few billion dollars. “That movehelped us make some big cost-savings,” grins the 63-year-old CFO.Reason: Prices of copper today haveshot up to $8,000 per tonne.

That’s just one of the countlessshrewd decisions made by Deosthaleeover the years. And it fits well with hiscredo that treasury management isn’tjust about “churning out profits,” butit’s also about “managing risk effec-tively and protecting business mar-gins.” A.M. Naik, Chairman andManaging Director of L&T, says,“Riskmanagement is all about striking anoptimal balance between competi-tiveness and profitability.”

Few corporate treasuries can holda candle to that of L&T in terms of so-phistication and complexity—thetreasury of Mukesh Ambani's RelianceIndustries would be one notable ex-ception—as it goes about managingrisk across currencies and commodi-ties. For the man who joined L&T somethree-and-a-half decades back, theone constant has been the new chal-lenges. When executing billion-dollarprojects in sectors that range frompower to hydrocarbons, the companyhas to deal in at least a dozen com-modities (which serve as inputs) anda web of currencies (in which it bor-rows or is paid in for turnkey proj-ects). “The biggest challenge is tobudget for a project in terms of costsand expected revenues 3-5 years afterthe bidding is done,” says Deosthalee.Any one decision gone awry has thepotential to shrink margins and pile upmark-to-market losses.

Deosthalee and his team havegot it right most of the time. Likewhen L&T shifted from an openposition in a yen-denominatedborrowing to completely hedging it.

It was in July 2007 that the treasuryguys spotted a very erratic pattern ofthe yen appreciating against the US

dollar—in sharp conrast to the trendthat prevai led for years o f a depreciating yen. Larsen andToubro, like many domestic andglobal companies, had a bulk of itsborrowing in yen—equivalent to $1 billion—because of the rock-bottom interest rates inthe Japanese economy.“There was no point inremaining open (oncethe yen started apprec-iating),” recalls Deost-halee. So a decision wastaken to hedge the ex-posure fully by August2007 between 117 and122 yen per dol larcompared to 94 yen to-day. Similarly, forexloans of $1 billion werehedged during Marchand April 2008 be-tween $40 and 40.50.If L&T had not hedgedthe yen exposure, the mark-to-mar-ket losses could have run into thou-sands of crores.

Another example of timely riskmanagement: Today, the entireliabilities of L&T are on a fixed in-terest basis with interest cost in therange of 4-5 per cent. This waslocked much in advance when thecompany saw oil and commodityprices beginning to rise.

Back in 2007, much before theonset of the global crisis, the engi-neering giant was busy building upthe liquidity. It even made a GlobalDepositary Reciept issue in 2007.So when the recession hit, L&T wasflush with liquidity, and actually in a

position to hunt for acquisitions (itwent after Satyam but that it didn’tbag it is another matter). “We wereable to look at things much moreoptimistically in an environment inwhich many others were strugglingto stay afloat,” says Deosthalee. Infact, L&T was able to invest its surplusfunds in good quality paper as theyield went up to 11.5-12 per cent

for 10-year paper.Deosthalee says: “In2008-09, we gener-ated an average returnof almost 14.5 percent.” Its investmentportfolio in govern-ment securities, corpo-rate bonds, mutualfunds and equity todaystands at Rs 8,000-10,000 crore.

Deosthalee has also gone about buil-ding a solid team in his45-member treasury.He’s assisted by 46-year-old Govindan

Ramaswamy, General Manager(Corporate Finance) at L&T who, comeMay, will head to General Electric’sheadquarters in New York’s Fairfield.“The idea is to understand how theymanage growth at the peak andwhen in a trough,” says a beamingGovindan, who is hoping to get luckyand meet GE CFO Keith Sherin.

