Bloomberg News

Indian Retailer Subhiksha Says Business Stalls, Funds Needed

January 30, 2009

Subhiksha Trading Services Ltd., the Indian retailer that counts billionaire Azim Premji as an investor, said business has come to a “near standstill” and it needs 3 billion rupees ($61 million) to survive.

Subhiksha, founded in 1997, ran out of cash in October as it relied on a “high level” of debt, the Chennai-based company said in an e-mailed statement today.

“We mucked up on not raising equity,” the company said. “Like the investment banks on Wall Street, when the fresh supply of liquidity was cut off, we were choked.”

The convenience store chain, which expanded 10-fold to 1,600 stores in a two-year period starting September 2006 and clocked $470 million in revenue, will shut 10 percent of its shops and lay off workers as part of a revival plan.

Founder and Managing Director R. Subramaniam is seeking approval for the “restart plan” from stakeholders and then plans to raise money in debt or equity to reopen the stores.

Rapid expansion and a delay in seeking funds before last year’s stock-market collapse and the credit crunch pushed Subhiksha into a corner, it said.

“When equity raising was torpedoed by the global financial tsunami, we were caught flatfooted and most importantly the credit markets also seized up at the same time,” Subhiksha said. “In September, banks were not even lending to each other, forget lending to us.”

In July 2007, Subramanian said in an interview that the company will sell shares to the public only after it crosses the 1,000-store mark.

Share Sale Plan

“We have taken a stand internally that unless we cross 1,000 stores we won’t do an IPO,” Subramanian said at the time. “After that, we will constantly review the IPO plans.”

By September last year, Subhiksha had stopped paying salaries as it tried to conserve cash to pay creditors and maintain sales, it said.

The retailer said it can return to “near-peak-level” performance once it gets the required cash to restart operations. Subhiksha, which planned to expand to 2,300 stores this year, now expects to touch that level next year.

“The financial investors see the logic in supporting us,” the company said. “We are a viable business and they know us for many years and have delivered returns.”

Subhiksha and other local retail chains opened shops through 2007 and early 2008 as sales through stores surged and getting credit was easy. Sales at chain stores in India may rise as much as 35 percent annually until 2015 to $80 billion, according to estimates by consultants McKinsey & Co.

“The irony is that this is the best time for our business - - no great demand contraction, higher market share possibility in view of greater value consciousness amongst consumers and lower people and property costs” the statement said. “We are kicking ourselves on missing out by mucking the capital piece.”

To contact the reporter on this story: Saikat Chatterjee in New Delhi at schatterjee4@bloomberg.net.

To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net.


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