How do effective risk management policies improve company performance?

• XYZ is a metal exporter having an annual turnover of Rs.180 CRS. Despite the company being in the SME category, it had a well-known presence in India as well as abroad.
• XYZ had a foreign subsidiary that recently commenced operations and was looking to borrow funds to meet its working capital obligations.
• The foreign subsidiary was a well-established company with an excellent credit rating.
• The management felt that there could be some addition done to their existing treasury management practices as they are unable to quantify.

Challenge and Observation

• XYZ was unable to add value to its existing treasury management procedures by implementing well-articulated risk management and hedging policy.
• They also sought a 360-degree perspective of their company.
• XYZ also wanted all of their databases to be under one roof so that they could compare and enhance them more effectively.

Process

• IFA Global conducted a thorough performance check of their existing treasury management and their risk management and hedging policy.
• IFA Global found out that XYZ`s Hedging policy is not up to the industry standards.
• IFA Global then helped them draft a Risk Management policy that would clearly specify how much of their receivables have to be hedged and how much the company needs to have cash in hand.
• IFA Global suggested XYZ use their Advanced Treasury Management Software so that it streamlines their process and it would be easier for them to compare and make decisions much faster.

Outcome

By following IFA Global’s recommendations , A Ltd.:

• XYZ was able to improve its hedge ratio on the basis of a new Risk Management policy which was far better than its previous hedging policy.
• With this, they were able to keep a track of their risk and also do changes accordingly.
• XYZ was able to compare their current performance to their past performance and also do a holistic check on their underlying exposures, hedges have taken that too currency-wise.