEwhereitistoday,asasuccessfulfamilyownedbusiness:itsthrustonsound
corporategovernancebeingcashrichwithzerodebtanditsethicalbusinesspractices.MrChandramohanchatswith
CFOConnecttonarrateTAFE'sgrowthstoryonethat'sdeeplyintertwinedwithhisown.

Sticking to its roots

TAFEbeganasafamilyrunenterprise.Today,itemploysover2,500
engineersapartfromanumberofspecialistsinotherdisciplines.Tellus
abouttheevolutionaryjourneyandhowthefoundersareableto
professionalisetheoutfitwhilststillmaintainingthefamilypresencein
someway.
WhileTAFEisfamilyrunandownedMallikaSrinivasan,itsChairmanandCEO,
isfromthefamilyitisrunlikeanyotherprofessionalcompany,withastrong
emphasisonattractingtalent,nurturingthem,enhancingtheircompetencies,and
retainingthem.Atanypointoftime,30to40employeesattendpostgraduate
engineeringormanagementcoursesatreputedinstitutions,includingISB,IIT,and
VIT.SeveralofourengineershavebeendeputedtotheWarwickManufacturing
Grouptopursuepostgraduatecoursesinengineering.Wehaveastructured
threetiermanagementandbusinessleadershipdevelopmentprogramcovering
junior,middleandsenioremployees.Ourpartnersincludeleadinginstitutions,
suchasIIMBangaloreandIFMR,Chennai.Sofar,wehavetrainedover2,100
employeesacrosslevels.Recently,welauncheda"TAFEeUniversity",where
employeescanhonetheirproductandleadershipskillsonaneverydaybasis.The
averageageofemployeestodayis34,andthecultureisoneoflearningand
sharing.

While TAFE is familyrun and

owned Mallika Srinivasan, its
Chairman and CEO, is from the
family it is run like any other
professional company, with a
strong emphasis on attracting
talent, nurturing them,
enhancing their competencies,
and retaining them.

Weencouragetransparencyanddiscussionsateverylevel.Forinstance,theannualplanningexerciseinvolvesalmostall
seniorandmidlevelmanagers.Strategyandactionplansarediscussed,articulatedandagreeduponbeforeimplementation.
Communicationmeetings("OpenForum")areperiodicallyheldwithallofthefactoriesandmarketingoffices,includingTAFE's
TurkeyandChinaplants,wheretheChairmanCEOandtherestoftheseniormanagementteamdiscussestheorganisation's
progressandtakequestionsfromemployees.TheseinitiativesearnedusoneofAonHewitt's"BestEmployersIndia"in2013.

Over a period of time, the utility of

tractors has evolved from mere
farming to multipurpose
application, including Haulage.
While earlier, tractors were used in
agriculture primarily for ploughing ,
today, they are spreading to other
areas, such as weeding, spraying,

Product range
CurrentlyTAFEproducestractorswithacapacityof85HP,though
consumptioninIndiaisonlyinthe3560HPrange.Whatdetermines
horsepowerand,isthereaplantogobeyond85HP?(Intheglobal
market,mostofthedemandfortractorsisat,oraround80HP.)Are
productsdifferentiatedonlybyhorsepower,orbyotherfeatures,
too?
Customers'choiceofhorsepowerisdeterminedbyavarietyoffactors,
includingfarmsize,soiltype,cropandnonfarmuse.Features,too,vary
sharplyacrossproductcategoriesandmarkets.EventhoughtheIndian
marketispredominantlytractorsdrivenuptothe60HPcategory,withthe
emergingapplicationsinthecommercialandinfrastructuresectors,the
1/4

3/4/2016

harvesting, postharvesting
(including stubble clearing and
baling).

CFO Connect

setoffeaturesrequiredischangingrapidly.However,itisnottruethat
theexportmarketisonlyintherangeof80HP:infactmorethan80per
centofthetractorswesellintheexportmarketarebelow60HP,andhalf
theUSmarketisbelow60HP.Tractorsupto100HPwouldcovermore
than80percentoftheglobalmarket.

Tractors: the new multipurpose tool

Doesthechangingutilityoftractorsfromfarmingtomultipurposeapplicationsopenawindowofopportunityfor
TAFE?
Overaperiodoftime,theutilityoftractorshasevolvedfrommerefarmingtomultipurposeapplication,includingHaulage.While
earlier,tractorswereusedinagricultureprimarilyforploughing(i.e.landpreparation),today,theyarespreadingtootherareas,
suchasweeding,spraying,harvesting,postharvesting(includingstubbleclearingandbaling).Nonfarmingapplicationsinclude
trenchcutting,cablelaying,andasloadersanddozers.Lastmileconnectivityisalwaysbetterwithtractors,sotheyarebeing
usedinplaceoftrucksfortransportingagriandnonagriproducts.Tractorscostlessthantrucks,andgivenIndia'sroad
conditions,almostmatchtheirspeed,particularlyinruralareas.

