Indian Retailer

After Chennai-based Subhiksha, value retailer Vah Magna is facing the heat of the credit crunch that has hit its operations. The Hyderabad-based firm, which has Rs 75 crore debt on its books, has defaulted on payments to some of its suppliers and shut over a dozen outlets.

It is now restructuring its loans to tide over the crisis, said director of Vah Magne Anjaneyulu Kakkera. He was the founder of the Trinetra retail network, which he sold a few years ago to the Aditya Birla Group.

One of its suppliers moved a lower court for alleged failure to make payments. The court had ordered attachment of movables of the retail chain.

But Vah Magna has now obtained an interim stay order from the High Court against stay of all further proceedings including execution of the attachment order.

The company, which has an equity base of Rs 60 crore, raised term-loans of around Rs 40 crore and working capital loans of Rs 35 crore. The banks that have an exposure to Vah Magna include Bank of India, State Bank of India, Indian Overseas Bank and Federal Bank.

“The slowdown in retail spending due to the recession led to a drastic drop in sales. But expenses have remained the same, putting pressure on working capital,” said Mr Kakkera. The inability of the company to align funds is seen to be the root cause of the crisis. Vah Magna has around 70 outlets, of which two are in Maharashtra and the rest in Andhra Pradesh. It reported revenues of around Rs 140 crore in FY09.

Fifteen outlets in Andhra Pradesh have been temporarily shut down. The two outlets in Maharashtra have not been impacted, claimed Sriram Kakkera, the son of Anjaneyulu, who is also a director of Vah Magna.

Employees of the retail chain have been paid salaries only till March this year.

The directors claimed they were scouting for private equity funds to provide a lifeline to the retail chain. Barely months ago, Vah Magna had said that it was planning to invest over Rs 400 crore to fuel its expansion plans in Tamil Nadu, Karnataka, Maharashtra, Madhya Pradesh, Orissa and Chhattisgarh.

But the liquidity crunch has forced the company to put all expansion plans on hold. The organised retail industry in India, estimated at $3 billion, is facing the backlash of the downturn over the last six months. Revenues are way below expenses. Costs have surged as many retailers leased space when real estate prices were sky-rocketing. Poor supply-chain and fund management has only compounded the crisis.

Chennai-based Subhiksha Trading Services is among the worst hit, neck-deep in debt accumulated over the past three years. It could not pay its vendors as all its earnings were used to service debt. So, over the past six months, it temporarily shut all 1,600 of its outlets in 110 cities.