How long can we last without eating

When you have the Founder and Promoter of India’s first discount retailer in the organised segment talking like this, you know that things have become desperately bad. The company has no cash in its coffers; majority of its stores across the country are shut; 95 per cent of its employees— it has 4,500 staff on the rolls and another 10,000 on contract— have gone on leave without pay from December 1, 2008; and its top management team has also abandoned the ship. In short, business is on the brink of going under.

But Subramanian, 42, is himself to blame for the mess. He was at his conservative best when he studied the retail sector for eight years after establishing his enterprise and opted for a slow and steady growth. But he forgot the lessons learnt when he went in for a nationwide expansion. Between September 2006 and September 2008, the number of stores grew from 150 in Tamil Nadu to 1,665 nationwide. The turnover rose from Rs 330 crore in 2005-06 to Rs 833 crore in 2006-07 to Rs 2,305 crore in 2007-08 and is nudging close to Rs 4,000 crore this fiscal.

But this expansion took place when both property and people costs were at their peak. As a discount retailer, his margins were lower than most, though he tried to make good through volumes. This could have, perhaps, worked if it were not for the huge debt-equity imbalance in the balance sheet— Subhiksha has equity of Rs 32 crore and debt of Rs 750 crore, which has grown steadily since 2005. In a falling market within a recessionary scenario, debt servicing becomes difficult as lenders tighten their belts further.

It’s not as if Subramanian did not try raising capital in the interim. At least, two IPOs (initial public offers) were aborted—one in 2005 when he felt that he could get better valuations if he expanded more. Talks of IPO continued through 2006 and looked as if it would fructify in November 2007. He finally attempted one in 2008 through a reverse merger with a listed entity, Blue Green Constructions and Investments, on the Madras Stock Exchange wherein the merger had very little cash outgo and actually made sense. But it was too late. The market that had crashed in January only headed southwards.

Today, the company has dues of Rs 85 crore with an interest outgo of Rs 9 crore per month. But Subramanian is not giving up yet. “We need Rs 300 crore to kickstart operations,’’ he says. Of this, Rs 200 crore would be needed as working capital, Rs 15 as contingency and the rest to clear the dues. The company has already exited 90 stores, and almost all the remaining are closed. On a positive note, he adds: “We have found a PE, and will hopefully get a banker when the corporate debt restructuring exercise is completed.”

As an entrepreneur, Subramanian would not be averse to quitting an enterprise if it could not compete, fund or grow. “But the market is so bad that it’s not a sane time to exit. So, slogging with the bus is the only way forward,’’ he says.

—Nitya Varadarajan