Vishal Retail's losses continue; says turning point by year-end

With dwindling sales, Vishal Retail’s management is working hard to put the loss-making company’s sales back on track. Even as the company has posted a loss of Rs 90 crore in its net profit for the first quarter of FY10, the management claims footfalls have increased and by the end of the year, everything would fall in place.

The monthly interest outgo has come down by 25 per cent, as some of the lenders have reduced their cost of debt from 15 per cent to 9.75 per cent. “We have told the bankers that ours is a profit-making business model. All we need is some leniency in the rate of interest, so that we could make a comeback,” said Ambeek Khemka, group president.

Vishal Retail has brought down its monthly interest outgo from Rs 10 crore to Rs 7.25 crore and the company is working to bring it down further.

With a net debt of Rs 730 crore on its books, the company has a debt to equity ratio of 1.7, considered to be very high for a value retailer like Vishal.

“Our monthly sales are in the range of Rs 100-110 crore and with the festival season ahead of us, the sales are will only increase in the coming months,” said Khemka.

In FY09, the company went on a debt-funded expansion spree, with a target of opening three million sq ft of retail space. It borrowed nearly Rs 200 crore in FY09, most of it short-term interest rates to fund expansion. “Excess short-term debt, coupled with plans of equity fundraising falling apart owing to poor market sentiments, led to sub-optimum capital mix and increased interest burden,” Khemka admitted.

To manage its costs, the company plans to shut 20 of its stores and reduce personnel. It has already relieved nearly 45 per cent of its earlier workforce and currently has 8,500 employees on its payroll.

Other ways of optimising costs will include slashing travel and communication allowances of the top management, including the president. “We are looking at increasing our per-employee productivity and this is one step in that direction,” Khemka added.