Case study on Subhiksha retail

chain.

-Srinivas R Khode.
R Subramanian
Founder & MD
 We are a golden egg laying duck, we are in trouble.
We need their (bankers and lenders) support and upon
getting it we will restart operations and repay all debt.
It is not easy, but we have to make it happen, says R
Subramanian, Founder, Promoter, and Managing
Director of Subhiksha Trading Services, which owns
Subhiksha the Indias largest (in terms of number of
stores), food and grocery, small format,
neighbourhood, convenience, discount retail chain.
Subhiksha (prosperity) which means prosperity in
Sanskrit is on the verge of bankruptcy today, as on 2
Feb, 2009.
 Subramanian wasn't thinking this big when he kicked
off Subhiksha a retail value chain in 1996. In fact, he
wasn't even thinking retail when he passed out of IIM
Ahmadabad in 1989. After a two-week stint at his first
employer Citibank, Subramanian joined his mentor
(late) S. Vishwanathan, who then ran Enfield Industries.
At Enfield, Subramanian helped professionalize a
hitherto family-run set-up and rope in Eicher as a
buyer. After working for two years at Eicher, he started
his first company called Viswapriya, and made profits
up to 25 crores, until the share market collapsed in
1995.
 The beginning
In the year 1997, Subhiksha opened its first
store at Thiruvanmiyoor in Chennai with an
investment of around Rs 4-5 lakh, with the
theme, why pay more when you can get it
for less at Subhiksha
 Subhikshas USP:
Offering the branded goods at a lower price
than their competitors Which could
make them stand in the competitive retail
industry.
 The expansion of the stores:
By March 1999, Subhiksha started expanding
rapidly. From 14 stores, it expanded to 50 stores
by June 2000. In the next two years, it had 120-
130 stores across Tamil Nadu.
They decided to look at every part of India which
is significantly literate and is a significant
consumption market. Telecom companies are
their role model. In 2004-05, they decided to
have 420 stores in places like Gujarat, Delhi,
Mumbai, Andhra and Karnataka by 2006.
Subhiksha is currently operating over 1,500
supermarket stores across more than 100
cities selling food, grocery, drugs, and telecom
products across INDIA.
 Cut price strategy:

Opening a chain of no-frills stores-no air-

conditioning, no fancy lighting, and no
touchand-feel experience (customers have to
ask for products at Subhiksha stores)-was a
deliberate strategy. Shops are located not on
the main road, but just off it, to take
advantage of vastly lower rentals. The
catchment area of customers is rarely beyond
a two-km radius, since its customers usually
come on two-wheelers or on foot.
Until little over two years ago, Subhiksha was
only a local player with 150 stores (September
2006) operating mainly in Tamilnadu. The
retailer began growing rapidly outside the
state, soon after infusion of private equity
capital by I-venture, the venture capital arm of
ICICI. I-Venture took 24 per cent stake in the
companys equity, which until then was
primarily held by Subramanian and his
associates.
Subhikshas turnover grew from Rs 330 crore in
2005-06 to Rs 833 crore in 2006-07, and then
to Rs 2,305 crore in 2007-08 (year ending
March 31, 2008). Likewise, having grown from
150 stores in September, 2006 in Tamilnadu to
1,600-odd stores across the country in
September, 2008, Subhiksha has been the
envy of its competitors. By the end of this
year, it was looking at grossing a turnover of
Rs 4,300 crore from 2,300 stores.
 The problem starts.
"We were facing a lot of difficulty in accessing
data across different regions using this local
solution," concurs Ankur Saigal, vice president
(Tech Initiative), Subhiksha Trading Services.
"Besides business expansion brings its own
complexities and we needed a robust platform
to streamline our operations and control."
Furthermore, the company needed a solution to
manage the payroll system. Although it didn't
have any HR issues at the ground level,
sending the payroll to employees on time was
getting difficult. The system worked manually,
with a central team taking care of running 2-3
payroll systems in a month depending on the
availability of the band width and the entire
process.
 The first and big mistake committed by the
management of Subhiksha is expanding the
number of stores rapidly without sufficient
funds in hand. They thought of raising equity
during last September but the things had gone
too far before they woke up. The global
markets had started collapsing and there were
no possible chances of raising funds.
1.Subhiksha Trading Services has come under fire from
television channels for not clearing advertising dues
that run around Rs 8 crore.
2. Subhiksha is believed to owe Rs 35 crore against goods,
Rs 18 crore against wages, and Rs 20 crore against
lease rents. The company, according to the report, is
also carrying a debt of Rs 700 crore at an average
interest cost of 12 per cent per annum.
3. Expansion of Stores without adequate system control
and IT Support. Thats why there was a huge Audit and
abnormal losses in the system.
 Recovery?
Subhiksha, which was forced to shut all its
stores as it ran out of cash, is in talks with over
ten banks to restructure loans of nearly Rs 750
crore through a CDR (corporate debt
restructuring) exercise. Its promoter R
Subramanian has said that the company can
resume operations after it gets cash of Rs 300
crore.
In all, 13 banks have cumulatively lent Rs 750 crore to
the company. The banks that are part of the
restructuring include ABN AMRO Bank (Rs 50 crore),
Bank of Baroda (Rs75 crore), Centurion Bank of
Punjab (Rs 40 crore), Development Credit Bank (Rs
25 crore), Federal Bank (Rs 50 crore), HDFC Bank (Rs
65 crore), ICICI Bank (Rs 155 crore), Standard
Chartered Bank (Rs 25 crore), The Hongkong and
Shanghai Banking Corporation (Rs 85 crore) and Yes
Bank (Rs 50 crore)
Thank You