Subhiksha's growth story changes to sad story

The Rs.23.05-billion (Rs.2,305-crore) retail chain Subhiksha Trading Services says its reserves have dwindled to "nearly nil" and that it has "mucked up".

The chain, which is into retailing grocery products, mobile phones, medicines, fruit and vegetables with plans to get into consumer durables, believes a fresh infusion of Rs.3 billion (Rs.300 crore) would help it get back on track.

"We did not raise enough equity and we paid the price," Subhiksha managing director R. Subramaniam told IANS, referring to the company's furious expansion on a meagre equity base of Rs.32 crore.

"It was a capital structure problem rather than a business model problem; after all, this is the model that everyone else is copying from Wal-Mart to Pantaloon. We mucked up on not raising enough equity."

After growing from 150 outlets in September 2006 to 1,655 last September - all of it funded through debt - the company found itself in a soup as banks closed the tap and asked it to increase its equity. It has now closed down around 90 outlets.

A product of the Indian Institute of Technology-Madras and a topper at the Indian Institute of Management-Ahmedabad, Subramaniam admitted Subhiksha's current cash position was "almost nil", with a debt of Rs.7.5 billion (Rs.750 crore) and a monthly interest bill of Rs.90 million.

Subramaniam said he was open to exiting some lines of business if demanded by investors willing to pump in funds. "Rationally, we are willing to look at it if we need to."

A few years ago, when rumours floated about Subramaniam offloading stake, he had told this correspondent: "One should exit a business when one is not able to (a) compete (b) fund and (c) grow the business. We don't face any of these issues. As a matter of fact, we should be buying companies."

When IANS raised the issue in the current context, he said: "We are in 'b' position (fund) now. However, the market is so bad that it is not a sane time to exit - so slogging with the business is the only way forward."

According to him, the issue is not that somebody else could run Subhiksha better. "We need capital and that could be there from the investor community. We have large investors and 13 banks supporting us; we do not see what value anyone else can add."

Subhiksha is holding discussions with its bankers for the first round of funding, and is looking at private equity funds for the second round.

Subramaniam said the Rs.3-billion fresh investments will go towards meeting staff and vendors' dues (Rs.850 million), working capital for buying goods and cash cushion (Rs.2 billion), and contingencies (Rs.150 million).

On Wednesday, around 100 Subhiksha employees held a demonstration in Chennai. They claimed that they had not been paid since October.

Of the company's Rs.32-crore equity, promoters including Subramaniam hold 59 percent, ICICI Ventures three percent, ICICI Prudential Mutual Fund five percent, IT czar Azim Premji 10 percent, and the balance by an employees' trust.

Asked about the quantum that the promoters would bring in and how much stake he was willing to dilute, Subramaniam said: "It will be decided along with other investors as part of the package. The issue is not of stake dilution but getting the company back to health."