Growth plans
Whataretheinorganicandorganicgrowthopportunitiesthat
youarelookingatcapturing?
In2005,TAFEacquiredEicherMotor'stractorplantatBhopal
(MadhyaPradesh),itsenginesplantatAlwar(Rajasthan)andits
transmissionsplantatParwanoo(HimachalPradesh),throughits
whollyownedsubsidiaryTAFEMotorsandTractorsLimited('TMTL').
Theacquisitionhashelpedustogrowthemarketstronglyinthepast
fiveyears,andwehaverealisedsignificantsynergiesacrossthe
valuechain.Whileopportunitiesexistbothinthedomesticand
internationalmarkettogroworganically,wemaynotbeaverseto
inorganicgrowth,provideditisastrategicfit.
Yourmainexportfocusexporthasbeenthedevelopingworld,
primarilySouthAsiaandlargepartsofAfricaandSouthAmerica.Reportsindicatethesemarketshavebeenasuccess.
Arethereanychallengesaswell?IsitaconsciousdecisionnottobeintheEuropeanmarket?
WhileTurkeywasTAFE'sfirstoverseasplantitstartedin2010wehaverecentlyopenedamachiningplantinChina,where
therearegoodsourcingopportunities.WhileourfocusisprimarilyonSouthAsia,wehavebeenexportingtomorethan75
countries,fromAustraliatotheUnitedStates,andselectEuropeanmarkets.ThehugedepreciationoftheBrazilianReal,the
TurkishLira,andseveralAfricancountries,doesposechallengetotheIndiantractorindustryintermsofcompetitiveness.Atthe
sametime,itcompelsustolookinternallytoreduceourcoststoremaincompetitive.

Mechanising is the way forward

WithharvestingtechnologyslowlycomingofageinIndia,howlongdoyouthinkitwilltaketomechaniseagriculture?
Willitsolvesomeoftheburdensandproblemsfacedbyfarmers?
WetakeprideinthefactthatweoffernotonlyrelevantbutalsoappropriatetechnologytofarmersinIndiaandabroad.The
challengeinIndiaisthatwhilethevastNorthAmericanmarketcanbeconsideredtobeoneregion,inIndia,eachstatehasits
ownpeculiarities,suchasshallowpuddlinginWestBengal,deeppuddlinginTelengana,anddifferentsoilconditions,including
softsoilinRajasthanandblackcottonsoilinMaharashtra.Eventhecroppingpracticesarenotuniform,intermsofrowspacing,
croppitch,tonameafew.Moreimportantly,landholdingsizesandaffordabilityatthefarmers'endarelimited,whichforcesus
toinnovate,includingintermsofmultipurposeusageinbothagriandnonagriapplications.Theknowledgebaseoffarmershas
significantlyincreased,andthereforetheusageofimplements,suchaslaserlevellersandcombinedharvester,isincreasing.
Whatdoesittaketomechaniseagriculture?Doesrelevantandaffordabletechnologyresonatewithyourphilosophy?
Riceplantingoperationsareslowlychanging,frommanualtoautomatedseeded,andwiththeadoptionofuniformrowspacing
practices,theuseofequipmentlikesugarcaneharvesterswillalsoincrease.Withthecurrentlabourshortagesinagriculture,the
onlywaytofulfilIndia'sfooddemandisincreasedmechanisation.AlloftheproductsdevelopedatTAFE,bothforthedomestic
andtheexportmarket,useinhousetechnologies.

Number game
Tractorsalesinthedomesticmarketwitnessedover20percentgrowthin201314,mainlybecauseofagoodmonsoon
inkeyregionsliketheWesternandSouthernmarkets,coupledwithincreaseddemandfromthefarmingcommunity.
Whileaccordingtotractorindustryofficials,agrowthof1215percentin201415isexpected.Whatisyour"gutfeel"
asfarasthefutureisconcerned.Whatkindofgrowthdoyouforesee?
Whilethetractorindustrygrewatacompoundedgrowthrateof8.82percentoverthelastdecade,theTAFEGrouphasgrown
by9.89percent,aidedbytheadditionofnewmodelsandfeatures,andbydeeperpenetrationinthemarketplace.Thetractor
industrydegrewby13percentin201415duetoinadequateandunseasonalrainfallinseveralpartsofthecountry,inadequate
increaseinminimumsupportprices,softeningglobalcommodityprices,andotherreasons.Theseadverseconditionshave
continuedinthefirstfourmonthsofthecurrentyear.Therecentincreaseincropacreageduetoafairlygoodmonsoongives
hopethatthesecondhalfoftheyearwouldbebetter,allowingformarginalgrowthinthefinancialyearasawhole.Thelong
termfundamentalsoftheindustryareintactandweexpectaCAGRof89percentinthenextfiveyears.

