Subhiksha Trading Services, a food and grocery chain, today admitted to its first quarterly loss in about a decade as it shrunk operations and struggled to raise working capital funds to stock up its stores.
“We have got into pain and this hurts,’’ said N. Subramaniam, Managing Director, Subhiksha. He declined to disclose the extent of loss in the quarter. ''There has been a huge liquidity crunch.’’
The Chennai-based retailer’s monthly turnover has dropped to a fourth, or Rs 100 crore, in the last two months from Rs 400 crore earlier as it did not have money to stock up and continued to struggle for funds. The genesis of Subhiksha’s problem lay in expansion at a time when the global economy was faced with credit crisis and banks and investors turned risk averse. The company found it difficult to even raise working capital to stock up its stores. From 150 stores in September 2006, all of which were in Tamil Nadu, the company grew rapidly to 1,600 stores by September 2008.
Lack of funds forced the company, partly owned by IT mogul, Azim Premji, to delay payments to its suppliers, landlords and to more than 15,000 of its employees. The discount chain retailer now owes Rs 35 crore to its suppliers, Rs 18 crore in wages to employees and Rs 20 crore in rentals.
Subhiksha has a net worth of Rs 260 crore with equity of Rs 32 crore. The retailer borrowed three times the size of its net worth to scale up operations. Most of the expansion came through taking on expensive debt.
The company has gross debt of Rs 700 crore. While the average cost of debt was 9 per cent last year it climbed to 13 per cent in the first half of this fiscal year. The Reserve Bank of India’s measures to cut rates and infuse additional liquidity has helped the retailer to lower the average cost of debt to 12 per cent in the third-quarter ending December 31.
Despite mounting problems and shrinking business, Subramaniam said he is not walking away from the business which as a business model remains sound. Subhiksha has net margin of 2 per cent compared to 3 per cent a few year earlier. To overcome the acute liquidity crunch the retailer is talking to existing investors and bankers to raise Rs 300 crore. It expects to complete the process of raising funds and also restructure operations by shutting 10 per cent of its unviable stores by first week of March.
“We are broadly talking to our existing investors and banks, which have been supportive and understand our problems, instead of going to new investors,’’ said Subramaniam.
