Vishal Retail too is ready with its quiver to drive away the slowdown monster. But will arrows hit the bull’s-eye? Wonders Savreen Gadhoke…
“The growth in India’s organised retailing will be hit due to weak consumer sentiments and the slowdown in fresh investment…,” avers Kumar Rajagopalan, CEO, Retailers Association of India (RAI). RAI, who had once forecasted a 30% annual growth rate of this burgeoning sector, has slashed its outlook to a 12-15% growth. Raison d’être: After the nerve-wrecking Subhiksha default case, the consumer as well as the market sentiments attached with this once most sought after sector is rather incredulous. Experts even claim that the retail sector is mostly riding on the back of huge debts. All major retail chains including Pantaloons, Shoppers Stop, et al, are not only facing the heat of slowdown and low consumer spendings, but are also under the scanner for their high debt obligations. In fact, under the eagle eye this time is yet another giant retailer – Vishal Retail Limited (parent company of Vishal Mega Mart).
With Rs.10 billion turnover in 2008, and growing at 100% (y-o-y), it was little expected that Vishal Retail could also fall into the deadly debt trap. But it did! The company’s un-audited financial results for the quarter ended December 2008 reveal that the retailer’s expenditure on interest has increased by a whopping 137.26% as compared to the same quarter last year. What’s more? The profit for the December quarter too plunged by a pathetic 86% and stood at a miniscule Rs.21.5 million (as against Rs.155.6 million last year). So, with liquidity crisis, reduced cash flow, mounting debt obligations and a huge fall in profits, the daunting question arises – is Vishal Retail heading toward becoming another Subhiksha?
“Vishal Retail’s total debt obligation is about Rs.7.5 billion, of which Rs.1.4 billion is high-cost short-term debt,” avers Raghav Sehgal, Retail Analyst, Angel Broking. Considering this, the road ahead certainly offers a bumpy ride to Vishal Retail. Even the rate of interest, which the company is liable to pay on this debt, is between 14-16%. So, with an interest coverage ratio of about 1.5 and estimated debt-to-equity of about 2.66, the company certainly faces an uphill task in its effort to sustain growth and profitability.
However, in order to improve profitability and bring the conditions back to normal, the honchos at Vishal Retail have already started wasting a lot of chalk on the drawing board and are making efforts to re-organise and revive their retail venture. But will the efforts really pay-off amid slowdown is the question that’s doing rounds in many minds!
In fact, the company has already started consolidating its back-end and front-end operations. The first step in this direction has been the centralisation of its warehouses. From 22-23 warehouses across the country, the number has been drastically reduced to 4-5 warehouses and that too concentrated in north India. Avers Ambeek Khemka, Group President, Vishal Retail, “Huge warehouses in south & west India have been shut down and a centralised hub has been opened in Gurgaon.” Although Khemka agrees that this will lead to job losses, the move will certainly help in improving operational efficiency by reverse logistics. Moreover, transportation vehicles can not only be used to deliver stock & inventory to stores in far-flung areas, but on their way back to the centralised hub, can be used to collect deliveries from vendors’ en-route, thereby saving on transportation fee payable to vendors.
For more articles, Click on IIPM Article.
Source : IIPM Editorial, 2009
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
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“The growth in India’s organised retailing will be hit due to weak consumer sentiments and the slowdown in fresh investment…,” avers Kumar Rajagopalan, CEO, Retailers Association of India (RAI). RAI, who had once forecasted a 30% annual growth rate of this burgeoning sector, has slashed its outlook to a 12-15% growth. Raison d’être: After the nerve-wrecking Subhiksha default case, the consumer as well as the market sentiments attached with this once most sought after sector is rather incredulous. Experts even claim that the retail sector is mostly riding on the back of huge debts. All major retail chains including Pantaloons, Shoppers Stop, et al, are not only facing the heat of slowdown and low consumer spendings, but are also under the scanner for their high debt obligations. In fact, under the eagle eye this time is yet another giant retailer – Vishal Retail Limited (parent company of Vishal Mega Mart).
With Rs.10 billion turnover in 2008, and growing at 100% (y-o-y), it was little expected that Vishal Retail could also fall into the deadly debt trap. But it did! The company’s un-audited financial results for the quarter ended December 2008 reveal that the retailer’s expenditure on interest has increased by a whopping 137.26% as compared to the same quarter last year. What’s more? The profit for the December quarter too plunged by a pathetic 86% and stood at a miniscule Rs.21.5 million (as against Rs.155.6 million last year). So, with liquidity crisis, reduced cash flow, mounting debt obligations and a huge fall in profits, the daunting question arises – is Vishal Retail heading toward becoming another Subhiksha?
“Vishal Retail’s total debt obligation is about Rs.7.5 billion, of which Rs.1.4 billion is high-cost short-term debt,” avers Raghav Sehgal, Retail Analyst, Angel Broking. Considering this, the road ahead certainly offers a bumpy ride to Vishal Retail. Even the rate of interest, which the company is liable to pay on this debt, is between 14-16%. So, with an interest coverage ratio of about 1.5 and estimated debt-to-equity of about 2.66, the company certainly faces an uphill task in its effort to sustain growth and profitability.
However, in order to improve profitability and bring the conditions back to normal, the honchos at Vishal Retail have already started wasting a lot of chalk on the drawing board and are making efforts to re-organise and revive their retail venture. But will the efforts really pay-off amid slowdown is the question that’s doing rounds in many minds!
In fact, the company has already started consolidating its back-end and front-end operations. The first step in this direction has been the centralisation of its warehouses. From 22-23 warehouses across the country, the number has been drastically reduced to 4-5 warehouses and that too concentrated in north India. Avers Ambeek Khemka, Group President, Vishal Retail, “Huge warehouses in south & west India have been shut down and a centralised hub has been opened in Gurgaon.” Although Khemka agrees that this will lead to job losses, the move will certainly help in improving operational efficiency by reverse logistics. Moreover, transportation vehicles can not only be used to deliver stock & inventory to stores in far-flung areas, but on their way back to the centralised hub, can be used to collect deliveries from vendors’ en-route, thereby saving on transportation fee payable to vendors.
For more articles, Click on IIPM Article.
Source : IIPM Editorial, 2009
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Why has IIPM always been opposed to B-school rankings?
IIPM : One of the leading and most respected business schools
IIPM students on NDTV Television Chat Show
Four Phase of IIPM Global Plans
Professor Arindam Chaudhuri says
30 professors of international repute to IIPM
