Subhiksha was a dream flight, which crash-landed as soon as it took off; B&E presents a decisive story covering a summary of its flawed strategies and the way forward. by Pawan Chabra
A former senior employee tells us, “Subhiksha’s debt-equity ratio was always wrong since the expansion began. The company pushed the accelerator simply depending on debt. Even as the company was not able to pay its existing employees properly, it still kept on hiring more till the recession started.”
Both Satyam and Subhiksha, coincidentally, have been cases of investor activism, where shareholders, sniffing something out of the ordinary, have demanded deeper investigation. This has specifically re-ignited the debate on the relevance of independent directors on the board. According to a report by KPMG titled ‘India Fraud Survey Report 2010’, almost 40% of the frauds committed in India Inc. are because of the failure on the part of line managers/departmental heads to act against deviations from established policies, and only 10% are because of inadequate oversight by the Board/Audit Committee. But they add that bribery and corruption are now considered to be an inevitable aspect of doing business in India by many Indian companies, with fudging of financial statements perceived to be the most rampant corporate fraud within India.
Practitioners like Susil Dungarwal, MD, Square Feet Management feel that though Satyam and Subhiksha may look similar, there are differences, "especially in the intentions; while Raju wanted to take the money home, Subramanian still wanted to put the money attracted by the falsified documents back into the company.” According to a report by KSA Technopak, the share of organised retail in the Indian retail industry will reach 12%; standing at $67 billion out of the total $587 billion of the total retail industry by 2015, which is expected to close with a 5% share in 2010 with the organised retail industry contributing $21 billion out of the total $435 billion of business. "But if cases like Subhiksha get repeated, the projection may be revised soon; and the biggest hit would be in the PE investments that were coming into this sector," says Prasoon Majumdar, President, Global Strategy and Investment Consulting.
That the Indian retail industry – like the airlines sector – is going through a bloodbath is no secret. Vishal Retail was another firm which almost reached a collapse point – but the company was saved by the US-based PE firm TPG Capital. Even Satyam got taken over by the IT arm of M&M Group Company Tech Mahindra, and the conglomerate has since been trying to get the IT major back on track. A saviour for Subhiksha, unfortunately, is still not in picture. Sources familiar with the matter confirm that ICICI Ventures has now even approached many strategic buyers; but so far, nothing has worked out as the prospective acquirers don't see much value in the retail chain. Even Premji is said to be suffering from the same predicament, with the investment value plummeting post the scandal and collapse.
So where to from here for Subhikhsa? Clearly, wherever it is, would be only downhill. The chances of Subhiksha being sold lock, stock, and barrel are extremely low. But a higher probability exists for a part by part sell off of Subhiksha's various business units – but there would be very less assets to speak off once all claims are settled. Depressed about that? Well, read the book...
A former senior employee tells us, “Subhiksha’s debt-equity ratio was always wrong since the expansion began. The company pushed the accelerator simply depending on debt. Even as the company was not able to pay its existing employees properly, it still kept on hiring more till the recession started.”
Both Satyam and Subhiksha, coincidentally, have been cases of investor activism, where shareholders, sniffing something out of the ordinary, have demanded deeper investigation. This has specifically re-ignited the debate on the relevance of independent directors on the board. According to a report by KPMG titled ‘India Fraud Survey Report 2010’, almost 40% of the frauds committed in India Inc. are because of the failure on the part of line managers/departmental heads to act against deviations from established policies, and only 10% are because of inadequate oversight by the Board/Audit Committee. But they add that bribery and corruption are now considered to be an inevitable aspect of doing business in India by many Indian companies, with fudging of financial statements perceived to be the most rampant corporate fraud within India.
Practitioners like Susil Dungarwal, MD, Square Feet Management feel that though Satyam and Subhiksha may look similar, there are differences, "especially in the intentions; while Raju wanted to take the money home, Subramanian still wanted to put the money attracted by the falsified documents back into the company.” According to a report by KSA Technopak, the share of organised retail in the Indian retail industry will reach 12%; standing at $67 billion out of the total $587 billion of the total retail industry by 2015, which is expected to close with a 5% share in 2010 with the organised retail industry contributing $21 billion out of the total $435 billion of business. "But if cases like Subhiksha get repeated, the projection may be revised soon; and the biggest hit would be in the PE investments that were coming into this sector," says Prasoon Majumdar, President, Global Strategy and Investment Consulting.
That the Indian retail industry – like the airlines sector – is going through a bloodbath is no secret. Vishal Retail was another firm which almost reached a collapse point – but the company was saved by the US-based PE firm TPG Capital. Even Satyam got taken over by the IT arm of M&M Group Company Tech Mahindra, and the conglomerate has since been trying to get the IT major back on track. A saviour for Subhiksha, unfortunately, is still not in picture. Sources familiar with the matter confirm that ICICI Ventures has now even approached many strategic buyers; but so far, nothing has worked out as the prospective acquirers don't see much value in the retail chain. Even Premji is said to be suffering from the same predicament, with the investment value plummeting post the scandal and collapse.
So where to from here for Subhikhsa? Clearly, wherever it is, would be only downhill. The chances of Subhiksha being sold lock, stock, and barrel are extremely low. But a higher probability exists for a part by part sell off of Subhiksha's various business units – but there would be very less assets to speak off once all claims are settled. Depressed about that? Well, read the book...
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Prof. Rajita Chaudhuri's Website
domain-b.com : IIPM ranked ahead of IIMs
Arindam Chaudhuri's Portfolio - he is at his candid best by Society Magazine
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
IIPM B-School Detail
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Prof. Rajita Chaudhuri's Website
domain-b.com : IIPM ranked ahead of IIMs
Arindam Chaudhuri's Portfolio - he is at his candid best by Society Magazine
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
IIPM B-School Detail