Showing the way

2/4

3/4/2016

CFO Connect

TAFElaunchedaninitiativeintheNorthEasternRegiontohelptrainfarmersonagriculturalmechanisation.Whatwas
theendresult?DoyouhaveasimilardrillforothermarketsinIndiaaswell?
Wehavebeencontinuouslyinvolvedinthetrainingoffarmers,bothinmechanisationandinfarmingpractices.Recently,we
trainedagroupofladyfarmersatour"JFarm",whichwaswellreceivedandappreciated.JFarmisanagricultureresearch
centrewhichisengagedinadaptiveresearch,andoffersfarmadvisoryservices,includingcropandgeographyspecific
farmingsolutionscoveringmorethan180cropsthroughamultilingualfarmingportal.Wehavebeenpartneringwiththe
governmentoninclusivemechanisationofsmallandmarginalfarmers.Wehavealsoopenedseveralregionaltrainingcentres
acrossthecountry,usingahubandspokemodel,totrainmechanicssoastominimisethedowntimeoftractors.

Partnering for growth

TAFEhasanunderstandingwithUSfarmequipmentmanufacturerAGCOCorp
whichholdsa23percentstakeinTAFEfordistributionintheUS,certain
marketsinAfrica,Turkey,andothercountries.Inwhatwayisthiscollaboration
addingvaluetoTAFE?
OurrelationshipwithAGCOspansaperiodofmorethanfivedecades,andhasbeen
builtonfoundationsofmutualtrustandrespect.Ourrelationshiphasbeen
strengthenedandconsolidatedovertheyearstoincludesupplyofparts,components
andaggregates,aswellasfullyfinishedtractors.Inthehistoryofourrelationship,we
havestrictlyfollowedtheprinciplesof'nocompete'and'collaborate'.Duringthepast
decade,wehavemadesignificantinvestments,internallyaswellasacrossthe
supplychain,tomeetAGCO'srequirements.Inturn,AGCOhasalsohelpedus
leverageourtechnologyoveraperiodoftime.Weareconfidentthatthepartnership
wouldbefurtherleveragedinthecomingyearsformutualbenefit.

If you look at past trends,

there has always been a
strong positive correlation
between rural prosperity
and overall GDP growth.
Therefore, agricultural
growth, and in turn,
mechanisation, is essential
and inevitable.

WhatisTAFE'sapproach,bothintermsofcreatingprofitablegrowththroughoverseasdiversification,aswellas
throughacarefulmanagementofthesupplierandcustomerecosystemwithinIndia?
TAFEhasforgedaverystrongpartnershipacrossthevaluechainwithsuppliers,dealers,bankersandemployees,basedupon
ourcorevaluesof"trustandlongtermrelationshipwithstakeholders."Weprovidefinancialsupporttoourvendors,helping
themtoexpandtheirbusinessesandgrowwithus.Inthelastfewyears,wehavealsogivenseverallongtermloansand
subscribedtodebentureissuesandpreferencesharesofvendors.Wehaveorganisedchannelfinance,atcompetitiveinterest
rate,forourdealers,andourbankersacknowledgethatourportfolioisamongthebestinIndia.TAFEhascementedastrong
relationshipandunderstandingwithallitsbankers,andwithNBFCswhoprovidecompetitiveretailfinancetofarmers.
Thecompanyisdebtfree,hasstrongcashflows,hasfundedgrowthlargelywithinternalaccruals,andhasinvestedsignificantly
inbuildinginternalcapabilitythroughastrongproductdevelopmentprogramandstateoftheartmanufacturingtools.Wehave
borrowedonlyforacquisitions,andhaverepaidtheseloansaheadofschedule.TAFEhasneverbeenshyofinvestingfor
growthandfornewproductdevelopment.