Govindan’s first-of-its-kindexpedition is part of a larger treasuryprogramme in which L&T plans toengage itself with high-qualityglobal institutions that have survivedfor over 100 years. That’s one wayto become a high-quality globalinstitution with topnotch riskmanagement systems. �

May 2 2010 BUSINESS TODAY 6564 BUSINESS TODAY May 2 2010

COVER STORY—BEST CFOS

Best in TreasuryManagementY.M. Deosthalee CFO/ L&T

BBaacckkggrroouunndd:: LLB & Chartered Accountant;Rose from GM (Finance) in 1990 to Sr. VPfive years later with a board position. Hasbeen CFO since November 2001. WWiinnnniinngg mmoovvee iinn 22000088--0099:: Hedgedforeign currency loans well in time, whichwould otherwise have meant provisioning Rs 1,500 crore at the peak of crisis.CChhaalllleennggee AAhheeaadd:: To prepare for andmanage peaks and troughs in aneconomy over the lifecycle of a company.MMoosstt lliikkeellyy ttoo bbee hheeaarrdd ssaayyiinngg:: “The basic purpose of a treasury is to not just churn out profits but also managerisk effectively and protect margins.”

TheReward in RiskL&T’s sophisticated treasurysaves the companythousands of crores with itsrisk-mitigating strategies. ANAND ADHIKARI

CFOMANTRAS● Build up liquidity inthe good times.

● Budget costs andrevenues for projectswith a gestation period,right from bidding to execution.

● Learn lessons fromtopnotch global institu-tions on how to managegrowth (in boom timesand during downturns).

“Risk management is all about striking an optimal balance between competitiveness and profitability”A.M. Naik/ Chairman and MD/ Larsen & Toubro

February, 2009: Prices ofcopper, a commodity that engineering andconstruction giant Larsenand Toubro (L&T) uses in

abundance across a range of projects,are at a year’s low of $3,400 pertonne. Y.M. Deosthalee, Whole TimeDirector and CFO, L&T, decides it’stime to lock into long-term contractsat this price in large quantitiestotalling 6,000 tonnes. The totalvalue of these contracts runs into a

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CFO-Part-4-May-2.qxd 4/10/2010 1:45 AM Page 3

few billion dollars. “That movehelped us make some big cost-savings,” grins the 63-year-old CFO.Reason: Prices of copper today haveshot up to $8,000 per tonne.

That’s just one of the countlessshrewd decisions made by Deosthaleeover the years. And it fits well with hiscredo that treasury management isn’tjust about “churning out profits,” butit’s also about “managing risk effec-tively and protecting business mar-gins.” A.M. Naik, Chairman andManaging Director of L&T, says,“Riskmanagement is all about striking anoptimal balance between competi-tiveness and profitability.”

Few corporate treasuries can holda candle to that of L&T in terms of so-phistication and complexity—thetreasury of Mukesh Ambani's RelianceIndustries would be one notable ex-ception—as it goes about managingrisk across currencies and commodi-ties. For the man who joined L&T somethree-and-a-half decades back, theone constant has been the new chal-lenges. When executing billion-dollarprojects in sectors that range frompower to hydrocarbons, the companyhas to deal in at least a dozen com-modities (which serve as inputs) anda web of currencies (in which it bor-rows or is paid in for turnkey proj-ects). “The biggest challenge is tobudget for a project in terms of costsand expected revenues 3-5 years afterthe bidding is done,” says Deosthalee.Any one decision gone awry has thepotential to shrink margins and pile upmark-to-market losses.

Deosthalee and his team havegot it right most of the time. Likewhen L&T shifted from an openposition in a yen-denominatedborrowing to completely hedging it.

It was in July 2007 that the treasuryguys spotted a very erratic pattern ofthe yen appreciating against the US

dollar—in sharp conrast to the trendthat prevai led for years o f a depreciating yen. Larsen andToubro, like many domestic andglobal companies, had a bulk of itsborrowing in yen—equivalent to $1 billion—because of the rock-bottom interest rates inthe Japanese economy.“There was no point inremaining open (oncethe yen started apprec-iating),” recalls Deost-halee. So a decision wastaken to hedge the ex-posure fully by August2007 between 117 and122 yen per dol larcompared to 94 yen to-day. Similarly, forexloans of $1 billion werehedged during Marchand April 2008 be-tween $40 and 40.50.If L&T had not hedgedthe yen exposure, the mark-to-mar-ket losses could have run into thou-sands of crores.

