Slow down: taking its toll?

A couple of weeks back I had written a post about how the slow down will hurt some industries. Fairly clearly those companies (industries) which have a high cash burn ratio – and who cannot reduce fixed costs will bleed first. Financial services industry – life insurance, broking retail, general retail – are all vulnerable.

If your margins are low, fixed costs are high – you can make money ONLY AND ONLY IF you are able to hit very high volumes quickly or have a huge cash chest to burn. For Tata Motors Nano and JLR may be a heady but a dangerous combination.

In retail the smallest player – in terms of cash chest – may have just fallen by the wayside. Subhiksha a retail player from South has closed all his shops in NCR, Nagpur and Mumbai. One does not know about his all India operations, but there are small stories about non payment of vendor dues, salary, etc. And to think that recently Mr. Premji of Wipro just pumped in Rs. 1000 crores into the company (ok, ok it was by buying out an existing shareholder, so the company did not get the money)! In fact the situation seems to have been so bad that Mr. R Subramanian (entrepreneur, MD) has not been able to raise debt nor get sebi permission for an IPO.

Quite surprising that the national press has not carried any story about this…..or a bail out package! It is surely a big employer – at least 10,000 people!

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One Response to “Slow down: taking its toll?”

  1. Dr Mohammed Ali Khan on August 6th, 2009 at 11:06 pm

    This Subhiksha story started from my place.. Velachery, Chennai.

    They became very popular by offering drugs very cheap..
    For example if a Tablet of Ciprofloxacin ( an antibiotic ) cost Rs 10 in the general market they used to sell it at Rs 7.. There was a Drug store just opposite to their shop called Sri Ram Medicals..A very reputable shop which was in business for almost 25 years in velachery.. I asked the shop manager as to how is Subhiksha able to offer such low prices.. What he told was prophetic .. ” Dr.. This subhiksha will either collapse or they’ll have to raise the prices.. There is no way they can sustain like this unless they are pumping in money from some other source.. ”

    Now Subhiksha has collapsed and Sri Ram Medicals is doing very well.. But unfortunately Sri Ram Medicals is a one shop operation and hence no IPO 🙂

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