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| Vishal Retail likely to shut down more stores |
| Neeraj Thakur / New Delhi Mar 13, 2009, 00:00 IST |
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New Delhi-based Vishal Retail may need to shut down more stores to conserve cash and carry inventory in the next two quarters, as sales are slowing. The company is in talks to roll over more than Rs 90 crore of debt owed to banks.
Analysts and company officials say the retailer is not generating enough cash. “We have not been able to generate positive cash flows from our operations in the first two months of this quarter,” said Chief Executive Manmohan Agarwal.
According to analysts, the next two quarters will be critical for the company, as sales are expected to fall further.
“If the company wants to survive the next two quarters, it will have to shut down some of its unviable stores,” said a Mumbai-based analyst. The company had to carry over 15-20 per cent of its winter apparel inventory due to sluggish sales. Vishal Retail’s half of revenues come from apparel sales in North India.
The company’s third-quarter profit dropped 86 per cent to Rs 2.15 crore. CARE Rating, while downgrading the retailer’s short-term bank facilities, said the risk was accentuated due to the company’s inability to carry out a proposed capital infusion, delay in sanction of working capital limits and higher liquidity risk.
According to analysts, some stores in Mumbai do not have enough inventories and the company may have to shut these.
“We look at shutting down stores on a case-to-case basis. In the past, we have shut down some loss-making stores and in future, this will depend on our analysis of the situation. We haven’t decided on additional closures,” said Agarwal.
Vishal has dropped expansion plans for the next two quarters for want of capital. The company has 300 million sq ft of retail space at present.
The company had a net debt, net of cash and other liquid assets, of Rs 765 crore on December 31, 2008. The company, being charged an average interest rate of 13 per cent, is negotiating with lenders to reduce the cost of the debt, as its interest outgo is expected to nearly triple this year. “Increasing interest payment on our balance sheet is a cause for concern and there is pressure,” Agarwal said.
Vishal Retail is expected to pay interest of nearly Rs 100 crore in FY09 as against Rs 38 crore in FY08.
“The company wanted to bring down its cost of debt by 1-1.5 per cent through rollover. However, banks are not allowing this because of the poor financial position of the company,” said an analyst requesting anonymity.
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