One of the key reasons for VG Siddhartha to sell his Mindtree stake is to fund the expansion of his coffee venture Coffee Day Enterprises that runs the Café Coffee Day chain.
Going by its financial reports, the company is on a growth trajectory. For the quarter ended December 31, 2018, the company reported 3.2 percent growth in unaudited consolidated revenue to Rs 996.51 crore from Rs 965.33 crore in the comparable quarter last year.
The net profit was up 162.62 percent at Rs 73.15 crore from Rs 27.99 crore in December 2017 quarter. Though the venture is profitable, the company’s net debt as on March 31, 2018, stood at Rs 3,323.8 crore. It has been that way for a quite a long time, earlier reports reveal.
A Hindu report in October 2015 quoted the company as saying it planned to use the proceeds of the initial public offering (IPO) to repay a debt to the tune of Rs 632 crore including Rs 122 crore for the coffee business. The balance will be used for business expansion and general corporate purposes. Coffee Day, that listed on the exchange in November 2015, had a debt of Rs 2,672 crore as at the end of June 2015.
Another report by Mint in September 2018 said the company plans to sell one of its subsidiaries to pay the debt of over Rs 3,000 crore.
Even as the overall coffee market has increased, the advent of competitors such as Tata Starbucks and Coca Cola’s purchase of Costa Coffee has not helped Coffee Day's case. Tata Starbucks posted a net loss of Rs 30.5 crore in FY18 on revenue of Rs 345 crore, as per a Business Standard report.
And it is not just competition from coffee players, CCD is also facing stiff competition from upcoming tea outlets such as Chai Point and Chaayos.
The company’s expansion plans have also slowed down. In October last year, the company announced it will have a network of 2,500 stores in 7-8 years. However, the expansion plan is already behind schedule given that CCD Chief Executive Officer Venu Madhav in a 2013 interview said the plan was to have 2,000 outlets by 2014. Madhav had said the company wanted to open 200 outlets per year and shut down 25-30 percent of them.
Rising debt and stiff competition arising out of booming café business could have stalled the enterprise’s expansion plans.
That is why L&T's offer of Rs 981 per share for Siddhartha and Coffee Day, which comes to about Rs 3,000-3,200 crore could help the latter cut debt.
Market reports suggest this is one of the reasons for Siddhartha to sell his stake in Mindtree and focus on the coffee chain’s expansion.
As at the end of December 31, 2018, the company is one of the largest café chains with 1,751 outlets in 250 cities. It had 54,146 vending machines at the end of the third quarter compared to 52,000 in the previous quarter.
Internationally, CCD outlets are present in Vienna, Czech Republic, Malaysia Nepal and Egypt.