Mumbai: Vishal Retail Ltd, the cash-strapped retail store chain, is offering shares to some of its big manufacturers and suppliers instead of cash, and is struggling to raise money for daily operations, said a person familiar with the situation, who didn’t want to be identified.
Chairman and managing director of the company Ram Chandra Agarwal denied this and said “nothing of this sort is happening”, but added that he is open to offering equity shares instead of cash to vendors.
“... If any supplier is interested in having stake in the company while having faith in its future, then we would welcome them to be our stakeholders as this will bring in more sense of belongingness, which will only benefit us in the long run,” Agarwal said in an email response to Mint.
He also admitted that “cash flow is under stress” and that “the worst is not over yet”.
“The company is gradually moving towards normalcy and lot more is being done before we say that the worst is over,” Agarwal added.
The New Delhi-based company posted losses of Rs115 crore for the last quarter of 2008-09 ended March, its first since it went public in July 2007. It managed to cut losses in the June quarter of 2009-10 to Rs90 crore.
The Rs110 crore Vishal Retail public issue was subscribed 81 times and its share price—shares were offered to the public at Rs270—hit Rs1,001 in January 2008.
On Wednesday, shares of Vishal Retail lost 1.67% to close at Rs61.95 each on the Bombay Stock Exchange, even as the bourse’s benchmark equity index, the Sensex, rose 0.46% to close at 15,903.83.
“The company had planned aggressively for expansion and raised debt, thinking that we would raise capital, by selling shares, from the markets parallely and set off the debt from the proceeds thereof, but neither happened due to the economic downturn and the company ended up with huge debt in its books and incurred very high finance cost month on month, which hit profitability severely,” Agarwal explained.
Rajendra Hinduja, managing director of Bangalore-based Gokaldas Exports Ltd, a supplier to Vishal Retail, said his company had stopped dealing with the retailer after its dues were cleared last month. “In the present situation, very few suppliers will give credit to the company.”
Commenting on the offer of shares, Hinduja said: “They have not yet approached us with such an offer (equity shares instead of a cash payment).”
“If the promoters are taking such a step, in the longer run it may have a negative impact as the owner may end up losing control over the company,” he added.
The embattled retailer currently has 174 large-format stores, of which 24 are franchisee stores. In the past eight months, it has shut down 12 stores and laid off almost 6,000 employees. In 2007, the company had around 14,500 employees.
Companies in the retail sector have been hit hard by the global economic slowdown, and are weighed down by debt raised for expansion and large inventories stocked in anticipation of demand that never came.
Vishal Retail’s total debt is around Rs730 crore. Sales declined to Rs244.71 crore for the period ended 31 March, from Rs334.52 crore in the same period last year. For the first quarter ended 30 June, the company reported sales of Rs265.37 crore, a decline of 29.5% from Rs376.55 crore in the corresponding period of the previous year.
Kunal Lakhan, an analyst with KR Choksey Shares and Securities Ltd, said the firm has no option but to restructure its debt. “However, offering shares to suppliers clearly means that they are not able to generate enough cash to pay the suppliers,” he said, adding that this is similar to pledging shares and which could be dangerous in the long term.
“What if the share prices falls further, the promoter will end up losing stake over the company, which is already in trouble with huge debt and operating expenses,” Lakhan added.
However, Agarwal said the company has already converted some of its debt from short term to long term, besides seeking a moratorium on interest payments. “Currently, the company is restructuring debt and negotiating with bankers.” He added that SBI Capital Markets Ltd had been given the mandate for this exercise.
The company has also cut costs across operations and will shut “stores that cannot be revived by any means”, Agarwal said.
“We will be expanding only through the franchisee network (and relocating a few stores) for the time being, till such time we are able to have our finances right,” he added.