Coffee Day Enterprises Ltd: Buy
CMP: Rs.31
Book Value: Rs.88.80
Total Debt to Equity Ratio: 0.55
Introduction: Coffee Day Enterprises Ltd has presence in coffee, logistics and hospitality sectors.
CDGL provides its own coffee grinding-cum-vending machines, own coffee beans and fresh milk to more than 60,000 loyal clients across multiple markets, including malls, offices, other public places, schools and colleges.
Key Triggers:
In 2019, the Coffee Day Enterprises Ltd's founder VK Siddhartha was found dead. He was under pressure from lenders, tax officials as well as investors. Following that, the share value took a hard knock from over Rs.360 to less than Rs.30 apiece. The company's fundamentals took a further beating due to Covid - 19 pandemic.
The Economic Times earlier reported that Coffee Day Enterprises Ltd (Rs.31) was waiting for the receipt of Rs.700 crore in second tranche payment from the Blackstone Group, which has bought out Global Technology Village (IT Park) in Bengaluru for Rs.2,700 crore.
Also, another positive point is that: none of the lenders had moved or indicated at moving the National Company Law Tribunal (NCLT) for debt recovery.
Many of my close sources are of the opinion that the company is likely to be back on track this financial year. The view of management at the last AGM, where it was asserted that the: 'Worst is over for the company', is also encouraging.
The Economic Times also reported on 07 January, 2021 that Coffee Day Enterprises, India's biggest coffee chain, will allow waffle-making startup, London Bubble Co (LBC) to open nearly 150 shop-in-shops at its cafe chain, hoping to generate incremental revenue amid rising pressure to repay debts.
Shares of Cafe Coffee Day Enterprises Ltd are apparently available at very attractive valuations compared with its peers like Burger King and Jubilant Foodworks.
One of the group companies, Sical Logistics, is asset rich. It’s an integrated logistics company and can have various suitors if it can settle with the lenders.
A major chunk of profits comes from the mammoth network of vending machines installed in offices: something hit hard by the lockdown. But with the relaxation of lockdown people have again started coming to offices. Meanwhile, it is searching for angel investors.
Sical Logistics Ltd, founded in 1955 is India’s leading integrated logistics solutions provider with over 5 decades of experience in providing end to end logistics solutions. In 2011 Sical was acquired by Coffee Day group, with interests ranging from coffee Retail Business, stakeholders in leading IT and embedded technology companies, to technology parks and SEZs and hospitality.
In a regulatory filing on March 6, the company said its loans or revolving facilities like cash credit from banks and financial institutions was at ₹280 crore. The listed entity’s total financial indebtedness, including short-term and long-term debt, was at ₹580 crore.
A recent media reported that Coffee Day Enterprises Ltd (CDEL) said it has reduced debt "significantly" and the management is putting its best efforts to get the company back on track.
CDEL's net debt as on March 31, 2021 was Rs.1,731 crore. The total loan funds stood at Rs.1,779 crore which comprises long-term borrowings of Rs.1,263 crore and short-term borrowings of Rs 516 crores. The company's net debt stood at a whopping Rs 2,909.95 crore in FY20.
Besides, the seven subsidiaries of CDEL are awaiting a report by Justice K L Manjunath, former judge of Karnataka High Court, to take a decision on the recoverability of Rs.3,535 crore. CDEL had appointed Justice Manjunath to "suggest and oversee actions" for recovery of over Rs.3,535 crore allegedly siphoned off from the company into Mysore Amalgamated Coffee Estates Limited (MACEL), a personal firm promoted by its late founder V G Siddharth..
The Tata Group, which was in the advanced stages of talks to acquire Cafe Coffee Day's (CCD) vending machine business for at least Rs.1,000 crore, has put the deal on the back-burner following the two lenders refusing to give NOC for the deal. The dues to be repaid by CDGL are worth around Rs.100 crore to Yes Bank and Rs.200 crore to Rabobank. Karnataka Bank is the largest Indian lender to CDGL, with a loan of Rs.175 crore.
As part of the proposal submitted by Tata to Coffee Day, the Tata group had agreed to first pump in ₹600 crore into CDGL and, subsequently, pay ₹400 crore or more after certain months. The second tranche of the investment will come after Tata assesses the degree of revival in cash flows in the coffee vending business of CDGL post the buyout. The talks are still in progress
Now we it seems winds of change are too strong to ignore, as India is slowly opening up post Covid - 19 created panic. We can look forward to targets of Rs.47/48 in the coming days.