Another example of timely riskmanagement: Today, the entireliabilities of L&T are on a fixed in-terest basis with interest cost in therange of 4-5 per cent. This waslocked much in advance when thecompany saw oil and commodityprices beginning to rise.

Back in 2007, much before theonset of the global crisis, the engi-neering giant was busy building upthe liquidity. It even made a GlobalDepositary Reciept issue in 2007.So when the recession hit, L&T wasflush with liquidity, and actually in a

position to hunt for acquisitions (itwent after Satyam but that it didn’tbag it is another matter). “We wereable to look at things much moreoptimistically in an environment inwhich many others were strugglingto stay afloat,” says Deosthalee. Infact, L&T was able to invest its surplusfunds in good quality paper as theyield went up to 11.5-12 per cent

for 10-year paper.Deosthalee says: “In2008-09, we gener-ated an average returnof almost 14.5 percent.” Its investmentportfolio in govern-ment securities, corpo-rate bonds, mutualfunds and equity todaystands at Rs 8,000-10,000 crore.

Deosthalee has also gone about buil-ding a solid team in his45-member treasury.He’s assisted by 46-year-old Govindan

Ramaswamy, General Manager(Corporate Finance) at L&T who, comeMay, will head to General Electric’sheadquarters in New York’s Fairfield.“The idea is to understand how theymanage growth at the peak andwhen in a trough,” says a beamingGovindan, who is hoping to get luckyand meet GE CFO Keith Sherin.

Govindan’s first-of-its-kindexpedition is part of a larger treasuryprogramme in which L&T plans toengage itself with high-qualityglobal institutions that have survivedfor over 100 years. That’s one wayto become a high-quality globalinstitution with topnotch riskmanagement systems. �

May 2 2010 BUSINESS TODAY 6564 BUSINESS TODAY May 2 2010

COVER STORY—BEST CFOS

Best in TreasuryManagementY.M. Deosthalee CFO/ L&T

BBaacckkggrroouunndd:: LLB & Chartered Accountant;Rose from GM (Finance) in 1990 to Sr. VPfive years later with a board position. Hasbeen CFO since November 2001. WWiinnnniinngg mmoovvee iinn 22000088--0099:: Hedgedforeign currency loans well in time, whichwould otherwise have meant provisioning Rs 1,500 crore at the peak of crisis.CChhaalllleennggee AAhheeaadd:: To prepare for andmanage peaks and troughs in aneconomy over the lifecycle of a company.MMoosstt lliikkeellyy ttoo bbee hheeaarrdd ssaayyiinngg:: “The basic purpose of a treasury is to not just churn out profits but also managerisk effectively and protect margins.”

TheReward in RiskL&T’s sophisticated treasurysaves the companythousands of crores with itsrisk-mitigating strategies. ANAND ADHIKARI

CFOMANTRAS● Build up liquidity inthe good times.

● Budget costs andrevenues for projectswith a gestation period,right from bidding to execution.

● Learn lessons fromtopnotch global institu-tions on how to managegrowth (in boom timesand during downturns).

“Risk management is all about striking an optimal balance between competitiveness and profitability”A.M. Naik/ Chairman and MD/ Larsen & Toubro

February, 2009: Prices ofcopper, a commodity that engineering andconstruction giant Larsenand Toubro (L&T) uses in

abundance across a range of projects,are at a year’s low of $3,400 pertonne. Y.M. Deosthalee, Whole TimeDirector and CFO, L&T, decides it’stime to lock into long-term contractsat this price in large quantitiestotalling 6,000 tonnes. The totalvalue of these contracts runs into a

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