The gloom in equity markets got further compounded by the news of Coffee Day promoter’s disappearance on Tuesday morning. Coffee Day Enterprises stock tanked 20 per cent and got frozen in the lower circuit on the tragic news. For a stock that has been on a downtrend ever since February when the promoter’s stake sale in Mindtree surfaced took a serious knock on Tuesday falling Rs 38.50 to Rs 154 a share.
“The latest episode of missing promoter of CCD has dealt a sentimental blow to investors who are already undergoing a lot of pain. The repurcussions of this event on other entities is still being calculated,” said Deepak Jasani, Head of Retail Research at HDFC Securities commenting on the markets in general.
Coffee Day stock has been under pressure from two factors, one the large debt on the company’s books, and a large promoter’s stake under pledge. Around 75 per cent of the promoter holding of 54 per cent in the company is pledged.
On the issue of debt though there was hope the proceeds from Mindtree stake sale would towards reducing the debt level in the company, there were doubts over the overall reduction. While announcing the March quarter results, the company had said Rs 2100 crore was received and that amount was “utilized to dilute the debt”.
However, the company in a conference call with analysts said that the net debt level in the group had fallen from Rs 3,600 crore to Rs 2,400 crore less than anticipated due to a Rs 600 crore loan that was extended to the promoter to consolidate his Mindtree stake under entity for sale to L&T.
Analysts during the concall sounded unconvinced about the level of debt reduction and the rationale given by the company for holding so much cash under some of the subsidiaries under Coffee Day Enterprises. The only ray of hope that emerged for the stock in recent times has been in June end when new of company’s talks with Coke to sell stake emerged – the stock rallied 12 per cent. The stock is down from its 52-week high of Rs 325 a share in September last year. Coffee Day’s IPO was priced at Rs 328 a share in October 2015.