6 months and 4 posts later, Subhiksha is no tottering on the brink. Its 1600 outlets are all shut. It is not doing business, it has 300 crore of immediate cash requirement, it has not paid its employees 5 months salaries, it is indebted to its suppliers and other creditors, it owes the landlords rents of the outlets, it has no money to pay its security, its stores have been vandalized, most of its managerial cadre has left. How worse can it get? A little more from here: 5 of its 10 directors have resigned from its board, Tata Teleservices which provided its employees with phone lines has a bill of Rs.10 crore, with which it has gone to Chennai court, the EPF trust has moved court against non submission of EPF amounts. It doesnot get worse than this.
Apparently RS is not declaring Subhiksha bankrupt and is going through a debt restructuring programme to make his company lucrative for equity participation offers! Interestingly 5 of its independent directors including the 2 members of the ICICI venture have resigned from its board. Azim Premji, another investor in the company is moving the court on the matter of merger of Subhiksha with Blue Green constructions. That makes 6 independent directors in a board of 10, who appear to have views about Subhiksha and its management, which are completely different from RSs views. The other 4 directors include RS himself and 3 faceless nameless entities from Blue Green Constructions (A company promoted by RS). There are chilling similarities between Subhiksha and Satyam.
In the month of May 2008, Subhiksha had taken a debts from 10 banks worth 620 crore. Then it had also issued warrants to 6 Mutual fund houses totalling another 40 crore. Thats a total of 660 crore. Of Subhiksha's own filing, we know that it is a 2308 crore company in trunover (FY 08). That means a monthly revenue of Rs.200 crores. After recieving a debt stimulus in May 2008, the company started defaulting on suppliers from July and August 2008 and there were delays in employee payments August - September onwards. These matters are in public knowledge by relevant press coverage in those dates. One would assume the 660 crore in the system would have been put to good use and yet the chain was massively defaulting.
Subhiksha was speaking of Private mandis and CDIT stores those days, but the plans never saw fulfilment. There was no significant expansion activity those days. So the 660 crore couldnot have been used up in expansion alone! If 3 montsh expansion ate up all of 66o Crores, that would have a fast and furious expansion and it would again be public knowledge!
If Subhiksha was funding existing operations, running out of 660 crores in 3 months is unbelievable really. For a chain doing 200 cores of monthly business, using up 200 crores (660 crores in a quarter) is tantamount to zero operational deliveries. That is quite an impossibility.
If the 660 crores were used to square off earlier debts, it would have meant that the money put to use earlier didnot earn returns! The model thus was not working from its very beginning!
Which ever way the 660 crores were put to use amongst these three, or a combination of these three; it only demonstrates the incapability of the management at Subhiksha. Perhaps a little more, there is a possibility that the 660 crores could have been siphoned off... (we dont want to relive Satyam!)
With such a background, does RS hope to find a equity buyer... i doubt it.
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