A WHOLE NEW TRADE

Trade finance is morphing into new business that holds promise for better working capital management.

When Praveen Kadle, CFO of Tata Motors in Mumbai, talks about trade finance, he doesn't mention the words trade finance at all. For him, the words are synonymous with an overarching discipline: management of working capital. His company is the nation's leader in auto sales, with a 59 percent market in India, where Tata Sumos and Safaris contend in turbulent pageantry on India's highways. Its sales were up 123 percent year-on-year in its latest reported quarter, ending in June. With profits motored by a consumer boom among India's rising middle class, the US$4 billion company is going multinational, with an accent on Asian expansion.

A joint venture with Daewoo will start producing vehicles in South Korea next year. A deal with Iran Khodro, the Iranian state-owned carmaker, to outsource production is in the works. So with cars going like chapatis at home, and new relationships emerging around Asia, Kadle's main concern is that his company's increasingly complex supply chains will become a logjam for working capital.

But here's where he's experienced a pleasant surprise. "In fact, our working cap performance has greatly improved since our business turned around in the last three years," he says as if recounting a revelation. "A lot of it has to [do with] the changes in how we manage our supply chain - and how the banks have bought into what we're doing."

He says: "Our revenues have grown from US$2 billion to about US$4 billion in three years, and yet our performance on working capital has increased substantially," he says. "Receivables - except for government customers, are down to nine days on our books. That figure was 89 days three years ago. Inventories have come down from 75 to 34. We now have negative days working capital."

The reason behind this sea change? "We don't really need to borrow on account of working capital," says Kadle, "because the banks have looked at non-traditional sources to help us manage it better."

In one indicator that Tata was borrowing less, its interest cost was reduced 23 percent in the last reported quarter ending June, from one year ago. .