Subhiksha's Subramanian charts comeback plan

R. Subramanian is back in the public eye after an absence of almost three years. The forced hiatus came after Subhiksha Trading Services Ltd (the company he founded) crashed and burned in the aftermath of the global cash squeeze following the collapse of Lehman Brothers in September 2008.

add_main_imageIt was a crash that was as much a product of the times as it was of rampant expansion (encouraged by an aggressive private equity investor looking to cash out). And it was messy. There were several court cases, and allegations of accounting and corporate governance irregularities.

The man who was nicknamed Thalaivar (leader in Tamil) for his ability to max courses at the Indian Institute of Management, Ahmedabad, spoke about the experience at the two-day India Retail Forum that started on Wednesday in Mumbai.NextMAds

“My conscience is clear. I don’t think I did anything wrong,” Subramanian said, although he did admit that he was partly to blame. And, yes, he’ll be back. He said he plans to revive Subhiksha.

Subramanian, who started Subhiksha in 1997 with an investment of just ₹ 4 lakh, was one of the first and biggest casualties in the organized or modern retail trade in India. Once considered the next big thing (some are still convinced it is), several large business houses and entrepreneurs such as Subramanian found it wasn’t exactly an easy nut to crack. By the time the firm wound up operations in February 2009, it had over 1,600 stores in 30 cities and a consolidated debt of more than ₹ 800 crore.

The mood in the Indian retail industry is upbeat after a long period in the doldrums. That’s thanks to recent policy changes—on 14 September, India allowed 51% foreign direct investment (FDI) in multi-brand retail, a plan the government had previously been bullied into rolling back. Besides this, some of the conditions on single-brand retail have been eased.

Subramanian spoke in a session that was billed as a frank discussion with industry veteran B.S. Nagesh. Nagesh is founder of TRRAIN (Trust for Retailers and Retail Associates of India) besides being founder and chairman of the country’s oldest department store chain, Shoppers Stop Ltd.

“It is a good time to be at the retail forum,” Subramanian had said a day before the meet. In the past three years, he has stayed in the retail business, he said. He’s attending the forum “not as Subhiksha, but as a retailer”.

He hasn’t started any other retail venture. “I have spent 15 years running Subhiksha and don’t have any other retail ventures,” said Subramanian, who has kept a low profile following the downfall of his company.sixthMAds

Subramanian is liable to arouse strong feelings among most people who know him. Some consider him a visionary; others think he is a fraud.

A year before the crisis struck, Subhiksha loaded itself with debt to fund aggressive expansion plans. It doubled its stores from about 650 in March 2007 to more than 1,300 in March 2008. A year later, it was stuck with a mountain of inventory and unserviceable debt. The decline into oblivion was dramatic and painful.

The collapse had wide-reaching repercussions—banks and investors such as Azim Premji’s private equity firm PremjiInvest were saddled with a cumulative loss of more than ₹ 800 crore. ICICI Venture had a stake of more than 20% in the firm and had to write off the investment.

At the peak of its business, Subhiksha was doing business of ₹ 280 crore a month. As for his revival plan, “I hope to reach these kind of revenues 2.5-3 years from when we start over,” he said on the sidelines of the conference.

However, the retailer still has issues to resolve, including claims that need to be settled to the tune of ₹ 800 crore.

“We are waiting for various restricting proposals to get cleared, which we have placed before appropriate forums. Based on proposals that are cleared, we will resume operations,” Subramanian said. “We are working on ways to develop a ‘capital light’ business model.”

He believes the time is right to start over “as three-and-a-half years have passed and investors are now ready to look at ways to reach a settlement in terms of this is what is possible and this is what is not possible”.

However, analysts are skeptical. “There are questions around the brand itself. Those questions will arise and also people in general will be worried about the quality of the experience,” said Abneesh Roy, associate director, institutional equities, research, Edelweiss Securities Ltd.

Moreover, the retailer is charting its comeback plan at a time when international retailers have got the green signal to enter the business. Wal-Mart told The Wall Street Journal it will look at opening its first store in India in the next 12-18 months.

Additionally, vendors, real estate firms and consumer durable suppliers may be reluctant to sign up as their dues remain uncleared, analysts said.

The opportunity is huge. According to Ernst and Young, the organized retail market constituted about 6% of an overall retail market valued at $450 billion in 2011. By 2015, the Indian retail market is expected to reach $720 billion, with the organized market’s share expected to be around 9-10%.

The company will need to ensure it doesn’t repeat mistakes of the past while evolving a business model to suit the current realities of the Indian retail industry. “Efficient inventory management and calibrated expansion plans are needed to ensure a stress-free balance sheet,” said Gautam Duggad, an analyst at Motilal Oswal Securities Ltd.

For Subramanian, an IIT, IIM Ahmedabad gold medallist, the retail business was second nature once upon a time as he ran the chain for 15 years before it crashed. Now even as he returns from a forced hiatus he seems at ease and ready to get back in the game and ready to take the challenges head on.