Indian retailers would continue to see liquidity pressure in 2009 due to slowing sales, margin pressure and poor economic conditions, Fitch Ratings said today.
‘’Slowing sales resulting in lower inventory turnover and increasing working capital requirements have resulted in liquidity pressure for many domestic retailers,’’ said Fitch in a release.
The rating agency blames the economic slowdown for the continuing financial woes of the retailers. “‘Retailers are facing the heat of high leverage and already stretched balance sheets, due to the combination of a debt-led capex and capitalised lease rentals,’’ it said.
In a bid to tap the big opportunity in organised retail, corporates such as Aditya Birla group, Reliance Industries among others have entered into the retail sector and opened hundreds of stores across the country in the last 2-3 years. Organised retail, which currently accounts for around 5 per cent of the estimated $350-billion Indian retail market, is expected to expand its share to 14-18 per cent of the total market by 2015, says a McKinsey report.
Food and grocery retailer Subhiksha, which runs nearly 1,600 stores, recently said its operations were at a standstill due to shortage of liquidity. Subhiksha said it was working with the financial stakeholders, lenders and investors to inject liquidity and get the company back on track.
Fitch expects the liquidity pressure to continue as inventory levels are expected to increase. “New stores will generate good run rates only after 12 to 15 months and sales will remain slow at the existing stores,” it said.
India’s largest listed retailer Pantaloon Retail’s same store growth in December fell 4 per cent in the value segment, followed by 14 per cent drop in lifestyle retail segment and slipped 10 per cent in home retail. These are the highest drops in same store growth in December in the last four years.
“Across the board, we are seeing lower numbers in same store growth than last year. Overall, there is a pressure on consumption which is impacting retailers,’’ said Priyamvada Balaji, an analyst with Fitch in a teleconference.
Fitch expects retailers’ free cash flows to remain negative during the current year, which coupled with large short-term debt maturities could also expose them to refinancing risks.