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With founder Siddhartha missing, will Cafe Coffee Day get sold to PE firms?

V G Siddhartha, co-founder of Cafe Coffee Day. File photo
Reports of V G Siddhartha, co-founder of Café Coffee Day, going missing sent the stock of Coffee Day Enterprises spiralling down to hit the lower circuit filter of 20 per cent on Tuesday. If the reports of his demise are proven true, there could be more pain in store for the counter in the days ahead, analysts say. 

"Coffee Day Enterprises was more of a promoter-driven outfit. This business prospects and the stock will take a hit in the short-to-medium term, at least till the time there is clarity on the news development and how the business will be managed going ahead," says A K Prabhakar, head of research at IDBI Capital. 

Siddhartha was the chairman and managing director of Coffee Day Enterprises and held 32.75 per cent stake in the company as of June 2019 quarter, 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 quarter, data show.

Over the past few years, the company's fortunes had been dwindling. On a standalone basis, Coffee Day Enterprises reported a loss of Rs 7.72 crore for the financial year 2008-2009 (FY09). This surged to Rs 150.75 crore in FY16. On a consolidated basis, as well, the company reported a profit after tax (PAT) of Rs 6.64 crore in FY11, which ballooned into a loss of Rs 155.74 crore by FY15.

"There is a significant capital expenditure involved in setting up a new outlet and the breakeven takes time – typically two years for a new store in a metro city and around three or four years if the outlet is in a Tier-II or Tier-III city," Prabhakar adds.

Over the past 10 years, the capital employed by Coffee Day Enterprises surged from Rs 202.19 crore in FY09 to Rs 2,914.92 crore in FY18, data show. Simply put, capital employed can give a snapshot of how a company is investing its money.

Meanwhile, Siddhartha found himself amid a tax evasion case in September 2017. A tax raid was conducted at over 20 locations in Mumbai, Bengaluru, Chennai and Chikmagalur by senior officers of Income Tax Department of Karnataka and Goa regions, reports suggest.

On the business front, however, things seemed to be on the mend. The Rs 150.75 crore loss reported in FY16 was brought down to Rs 61.49 crore in FY18. At the consolidated level, as well, the company delivered a turnaround performance – from a loss of Rs 155.74 crore reported in FY15, Coffee Day Enterprises reported a profit of Rs 48.94 crore in FY18, ACE Equity data show.

"The stock saw a panic reaction on Tuesday post the development and I do not rule out another 25–30 per cent downside. The counter will remain under pressure in the short-term till there is clarity on who runs the business. There are chances that the chain will get sold to private equity firms as such reports were already doing the rounds," says Ambareesh Baliga, an independent market expert. 

On a year-to-date basis, the stock has slipped nearly 45 per cent to Rs 154 levels on Tuesday. In comparison, the S&P BSE Sensex has moved up around 4 per cent, data show.  

Board composition

Name Designation Reported designation
V G Siddhartha Chairman Chairman and Managing Director
V G Siddhartha Managing Director Chairman and Managing Director
Malavika Hegde Non Independent & Non Executive Director Non Independent & Non Executive Director
SV Ranganath Independent Non-Executive Director Independent Non-Executive Director
Albert Hieronimus Independent Non-Executive Director Independent Non-Executive Director
Sanjay Omprakash Nayar Nominee Director Nominee Director
Sadananda Poojary Company Secretary Company Secretary & Compliance Officer
Source:AceEquity

Company financials 

DESCRIPTION Mar-18 Mar-17 Mar-16 Mar-09
Gross Sales 143.10 98.96 51.72 0.10
Total Income 144.82 100.88 61.87 0.10
Total Expenditure 80.14 57.43 44.38 0.15
PBIDT 64.68 43.44 17.49 -0.06
PBIT 64.24 42.94 17.02 -0.06
PAT -61.49 -79.58 -150.75 -7.72
Cash Profit  -61.05 -79.07 -150.28 -7.72
RONW(%) -3.34 -4.30 -13.24 -10.00
PBIDTM(%) 45.20 43.90 33.81 -57.69
PATM(%) -42.97 -80.42 -291.45 -7919.86
CPM(%) -42.66 -79.91 -290.55 -7919.86

Coffee Day Enterprises Ltd Holding More than 1% (Promoters)-All 

Name No of Shares % of Shares No of Pledged Shares % of Pledged Shares
Coffee Day Consolidations Private Limited 12,268,416 5.81 11,770,573 95.94
Devadarshini Info Technologies Pvt Ltd 12,408,440 5.87 10,308,440 83.08
Gonibedu Coffee Estates Pvt Ltd 11,071,104 5.24 8,739,104 78.94
Malavika Hegde 8,562,506 4.05 5,589,000 65.27
V G Siddhartha 69,174,700 32.75 49,391,757 71.40
Source: AceEquity 

Shareholding pattern

Particulars No of Shareholders No of Shares % of Shares % of Pledged Shares
Promoter and Promoter Group . . . .
Indian Promoters 6 113929198 53.93 75.7
Foreign Promoters 0 0 0 0
Total of Promoter and Promoter Group 6 113929198 53.93 75.7
Public Shareholding . . . .
Institutions 58 12204542 5.78 0
Non-Institutions 40620 85117979 40.29 0
Total Public Shareholding 40678 97322521 46.07 0
         
Total of Promoter and Public Shareholding 40684 211251719 100 40.82
         
Shares held by Custodians and against which Depository Receipts have been issued 0 0 0 0
ADRs 0 0 0 0
GDRs 0 0 0 0
Other 0 0 0 0
         
Grand Total 40684 211251719 100 40.82
Data for June 2019 quarter

Source: AceEquity