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He sold a selling idea, but now it may be on sale

business Updated: Feb 01, 2009 21:49 IST
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In sanskrit, Subiksha means prosperity. Today, R Subramanian, who scripted the first of the success stories in organised retail in India 11 years ago, is struggling to save Subiksha, his discount retailing venture, from going bust.

At stake is the future of 15,000 employees at 1,600 neighbourhood stores across the country. Subhiksha Trading Services is caught in a liquidity jam, after expanding rapidly on borrowed funds. And its bankers are unwilling to top up the Rs 700 crore of loans already extended to the retailer.

Existing shareholders — ICICI Ventures, the private equity arm of the country's second largest lender ICICI Bank, and Wipro founder and chairman Azim Premji, appear to be chary of bailing out Subhiksha.

“We had expanded rapidly,” Subramanian told Hindustan Times in an email. “Most of the growth was debt-led. We had built on a tiny equity base of just Rs 32 crore and the company had raised only a total of Rs 180 crore as shareholder funds, growing to 1,600 stores and a nearly Rs 4,000 crore annual turnover.”

A sellout could be an option. But where are the buyers? Kishore Biyani, CEO of Future Group, and B.S. Nagesh, customer care associate and managing director of Shoppers’ Stop, ruled out taking over Subhiksha. “No,” they separately answered a specific SMS query on whether they would consider taking over Subhiksha.

Subhiksha was half-way through its Rs 1,000-crore expansion plan in August, 2008 when it was hit by the liquidity crisis. The Indian financial system and equity markets had got entangled in the global financial meltdown.

Subramanian, an alumnus of IIT-Madras and IIM-Ahmedabad, and a first-generation entrepreneur, has put the immediate liquidity requirement at Rs 300 crore to restart operations at Subhiksha. But retail industry officials estimate that it could need twice as much.

The company has a business model of buying supplies in cash to get extra discounts from manufacturers. This helps it beat rivals in the pricing game. For the first time, it began seeking credit from suppliers in July, 2008. Reportedly, it has not been able to pay its employees salaries since October, 2008.

Subhiksha’s Rs 180 crore shareholder funds include paid-up equity capital and share premium. It’s debt is around Rs 700 crore — which translates into a debt-equity ratio of nearly 4:1.

“It will be very difficult under the current circumstances for Subhiksha to find a potential investor or buyer for its business,” said Arvind Singhal, chairman, Technopak, a retail consultancy.

The private equity investments by the two companies may be written off, if things go from bad to worse, he added.

ICICI Ventures had bought a 38 per cent stake in Subiksha in March, 2004. It has sold 15 per cent, at nearly four times the acquisition cost of around Rs 70 crore. Just last September, it sold 10 per cent to Azim Premji, for a reported Rs 230 crore — well after the discount retailer had become mired in crisis.