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Surge and purge

R Subramanian, a gold medalist from IIT Madras and an alumnus of IIM Ahmedabad dreamt big.  After a brief stint in Citibank and Royal Enfield, he established Viswapriya Financial Services Private Limited (VFSPL). His vision expanded with the founding of the huge retail chain Subhiksha and at one time counted Azim Premji as one of his investors. Alas! his big dream turned into a nightmare for him and more importantly, his investors, as the empire came crashing. What led to the debacle?

In 1991, Subramaniam established VFSPL first as private limited co. and later converted it into a non-deposit taking, non-banking public limited company.  The company had its registration with RBI, but in 2005 the country’s central banker cancelled the certificate.  Meanwhile, market regulator SEBI banned VFSPL for irregularities identified in share allotments of two public issues. Despite that, VFSPL continued its financial operations under various schemes viz. Prime Invest, Liquid Plus and Safety Plus (these plans were similar to fixed deposits and debentures) and collected about Rs.250 crore from investors. 

 

Rise and fall of Subhiksha

Meanwhile in 1997, the ambitious engineer founded Subhiksha as a retail chain selling provisions, fruits, vegetables and household supplies. The initial investment was $1 million. The chain grew rapidly and had over 420 branches by the year 2006. Between 2006 and 2008 Subhiksha witnessed a massive expansion stretching across India and growing to 1600 outlets. Its revenue increased seven’fold; from Rs.330 crore in fiscal 2006 to Rs.2305 crore in fiscal 2008.  The diminutive management graduate was getting noticed so much so that no less a person than Azim Premji invested Rs.230 crore in the retail chain for a minority stake of 10 per cent.

It was in 2009, at the same time the Satyam scam shook India, that the retail chain collapsed.  Subhiksha was barely making any profits.  The aggressive expansion, a slew of rash moves and irrational decision making by Subramanian meant that profits were for a toss. Soon cash flow too disappeared. Several revival strategies such as corporate debt restructuring and stores reopening were planned. But both the Madras High Court and the creditors put their foot down. Meanwhile, loans and outstandings escalated, dues to vendors’ dues remained unsettled, employees salaries stayed unpaid and all outlets closed.  The company with a total investment of Rs.1200 crore from around 4000 investors, evaporated overnight.

 

The suspicion and lawsuits

In 2013, cheques started to bounce, which made investors smell foul play. The company had severely manipulated its books of accounts, inflated its inventory, showed discrepancies in accounts and cash flows, balances of loans and dues. Subsequently, the Economic Offences Wing (EOW) arrested Subramanian after a hunt that lasted two months and which cut across four states. The man who was touted as a wizard was charged with deceiving depositors to the extent of Rs.250 crore.

 

Withers and woes

There were several reasons why Subhiksha fell from grace. The desultory, chaotic expansion without a focus, lack of clarity in strategy, an obsessive goal to make it to the top rapidly, no timely remedial action, a dearth of transparency, incompetent management, lack of professionalism to face the consequences and market competition. 

Subhiksha  started  on  a great promise:  offering products at competitive prices. The merchandise that included  pharma products, were priced much less than the  maximum retail prices (MRP) and that became immensely popular. Initial start  up capital was  accessed  from Enfield S Viswanathan’s resources  and the growth was meteoric.  RS did blaze new  trails in retail chains that had the potential to emerge the leader. How rapid was the spread of Subhiksha stores that crossed 1000! Sadly he lacked  the financial resources and the scruples to  stick to transparent dealings.  He could have built on the initial trust he  won with Azim Premji  and convinced Premji to play a larger role in building Subhiksha offering a larger stage. But the Chennai businessman- syndrome of owning predominent equity stake, had come in the way. 

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