Cafe Coffee Day (CCD) Stock Price Hits Historic Low : A Cautionary Message To Investors
Following the news of VG Siddartha, the founder of Coffee Day Enterprises Limited, being missing and eventually dead took a toll on the company's share prices. Within two days, the share prices slipped from Rs. 193 to Rs. 122.75.
Over Rs.1,000 crore was wiped off in market capitalization. In addition, mutual funds with exposure to Cafe Coffee Day CCD significantly lost their valuation. So what should investors have considered amid this turmoil?
Read on to know the entire story.
Facts of the Case
Coffee Day Enterprises Limited was the parent company of the Coffee Day Group that pioneered the coffee culture in the chained café segment in India. VG Siddartha’s Café Coffee Day was India’s answer to Starbucks and Costa Coffee.
As per the reports, VG Siddartha faced problems and a liquidity crunch concerning the outstanding debt in his capacity. The debt in question was around Rs. 2,000 crores, over and above the consolidated borrowings of the Cafe Coffee Day (CCD) group, which stood at Rs.6,547.38 crore as of March 2019.
VG Siddartha was missing from the evening of 30th July 2019 and was found dead after 36 hours after his missing report. His body was recovered from the Nethravathi River near Mangaluru early on 31st July 2019.
The 58-year-old entrepreneur purportedly wrote the letter to the “Coffee Day family”, who had alleged harassment by the income tax authorities and a private equity partner, which had caused a liquidity crunch in his company. Further, he said in his letter that he had failed as an entrepreneur and sought forgiveness for his actions.
Despite Siddartha's claim of a severe liquidity crunch in his letter, the group claimed sufficient assets to cover outstanding debts. As per the regulatory filings, Coffee Day Enterprises Limited’s debt stood at Rs. 6,547.38 crores, while assets were estimated to be worth Rs. 11,259.07 crores as of 31st March 2019.
ICRA Reviews
Investment Information & Credit Rating Agency Limited (ICRA) placed a term loan rating of Coffee Day Enterprises Limited on watch with negative implications.
ICRA said it would continue monitoring further developments and gaining clarity on the situation before finalizing the rating action. It further said that the situation could hurt the company’s operation.
Still, it was too early to conclude and further information and analysis were required to understand the potential influence on CDEL's creditworthiness. As a result, the company was rated at BBB+.
What Should Investors Do?
Following the death of CCD's founder, V.G. Siddhartha, the business suffered leadership, revenue growth, and investor sentiment issues. In addition, changes in the management team and board of directors emerged, raising questions about the company's prospects and stability.
It was evident that the stock could remain under pressure for some time, and its price might slip to double digits. Accordingly, the board continuously evaluated and assessed the situation, formulating appropriate steps to ensure that business operations were unaffected.
But the investors were suspicious about whether they should hold on to the stock or redeem it. As the CCD chain was all over debt, the investors who had invested in the following mutual funds, this was a time when they needed to take a serious look at their investments.
CD's stock price initially fell, and the company announced corporate restructuring plans, including selling non-core businesses and cost-cutting initiatives. Rebuilding trust required transparency with investors. CCD's recovery would depend on its ability to handle financial issues, maintain operational stability, restore investor trust, and broader market circumstances and industry trends. Before making financial decisions, investors should perform extensive study and obtain expert guidance.
Coffee Day Enterprises Limited’s share price has fallen 44.50% during the period. The share price has declined 59.93% since the beginning of 2019 and lost 58.87% during the past year.
Investors should consider diversifying their investments and covering the exposure securely. First, the investor should calculate the amount of their exposure to Coffee Day Enterprises Limited and then compare it with their risk profile.
Revival of CCD
Coffee Day Enterprises Limited (CDEL), the parent business of CCD, had been undergoing financial issues and had not entirely recuperated from the impacts of its founder's death even in 2021. However, the corporation took several actions to revitalize and stabilize its processes.
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Sale of Assets
CDEL declared strategies to sell non-core assets to lower its debt burden and reinforce its financial standing. It included selling its Global Village Tech Park in Bengaluru to Blackstone Group, which generated substantial money.
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Debt Restructuring
The corporation launched debt restructuring operations to alleviate financial stress, including conversations with lenders to restructure and renegotiate its debt obligations.
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Cost Optimization
To reduce expenses and enhance profitability, CDEL focused on cost optimization techniques such as rationalizing operations, decreasing overheads, and improving operational efficiency.
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Strategic Partnerships
CDEL explored partnerships and collaborations to bring investment and operational expertise. For example, the business launched a joint venture with Hong Kong-based New World Hospitality to construct and operate New World properties in India.
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Consolidation of Operations
CDEL tried to simplify its operations and focus on its core activities, which involved the CCD café chain. The company sold its ownership in Mindtree, its IT services subsidiary, to acquire capital and focus on its primary business.
Conclusion
The sale of Global Village Tech Park in Bengaluru to Blackstone Group was a glimmer of hope for CCD's stock price, and the company found a stable financial position.
Despite this encouraging development, the COVID-19 pandemic significantly impacted the company's business, with most of its cafés closing for many months. As a result, the company's stock price remained erratic during 2020 and 2021 as it fought to recover. However, the firm is working hard to get back on track now.
Overall, CCD's stock market history after 2019 emphasises the significance of solid leadership, financial management, and adaptation in the face of unanticipated occurrences. It also highlights the need for investment diversification and risk management.