Subhiksha on verge of collapse
31 Jan 2009
Discount retailer Subhiksha, which has been showing signs of trouble since the last few months, has said that it needs an urgent infusion of Rs300 crore for survival.
The Chennai-based company, which runs India's largest chain of discount supermarkets, had been one of the most aggressive organised retail players in recent years.
Around 59 per cent of the company is owned by its promoters, 23 per cent by ICICI Securities Ltd and software billionaire Azim Premji of Wipro Ltd, owns a 10- per cent stake, which he had bought last year from ICICI Securities for Rs230 crore. It has a pan India presence of 1,600 stores as on September 2008.
Apparently Subhiksha ran its operations mostly on cash basis. Its trade cycle collapsed in October resulting in no fresh purchases and inability to meet salaries and bills.
The promoters are not ready to accept defeat, and are instead looking for a cash infusion, even though the retail sector is seeing tough times. This month another budget retailer, Vishal Mega Stores, shut down two stores that had not been breaking even, while unsubstantiated reports said Big Bazaar was closing some of its bigger stores.
However when contacted, Big Bazaar CEO Rajan Melhotra rubbished the claim, saying, "We are not consolidating or closing any of our stores," he said.
Last week, Hanumant Rao, a senior official of retail chain Subhiksha was arrested in Nagpur, on complaints by employees of alleged non-payment of salaries and the creation of fictitious PF accounts.
Police say that Rao was booked under Section 409 for criminal breach of trust and Section 420 for cheating under the Indian Penal Code.
Subhiksha's list of woes include:
- 15,000 employees have not been paid a salary since October 2008. owes the employee Rs20 cores as salaries
- Inability to raise equity due to bad market conditions
- Net worth is Rs250 crore and liabilities are Rs750 crore
- Rs45crore owed to suppliers
- Rs24 crore outstanding as rentals for various stores
- Tata Teleservices has cut all fixed line and mobile phone corporate connections to Subhiksha offices and employees due to unpaid bills
- Exodus of senior management
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