Kishore Biyani embodies the spirit of entrepreneurship like few others do. He spotted the potential in organised retail way ahead of many top industrialists, and the Marwari in him, couldn’t resist the opportunity. He started out making readymade trousers in the late 1980s, his first experiment with value addition.
In 1997, the first Pantaloons store came up in Kolkata. A couple of years later, as an equity salesperson at Prime Securities, I recall taking a group of fund managers to visit the first Big Bazaar store also in Kolkata. Not all of them were convinced it was a business to bet on, but many were willing to back Biyani when we placed out the shares.
Biyani knew his onions; he understood the psyche of consumers: how they would always be reluctant to pay for parking, how you needed to create brands for them to aspire to, how buyers in the eastern part of India preferred ‘sober’ shades while those in the north liked bright colours. How they were price-conscious, but so easily succumbed to ‘sales’. If he went for an IPL match, he would sit in the cheaper stands to stay in touch with people’s tastes. Much of it sounded simple, but to manage merchandise across the many geographies and seasons, in the world’s most heterogeneous market, was a logistical nightmare.
Biyani believed there was enough of a catchment for chains like Pantaloons. But, India was,and is, a country with lakhs of apparel stores and millions of kiranas, half of them makeshift stalls on the sidewalks, some spilling over to the streets. Looking back, there clearly wasn’t enough top line to go around; indeed, there wasn’t enough top line to cover rents, which were a killer.
The relatively upmarket Shoppers Stop struggled for years before it broke even, and despite some in-house advantages and a great private label strategy, Westside took a long time to scale up. But, Biyani wasn’t one to be cowed down. By late 2009, the Pantaloons chain boasted some 737 stores in 72 cities and several formats—Big Bazaar, Pantaloons, Central, Food Bazaar, Brand Factory, Home Town and E Zone. Besides he had forayed into financial services.
But, the bottom had fallen out of his balance sheet. Revenues in the year to June 2009 were a respectable Rs 7,700 crore, but the P&L showed a loss before tax of Rs 16 crore. The debt on the books had soared to Rs 2,900 crore from just Rs 600 crore in 2006. The markets were disenchanted, Pantaloons Retail had lost 50% of its value in three years, and it was worth a little over Rs 6,000 crore.
It is unfortunate when businessmen are so blinded by their ambitions that they lose sight of the basics; too many of them are indulging in uncontrolled leveraging, making the balance sheets unsustainable, without stopping to think of the consequences. Much of this is the fault of bankers who have looked the other way while promoters piled up the debt without asking them to contribute more capital; had bankers been stricter, companies wouldn’t have diversified so recklessly.
Also, many of the smaller business groups lack management bandwidth; they are often unwilling to let professionals run the show. Even though retailing is a challenging business, and the fact that the group was operating half a dozen other businesses, one never really saw too many professionals at Pantaloons, the way one sees them in a Mahindra and Mahindra (M&M) for instance. Pantaloons has been, run by and large, by the Biyani family, not necessarily the best way to go about it. Giving one’s children a break is all very well, but there is no denying professionals at the top level do make a difference.
In late 2009, Biyani tried to restructure the group by de-merging the non-retail assets and focussing on four formats rather than 24: Pantaloons, Central, Big Bazaar and Food Bazaar. But, it was probably too late. In April 2012, analysts at JP Morgan noted the balance sheet was a big concern, with the debt for the core retail business at Rs 5,800 crore and the net debt-equity ratio at 1.8x. The debt was so high, about 54% of the FY12 ebitda, they said, would be needed to take care of interest payout. Moreover, the business was clearly not roaring because inventory levels were bloated, at about Rs 4,000 crore. Soon thereafter, Aditya Birla Nuvo acquired a majority stake in Pantaloons apparel retail format; it helped Biyani pare debt by about Rs 1,600 crore. But, eight years down the line, there is talk of Reliance Industries acquiring the retail and lifestyle businesses including 1,700 supermarket stores; sadly, media reports say personal loans of Rs 2,000 crore are holding up the $3 billion deal. I had raised the issue of his balance sheet sometime in mid-2008 when I met him for breakfast at his Nepean Sea residence. But, Biyani brushed aside the concerns saying it wasn’t capital that mattered as much as customer-connect. Is it a good idea to have a finger in so many pies, I asked, wouldn’t it be better to be focused? His answer was that he is only in one business, that of meeting the needs of the consumer. Such notions sound good, but they aren’t workable.
To be sure, there is no stigma in selling out, that RIL wants to buy out the assets is evidence of their worth. It is just that, with a little circumspection, the Future Group would have had a future. And, it could have given RIL a run for its money.