Don't think money is idle, don't buy everything on cash

Snehangshu Ganguly says Indian printers need to plan their investments, better. The 34- year scion at NK Gossain Printing Press / Libako Packaging in Kolkata, who notched up nine years in ICICI Bank - Investment Banking and JP Morgan, has common sense tips about finance in print.

20 Mar 2015 | By Snehangshu Ganguly

With offset presses and post-press kit costing a crore plus, there is a perception that credit is the life support system of the printing industry.

Indian banks and finance companies are eyeing print as a growth industry. This is in spite of the high Capex and low margins. This is in spite of an industry being plagued by overcapacity and structural change.

One simple cost-benefit analysis before a printer approaches a bank is: the risks cannot outweigh the rewards.

One hears of printers being badly exposed to high profile failures. For example, there was a printer who almost went into liquidation, owing its suppliers money because the Yen moved up the currency chain. It caused a lot of distress since the face value of the investment appreciated by 30%.

There were hard-luck stories for others, too. A printer in South India had to pay up the money through the sale of specified assets, including a building, plants and equipment. Needless to say the press collapsed under the weight of debts to creditors, which came on top of further debts to its banks.

Then there is the slow and steady process of bleeding, where printers who have picked up loans, continue to pay high interest rates or hefty EMIs to banks.

SNEHANGSHU GANGULY'S 12 COMMANDMENTS
• Don’t think money is idle • Make your money earn money • Look at alternative beneficial tax structures • Don’t buy everything in cash, even if surplus money is there • Avail LC, avail BC (if available) • Keep an eye on foreign currency specially if you are import heavy • Cut corners on waste • Save paper, save waste – Initial runs • Train your machine men. It’s their money too • Understand your finance, don’t copy someone else’s balance sheet • Optimise profits, reduce risks • Plan A should be good. Plan B should be better

SNEHANGSHU GANGULY'S 12 COMMANDMENTS

• Don’t think money is idle

• Make your money earn money

• Look at alternative beneficial tax structures

• Don’t buy everything in cash, even if surplus money is there

• Avail LC, avail BC (if available)

• Keep an eye on foreign currency specially if you are import heavy

• Cut corners on waste

• Save paper, save waste – Initial runs

• Train your machine men. It’s their money too

• Understand your finance, don’t copy someone else’s balance sheet

• Optimise profits, reduce risks

• Plan A should be good. Plan B should be better

When we booked our Komori HUV in December 2012, we waited for two years for the Japanese Yen (JPY) to stabilise. In February 2013, the machine was installed at Libako Packaging. By December 2014, we were debt free.

One, we hedged on the currency, and two, we did not pay in cash. We took the advantage of appreciating INR against JPY.

I put it down to my nine years' stint at ICICI where I was groomed in ways the money market works.

There are many ways to do this.

One: One can opt for mortgages with the bank and offer your fixed assets to the bank.

Two: Have property portfolios, providing the banks with security.

Some printers own property hence it is easy for them to get a loan quickly. Some printers have an excellent credit history and never fail to pay. Banks encourage such printers to borrow more.

Having said this, if you want to start a new business and have to borrow money, it is difficult. I keep hearing how hard it is to get finance, especially for those who don’t have any fixed assets. A print company that seeks to raise funds should build up assets.

Here is where the chicken and egg situation comes into play.

How does one build assets without funding from the banks?

The key is to start slow, acquire assets but reinvest the earnings into the assets to build a value for the banks.

In the digital space, there is an alternative route to get the equipment, without the intervention of banks.

A typical boutique sized offset printer can install a mid-production digital device through a lease.

This way a firm can take a punt. A small printer is not sure whether the investment is going to work or not. And so, instead of a total outlay of the money, the printer can opt for a three-month trial for starts, and then extend to a five-year lease.

Although this method is much more expensive than a loan, it pays for itself. The lease is paying its wages each month. The key in this is, the digital machine should make more than that to cover the lease payments and that is all you have to do, cover the lease payments with consumables and you are in front.

Lease is a prudent option for those who have trouble securing finance. But printers should be careful. Some people end up paying a lot for the equipment because even at the end of the term, they are not guaranteed ownership. Plus at times, the vendor asks for a hefty amount of money if the printer wants to hold onto the kit.

Moral of the finance story: A printer needs to build a brand. But more importantly, the printer needs to build up a credit rating.

A FEW TIPS FROM PRINTWEEK INDIA

It is easy to borrow money against a property. This means you can borrow to pay off the equipment debt if needed. But don’t make this the only option. Understand the resale value of a kit. Especially if there is a limited market to sell that kit. If it is only a short time into the lease and you go to auction it, the potential is you are going to take a reasonable loss because there’s a limited market to resell it. Remember when you are working with a broker, the underwriting of a big loan is possible. But the downside is: Interest rates can be many more percentage points higher than what the bank offers. Some are as high as 25 percentage points. We do not advise divorcing and breaking off relationships with banks for every new deal. If you do not establish a good relationship with your bank, it is tough to succeed. Do read the terms and conditions of the vendor contract. If it’s a rental, you have to be clear about what happens at the end of the contract, and push the vendor to give specific options, not “round figures”. Many digital players, like Canon, offer vendor finance and as a part of the deal, they also lease out the equipment. Ask about these things. The options for printers are limited: banks or finance companies that have similar systems to banks. If four lenders say no, you need to look at your balance sheet and see why. It is rare that four out of four will be wrong. Create accurate and sufficient information. With money, too much information is dangerous. Provide the banks with information. But you needn’t open all your books. Just enough information for the approval for a transaction. Sweat your equity. Ultimately that's why you are playing this game

A FEW TIPS FROM PRINTWEEK INDIA

It is easy to borrow money against a property. This means you can borrow to pay off the equipment debt if needed. But don’t make this the only option.

Understand the resale value of a kit. Especially if there is a limited market to sell that kit. If it is only a short time into the lease and you go to auction it, the potential is you are going to take a reasonable loss because there’s a limited market to resell it.

Remember when you are working with a broker, the underwriting of a big loan is possible. But the downside is: Interest rates can be many more percentage points higher than what the bank offers. Some are as high as 25 percentage points.

We do not advise divorcing and breaking off relationships with banks for every new deal. If you do not establish a good relationship with your bank, it is tough to succeed.

Do read the terms and conditions of the vendor contract. If it’s a rental, you have to be clear about what happens at the end of the contract, and push the vendor to give specific options, not “round figures”.

Many digital players, like Canon, offer vendor finance and as a part of the deal, they also lease out the equipment. Ask about these things.

The options for printers are limited: banks or finance companies that have similar systems to banks.

If four lenders say no, you need to look at your balance sheet and see why. It is rare that four out of four will be wrong.

Create accurate and sufficient information. With money, too much information is dangerous.

Provide the banks with information. But you needn’t open all your books. Just enough information for the approval for a transaction.

Sweat your equity. Ultimately that's why you are playing this game