Case Studies



A case study of a consulting egagement with an EPC company

a case study of a consulting engagement with an EPC company, where we had designed an integrated approach for FX and Commodity risk management. We had also helped the company to implement the recommended strategy through well-articulated implementation framework...
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Harnessing the Effectiveness of a Natural Hedge

Context and Issue:
  • A leading manufacturer and trader of precious gems and jewellery.
  • A global supply-chain and customer network, multinational operations, varying credit periods and high number of transactions exposed the profits to volatility in FX and Gold prices.
  • Despite enjoying a significant natural hedge, the treasury was unable to contain the impact of market volatility of the profits and the Balance-Sheet.
Approach and Solution:
  • Designed strategy to identify, monitor and seamlessly manage risks arising from price mismatch between their sales, purchases, borrowing and inventory.
  • Automated the risk management process by designing and implementing software to capture real time exposure data, proactively manage hedging through effective triggers and enforce controls through a detailed MIS.
Impact:
  • Profit margins and Balance-Sheet are protected irrespective of market volatility and direction.
  • As there is a robust market-neutral system in place, the Management can easily delegate hedging operations to the Treasury Team.
  • The CFO and the Treasury team can take and execute hedge decisions in a better manner with the help of the new strategy and system.

Innovative Hedge Strategy for a Complex Risk Profile

Context and Issue:
  • A global leader in manufacturer of Chemicals and Fertilizers.
  • Multiple product lines, with diverse business models, supply chains, and regulatory environments.
  • Professional treasury, ERP systems and processes employed, but the sheer complexity of the risk profile made risk management very difficult.
  • Government subsidy created significant economic FX risks that could not be mitigated by solely hedging actual transactions.
Approach and Solution:
  • Designed hedge strategy to manage risks arising from complex linkages between imports and subsidy receipt rate for fertilizer business.
  • Liaised with Regulators and availed special approval to hedge economic risks with a hedge instruments not normally permitted.
  • Drafted a comprehensive risk management policy to align strategy with business reality of chemicals and fertilizer industry, and
  • Automated the risk management process, and implemented across the Treasury and Business Units (BU)
Impact:
  • The new policy protected the FX rate seamlessly, within 10paise of the target.
  • The company’s cash flow certainty increased as the worst-case scenarios were identified in the framework.
  • BU Heads developed comfort as new strategy aligned with their business dynamics and improved their reporting of treasury performance.

Managing FX Risk in a 24X7 Global Operation

Context and Issue:
  • Global money transfer company with operations in more than 100 countries and 50 different currencies across various time-zones daily.
  • The sheer volume and complexity of FX transactions and footprint, held back any serious efforts at mitigating and managing the risks.
  • Lack of an objective, transparent, and real-time risk management and monitoring mechanism eroded profits and hampered pricing and growth decisions.
Approach and Solution:
  • Simplified and automated risk identification to distill a risk footprint of 15 major currency exposures that constituted more than 80% of risk.
  • Devised hedge strategy to protect card rates and set-up an automated system to identify, track, monitor and hedge FX risks across different countries and time-zones on an almost real-time basis.
  • Designed data linkages and MIS reports to give Region Heads and Management, a clear view of risk, hedges and profit margins.
Impact:
  • Achieved clear visibility of profits and exchange margins across each business corridor.
  • Acquired control over day-to-day FX volatility by continuous tracking and monitoring of their FX risk.
  • Their profit margins increased guided by well-informed business decisions.