Sinking Subhiksha needs Rs 300cr infusion

CHENNAI/MUMBAI: Discount retailer Subhiksha is in standstill mode for the "past two months'' and will remain so for some more time. At stake is employment of 15,000 people, who have not been paid salaries for some time now.
With empty shelves and deserted showrooms, Subhiksha is sinking and needs "Rs 300 crore immediately'' to re-start operations, the company's founder chairman R Subramanian said."We got into trouble during the second half of last year, when we were unable to tie up funds for our ongoing operations. That slowly started choking and has lead to paralysis of operations completely now,'' he said.
Sounding optimistic, he said, "The only way forward is Rs 300 crore infusion. Our net worth is Rs 250 crore, while liabilities are Rs 750 crore. The market is tough and banks are cautious about lending. But, if we are to get back on track, I cannot predict a timeframe, but we will,'' he added.
At a stage where operations are at near-standstill, Subhiksha is working with the financial stakeholders, including lenders and investors, to inject liquidity into its operations.
Detailing his outstandings, Subramanian said that his company owed Rs 45 crore to suppliers, Rs 20 crore to employees as salaries and another Rs 24 crore as rentals for various stores. "Our outstandings are only so much, upon getting Rs 300 crore debt, we will then look at restarting operations'' he added.
"If the banks and lenders want to die, then we don't have a choice. We are a golden egg laying duck, we are in trouble. We need their support and upon getting it we will restart operations and repay all debt. It is not easy, but we have to make it happen,'' Subramanian said.
As per an internal bank note prepared by one of the Subiksha lenders (copies of which are available with TOI), the company had a working capital gap of Rs 504 crore. "That's absolute rubbish. We had a gap of Rs 360 crore as of March 2008, which was fully funded and the unfunded liability stood at Rs 230 crore net as of September 2008,'' he added.
The company said that the business can get back to "near peak levels'' once cash of Rs 300 crore is available. "We have lost a year in this process - we could have reached our 2,300 store and Rs 4,300-crore turnover target this year. I guess we will do it next year now,'' said Mohit Khattar, president marketing, Subhiksha, in reply to queries from TOI.
Khattar denies speculation that Subhiksha is shutting shop. "We are in pain but we are not shutting down,'' said Khattar. The firm is now in the process of cobbling together a restart package, after which it will look at raising equity.
Subhiksha, which started in 1997 as a value focused retailer at a time when organised retailing was only for the elite, grew rapidly from 150 stores in September 2006, primarily in Tamil Nadu, to over 1,600 stores by September 2008 across the country.
Its turnover grew in line from Rs 330 crore for FY06 to Rs 833 crore for FY07 to Rs 2,305 crore for FY08. Subhiksha's rapid expansion was fuelled primarily through debt. It was built on an equity base of only Rs 32 crore. Even after including share premiums, the company had raised a total of Rs 180 crore as shareholder funds.
"We'd planned to raise equity during the year and we were close to doing so in September when calamity hit the global markets as a whole. The company's lenders while supportive were also unable to extend further lines unless the equity was raised. It became a chicken-and-egg story with the company running out of cash by October,'' said Khattar.
Subhiksha's investors currently include Wipro's Azim Premji and ICICI Prudential Mutual fund.