India's commodity futures trade volumes are rising year by year but so is the escalating high market volatility for most products. That necessitates commodity players whether it is traders, investors or commodity producers to come up with business forecasts that don't go off the market and efficiently calculate cash flows to minimize losses.

Indian commodity industry needs to move from 'Spread Sheet Age' to employing sophisticated Commodity Trade and Risk Management (CTRM) solutions. Eka Software Solutions Pvt Ltd based in Bangalore has already carved a niche for itself the global $1bn CTRM solutions market. In an interview to Sreekumar Raghavan, Managing Editor, Commodity Online, Manav Garg, CEO and Founder of Eka Software who brought his rich experience in commodity trading in his new business talks about the growth of the company and the relevance of its products for traders and companies dealing in physical commodities. Excerpts from interview.

COIL: You have said that Indian commodity industry is still in the ‘Spread sheet’ age and looks liable to risks and losses on that account. If Indian market for Commodity Trade and Risk Management solutions hasn’t taken off, what do you think are the reasons?

Manav Garg: This is a normal stage of evolution. Compared globally, formal commodity exchanges in India are a new phenomenon. In other words, the Indian commodity market is still in early stages of evolution as compared to its global counterparts that are more mature. As far as hedging is concerned, the larger Indian physical commodity players are quite evolved, and we now see more and more smaller sized companies entering the market.

As far as CTRM solutions are concerned, I would again attribute this to a normal evolution cycles. Spreadsheets are a very logical choice for organizations when they start something new such as hedging – highly flexible, easy to use and manipulate familiarity, etc. However, as volumes increase, there’s more complexity, difficulties in reporting and reconciliation, delays and errors, losses.

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ERP systems are not an option as they just don’t have the capability to handle derivatives, pricing, m2m, etc. Building something in-house is hardly worth the time and effort. That’s when organizations start to look for specialized tools like Eka. We understand the commodities market, service some of the largest names in the business, and very importantly bring international best practices, workflows and controls that companies in India can take ready benefit of.

That being said, the Indian market has huge potential. With the growing volumes of transactions, multiple parallel deals and the increasing volatility of the market, trading companies are more and more recognizing the need to consolidate and analyse data. The margin for errors is shrinking with the escalating volumes and high volatility, and thus business forecasts and cash flows need to be well calculated to minimize loses. These circumstances look extremely promising for the growth of CTRM solutions in India.

COIL: How did EKA Software as a business take off and what were the initial challenges you faced as an entrepreneur in a new, emerging area of commodity software business?

MG: Like all start-ups, organizing initial funding and getting the first customer were big challenges for Eka. The thrust funding was provided by the G P Group. Convincing our initial customers was another big challenge since we were competing against established players in the CTRM space. Also, although India had already developed a formidable presence in the IT services space, persuading customers that a software product developed out of India was world class was not easy. Then it was in our hands to build the credibility for a software solution company from India.

Since the established CTRM solutions providers were primarily focused on financial services and energy verticals, we carved a niche for ourselves in the agriculture and metal verticals, which were underserved by existing players and where we developed a deep understanding of customer pain points. Today, I believe that continuous focus on product innovation, our team and our commitment, which single mindedly focus on helping our customers to achieve productivity, take informed decisions and achieve business objectives, is what is driving Eka towards greater success.

COIL: Could you explain in layman’s terms how EKA Software solutions work across physical, financial and operational platform and helps clients manage their risks better?

MG: Commodity trading involves taking a variety of risks, including market, counterparty, operational and regulatory risks. With increased volatility in the market, the magnitude of risks has increased substantially. Most other products, on the other hand, do not bring enough holistic focus on risk, tending to specialize on any one aspect. This leads to a partial solution at best. Therefore, a key differentiator for Eka is that we provide comprehensive end-to-end risk management solutions for physical commodity companies across their entire business spectrum.

Our solution streamlines all workflow transactions and serves as the one-stop database for all pieces of information, updated on a real-time basis. This in itself brings visibility and control.

One simple example is recording and updating costs to ensure that the profit you originally estimate, and the actual that you make in the end, should be in line. This would help take better trading decisions, help plan cash flows better, etc. But since most organizations use spreadsheets or incomplete solutions, this tends to get missed and therefore resulting in incorrect trading and cash-flow decisions. Eka, on the other hand, works hand in hand with users to assist them to properly record costs, and calculates cash flows and PNL that are always accurate and up to date.

COIL: What should commodity players look for while choosing the right Commodity Trade and Risk Management solution?

MG: While choosing a solution, trading houses need to first look inwards to identify their business requirements. This is absolutely crucial for any project’s success and often overlooked. Once you know what you need, and have prioritized them and given weightages, you could then start the formal evaluation process. Here, the intent should be to bring all vendors measurable on the same set of parameters – functional fit, technological fit, implementation capabilities, organizational vision, cost, etc

COIL: Future trading is now at risk due to stricter regulatory compliance requirements especially in USA with respect to energy, agricultural softs trading. How far will CTRM address these issues both for the regulator as well as commodity players?

MG: There is definitely a growing emphasis on fair value disclosure and hedge accounting due to increased compliance requirements. CTRM software is poised to address these requirements since it provides visibility into the business through user-friendly reporting formats, risk management solutions etc. Since ordinary ERP solutions are not designed to handle futures trading and hedging, CTRM solutions are best positioned to address the growing compliance requirements for commodity trading.

Eka is geared to handle these and thus we see a promising prospective in the future.

COIL: Manav Garg’s domain knowledge in commodity trading has no doubt helped in setting up EKA. What else have contributed to your success over the years?

MG: Eka has been fortunate to have a great team that played a pivotal role in taking our company where it is. Other key factors are - our innovation led culture, investment in learning and development, total commitment to client success. And above all, its God’s grace.

COIL: Could you throw some light on the financial performance of EKA and near future expansion plans?

MG: Being a privately held company, we do not disclose numbers. Having said that, Eka is a profitable company, growing in excess of 100% year on year. Last year, we opened offices in UK and USA, and hired experienced senior level management to help expand in these markets. Last year, we raised US$10mn from Nexus Venture Partners for further expansions.

COIL: How large is the global market for CTRM software and what is the place of EKA in it?

MG: The global market for CTRM is estimated at US$ 1 billion. Eka is being recognized as one of the leading solutions provider in the agriculture and metals space.

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