NEW DELHI: Following the mysterious disappearance of Cafe Coffee Day founder VG Siddhartha, the management of country’s largest coffee chain held an emergency board meeting to take stock of the beleaguered company’s situation.
In a regulatory filing, the company Coffee Day Enterprises Ltd said the board had decided to “ensure continuity of all business operations consistent with past behavior.”
“The Board is evaluating and assessing the situation, formulating appropriate steps to ensure business operations are unaffected, and has resolved to co-operate with authorities," it added.
The signs of trouble at Coffee Day Enterprise Ltd, which operates Coffee Day Global Limited and its local arm Cafe Coffee (CCD), were in the offing, but none thought it would force Siddhartha, the chairman and managing director of Coffee Day Enterprises Ltd to take any extreme step.
“I have fought for a long time, but today I gave up,” the coffee planter turned business tycoon said in his last letter to board members.
Analysts said that Coffee Day, arm of the parent Coffee Day Enterprise Ltd remains a potential winner despite the troubles, relating to debt burden, "harassment" from Income Tax department and "pressures from private equity firms", which have embroiled its founder.
Coffee Day, which earned Siddhartha global acclaim, had come out with its initial public offering in 2015. In its IPO documents, the company said, it used the proceeds to service debt to the tune of Rs 6,328 crore. Since then, there have been consistent efforts to reduce the debt of the company. The flagship brand is learnt to be the most valued among all its subsidiaries, pegged at nearly Rs. 8,000 crore.
Data from CMIE also showed that Coffee Day Enterprises had a debt of around Rs 6,550 crore as on March 2019. However, the entity includes over six subsidiaries and close to 30 joint ventures and associates, of which its marquee venture, Coffee Day did not contribute to the debt. Instead, it has been posting profits in the last three financial year. CCD posted a profit of Rs 8.03 crore in FY2016-17, which increased to Rs 48.94 crore in FY 2017-18 and further to Rs 60.27 crore in FY 2018-19. The group's coffee business, which includes some exports, reported revenues of Rs 1,777 crore in FY18 and Rs 1,814 crore in FY19. In fact, revenue from it's coffee and related business grew from Rs. 584. 81 in FY18 to Rs. 724.99 crore in FY19, even as revenue from other segments such as hospitality, financial services, leasing of commercial office space
remained almost muted.
Meanwhile, the parent company’s debt spiral coupled with stiff competition from foreign chains like Starbucks and Barista and several local players such as Chai Pe Charcha appears to have stalled CCD's expansion plans. The company which planned to have more than 2,000 outlets by 2014 has some 1,752 cafes across India as of March 2019. However, CCD still remains the dominant player in the coffee chain business. To put that in perspective, its nearest rival, Barista, has around 220 stores. Tata Starbucks has just 146 stores.
While it is unclear why Siddhartha went missing at a time when his CCD chain business was seeing a turnaround. Bankers feel the coffee seller’s personal debts were far more, which possibly weighed on his mind. An annexure to his letter to the board also show the firm’s liabilities were lower than the value of its assets. Chairman and Managing Director of Coffee Day Enterprise, Siddharth, reportedly, was also in talks with beverage giant Coca Cola to sell the entity at an estimated enterprise value of Rs 8,000-10,000 crore but "Siddhartha’s insistence on keeping a stake in the company was a deal blocker for Coca Cola, said a source.
Siddhartha held 32.75 per cent stake in the company as on June 2019, ACE Equity data show. Of this, 71.4 per cent stake had already been pledged. Malavika Hegde, his wife, is the other significant owner in the company with a 4.05 per cent stake as of June 2019.
It now remains to be seen whether Siddhartha's personal financial crisis will singe the large coffee chain or allow it to continue to function independently. “We think CCD is still safe. At worst there may be a change of management as its debt issues are resolved,” said a top banker.