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Enabling the automotive sector steer towards improved financial decisions

Enabling the automotive sector steer towards improved financial decisions

The automotive sector has played a pivotal role in Indias growth story and also acts as an indicator of the country’s overall economic health. However, this was also one of the sectors that bore the harshest brunt of the economic upheaval caused by the COVID-19 pandemic – sales nosedived and the unsold inventory grew. The pandemic was a double whammy with 2018 and 2019 also being rocky due to the lending crisis, weak demand and lower discretionary spending – in fact according to the Society of Automotive Manufacturers, 2019 was the worst year for the sector in two decades. While the resuscitation process has commenced and efforts are also being made by the government to catalyse the recovery, there are multiple pain points that continue to ail players in the automotive sector. The automotive industry is undergoing tectonic shifts – ever-shifting environmental regulations, the need to adapt and adhere to business processes that entail minimum human contact due to the pandemic, foray into emerging markets, developing global supply chain platforms and R&D centers and maintaining operational efficacy and profitability. All these issues have a bearing on tax planning and compliance processes and it could be a challenge for automotive industries to navigate a broad range of tax issues and develop adequate structures needed to build a sustainable tax management program. The automotive sector can leverage technology to overcome these challenges and streamline processes - from inventory management to sales, to optimising input tax credit to lower GST cash payouts – embracing the power of technology can help the industry keep up the pace of acceleration in changing business environments. AI-powered cloud-based platforms can provide smart substitutes for rigorous manual processes. Cumbersome paper-based practices can be restructured through automation which can enhance time management, coordination and reduce errors. Clear from the makers of ClearTax, in association with Mint, recently conducted a special presentation on ‘How to achieve 100% financial compliance in the automotive sector’. Baskar Lakshmanan, Group CFO, TVS Automobile Solutions, Rohit Razdan, Chief Business Officer, Clear and Sanjay Deshpande CFO Flash Electronics Pvt Ltd joined the host Gautam Srinivasan in this panel discussion to share their insights. Mr. Razdan, forayed into the broad strokes on the impact of technology on how automotive players run their businesses especially with respect to compliance. He explains, “What we see is that fundamentally we are coming to an age where the auto industry itself is imbibing modern technology and software. I see big changes in the supply chain side as well. Advanced analytics is being increasingly used because automotive firms have realised that all this data which is now digitized can tell them a lot of things which they may not have known otherwise. There is also a lot of customer-facing digitization that has been taking place – from lead management to sales funnel management and so on. In the finance area, I see taxation compliance financing – all of these things changing sharply. “ While change is already underway and automotive industries are joining the bandwagon of tapping into the powers of technology for efficiently navigating through the labyrinth of compliance tasks, bottlenecks are plenty. Mr. Lakshmanan says, “Starting with GST, input credit and reconciliation, we have travelled a certain distance in this journey of embracing technology for our financial functions by employing locally developed software for clarity without which we would lose input tax credit which in turn impacts working capital. From the compliance perspective, GST is a big nightmare which we are trying to handle and we have moved to an integrated ERP for addressing this. We are one of the largest companies in the automotive solutions space in India and the UK, and we are investing in technology for financial compliance. The number of statues and regulations that a CFO has to go through is gargantuan. The biggest challenge right is now to get an integrated ERP so that all financial and compliance responsibilities are streamlined. Even though overcoming these teething problems may take some time, digitization can usher improvements in the supply chain, reduce costs and help tackle margin pressures. He explains, “For any tier 1 companies like ours which supply to OEMs that are mostly cash-rich, it is imperative for us to look into the cost of capital and ensure the cost of borrowing of the entire supply chain is reduced. Today, the cost of borrowing is very high for SMEs and I think the reason is due to various factors. Cost of delivering a product when there is no automation involved is high for the bank and there is little room for suppliers like us to negotiate frequently. Deshpande opines that if the cash flow of the entire value chain is securitized, the risk assessment done by banks can be more specific and they can reduce the rate of interest they charge suppliers. “If a company like Clear develops a marketplace where the matched invoices are available on the platform and if the supplier decides to fund against those invoices then there are multiple banks which can bid for those invoices because all these OEMS are cash rich. The risk the bank is taking is not on the supplier but on the cash flows of the OEMs. It is unlikely there would be a default on those payments. If technology can help in securitizing that cash flow, there can be multiple bankers which we can access as suppliers, and we could also get competitive rates, he says. Download.

brand-post 2021-10-26 Livemint