Rural prosperity
WhatisyourperspectiveontherealityofeconomicgrowthandprosperityinruralIndia,andtheoutlookforagriculture
inIndia,especiallyinthebackdropofthegovernment'sthrustondevelopingagriculture,andensuringthewelfareof
farmers?
Ifyoulookatpasttrends,therehasalwaysbeenastrongpositivecorrelationbetweenruralprosperityandoverallGDPgrowth.
Therefore,agriculturalgrowth,andinturn,mechanisation,isessentialandinevitable.Ifweexcludethedegrowthinthetractor
industryin201415,theindustry'srollingsixyearCAGR(200809to201314)was15.74percent,whilewehavegrownby18
percentinthedomesticmarket.
AccordingtoaCrisilreport,werequirenearly13milliontractorstotillIndia'sentirearableareaofapproximately160million
acres,whereasthecurrent'population'isonlyabout5million.TheHPperhectareinIndiaisalsorelativelylowat0.8as
comparedtoaglobalaverageof3to4,and10inGermany.Hence,theopportunityinthisspacetogrowissubstantialgiventhe
relativelylowmechanisationlevelinIndia.Inadditiontotractors,ourfocuswillbeongrowingthebusinessofengineering
plastics,batteries,gensets,sparepartsandimplements.Thereisalsopotentialtogrowtheexportmarket.
Overthenextfiveyears,weexpecttractorsalestogrowataCAGRof810percentsupportedbyseveralfactors.These
include,first,theprocurementofbetterseedsandtheincreasinguseofimplements,resultingingreaterdemandfortractors.
Second,thereislikelytobeariseinmulticroppingandcommercialusage.Thirdistheevolutionofagriculturalpracticessuch
astheformationoffarmers'cooperativesocieties,andrisingprocurementbylargeproducercompanies,pushingupdemandof
tractorsfrommarginalandsmallfarmers.Fourth,thereisanincreasinguseoftractors,beyondlandpreparation,inactivities
rangingfromhaulagetoweeding,spraying,seeding,intercultivationandpostharvesting.Fifth,isariseingovernment
expenditure,particularlyonirrigationandruralinfrastructure.Sixth,tractordemandwillbenefitfromanincreaseinminingactivity
andgeneralgrowthininfrastructurespends.

Over the next five years,

we expect tractor sales to
grow at a CAGR of 810 per
cent supported by several
factors. These include,

Finance the key driver

Howhaveyounavigatedyourfinancerolealongsideyourother
responsibilities?WhatisyourfocusasaCFO?
Ifocusonthedriversofthebusiness,whichvaryacrossdivisions,andalsoprovide
generalsupportandguidance.Abigpartofmyroleisdevotedtostrategyformulation,
implementation,andreviewwiththeChairmanandtherestofthesenior
managementteamtoallowforanymidcoursecorrection.Ialsoworkonthe
followingareas:enterpriseriskmanagementbenchmarkingcostsandprocesses
3/4

3/4/2016

first, the procurement of

better seeds and the
increasing use of
implements, resulting in
greater demand for
tractors.

CFO Connect

withthebestintheindustry,withtheaimofcontinuousimprovementimproving
systemsandprocessestoallowforaccurateonlinereportingforfasterdecision
makingfinancingarrangementsthatallowforgrowthstrongersupplychainsensuring
complianceacrossvariousdivisions/companies.Additionally,giventhatweexportto
over75countries,forexmanagementisextremelycritical.Tothisend,wehave
evolvedasuitablehedgingmechanism,dulyapprovedbytheBoard,whichwe
continuouslyreview.Further,inviewofwidecurrencyfluctuations,pricingisextremely
importanttoremainingcompetitive,anditistheresponsibilityofFinanceto
continuouslyreviewproductandcountrywisecostsandmargins.

Howwouldyousumupyour16yearjourneyatTAFE?
Thejourneyhasbeenchallenging,stimulating,andonthewhole,rewarding.Duringthefirstfiveyears,theparamountfocuswas
toorganisefinancefordealersaswellasforfarmers.Later,in2004,ouroneyearacquisitionjourneywasexciting.The
negotiationphasecoveredvariousgamutofissues,includingvaluations.Itwasexhaustingattimes,butinretrospect,itgaveme
tremendoussatisfaction.Postacquisition,wehadtorevisitourstrategy,ensurethatsynergieswereobtainedasenvisioned
beforetheacquisition,standardiseoursystems,processesandcontrols,amongotherthings.
In200708,IwasgiventheadditionalresponsibilityoflookingaftertheoperationsoftheenginedivisionatAlwar,whichshowed
meadifferentperspectiveofthebusiness.Today,weenjoythehighestmarketshareforgensetsinthetelecomsegment,and
havesetnewservicebenchmarksforgensetsacrossallsegments.Inthepastfewyears,overseeingtheoperationsofthe
batteryandengineeringplasticsdivisionsalsogavemenewinsights.Thelearninghasbeencontinuousandthejourneyhas
alwaysbeenexciting.IhavetoacknowledgethatIhavethoroughlyenjoyedworkingwithMsMallikaSrinivasan,whohasbeen
anexemplaryleader,andinstrumentalintakingthecompanytoadifferentlevel.Perhaps,theonlydifficultyisthatsheknows
toomuchaboutmysubjecttoo,whichmakestheCFO'srolethatmuchmorechallenging!

4/4