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Coffee Day Enterprises’ Rs 433.91 cr Default: Jul-Sep Quarter

Coffee Day Enterprises’ Rs 433.91 cr Default: Jul-Sep Quarter

Coffee Day Enterprises, the company behind the famous chain Café Coffee Day (often abbreviated as CCD), recently disclosed a massive financial default of Rs 433.91 crore during the Jul-Sep quarter.

This alarming financial event has elicited concerns regarding the solvency and future prospects of the company. Here, we break down the issue and analyze its potential implications.

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Coffee Day Enterprises Limited, founded by the late V.G. Siddhartha in 1993, has become one of India’s most recognized brands, with its CCD outlets symbolizing modern Indian café culture.

Coffee Day Enterprises Ltd. (CDEL) declared a total default on loan principle and interest payments of Rs. 433.91 crore for the quarter ending in September 2023 on Thursday.

The total default recorded by CDEL for the June quarter was Rs 440.25 crore, which is less now. In a filing to bourses on Thursday, the business stated that its “total financial indebtedness of listed entity, including short term and long term debt” was Rs 433.91 crore for the quarter between July and September. According to CDEL, it has a total outstanding balance of Rs 189.14 crore from bank or financial institution loans or revolving facilities like cash credit.

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In relation to this, CDEL has as of yet missed interest payments of Rs. 5.78 crore and Rs. 183.36 crore.

A total of Rs 244.77 crore of unlisted debt instruments, including as NCDs and NCRPS, are outstanding for the firm. According to the corporation, the entire amount of this default as of today is Rs 200 crore, plus Rs 44.77 crore in interest.

“The lenders have ‘loan recall’ warnings as well as started legal battles due to the default in payments of interest and principal to the lenders. The firm has not recognised interest as of April 2021 due to loan recall letters, legal battles, and awaiting one-time settlements with the lenders, it continued.

Insolvency proceedings against its subsidiary Coffee Day Global Ltd (CDGL), which owns and runs the well-known Cafe Coffee Day chain, had been delayed earlier in August by the NCLAT.

Following a deal between CDGL and its financial creditor IndusInd Bank on September 13, 2023, the NCLAT halted a bankruptcy proceeding against CDGL.

Following the passing of founding Chairman V G Siddhartha in July 2019, CDEL has considerably pulled up its efforts to reduce its debts through asset resolutions.

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It stated in March 2020 that it had reached an agreement with Blackstone Group to sell its technology business park, and that it would pay back Rs 1,644 crore to 13 lenders.

The capital markets watchdog SEBI also fined CDEL 26 crore rupees earlier this year for failing to prevent the theft of 3,535 crore rupees from the company’s subsidiaries.

The business is attempting to sue Mysore Amalgamated Coffee Estates Ltd. to recoup the money.

The company not only operates coffee shops but also has interests in logistics, technology parks, financial services, and more.

The default of Rs 433.91 crore is not a singular event. It indicates a series of financial missteps and challenges faced by the company over a period of time. The break-up of the default, according to company disclosures, is as follows:

  • Principal amount: Rs 287.68 crore
  • Interest due but not paid: Rs 146.23 crore

This indicates that the company has been facing liquidity challenges, making it difficult to meet both principal and interest obligations.

The post-pandemic era hit many businesses hard, and CCD was no exception. Reduced footfalls, lockdowns, and changing consumer habits have had a detrimental impact on revenues.

In its bid to counter competition and gain market dominance, CCD undertook rapid expansion. While this led to increased market presence, it also resulted in high operational costs.

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The company took on significant debt to fuel its growth and acquisitions, which in a challenging financial climate became difficult to service.

The tragic and untimely demise of founder V.G. Siddhartha in 2019 led to a vacuum in leadership and perhaps diverted focus from core operations.

The share price of Coffee Day Enterprises has understandably taken a hit post the disclosure. The default raises questions about the company’s future profitability and its ability to manage its debt.Job security is a concern. If the company cannot reverse its financial downturn, layoffs or salary cuts might become inevitable.

While the immediate impact on customers might be minimal, in the long run, the brand may have to reduce its footprint, leading to fewer outlets.The default is a clear sign for creditors that the company is facing severe liquidity challenges. This might make them wary of extending further credit.

Coffee Day's tech park sale to Blackstone stalls as it waits for Yes Bank's NOC

The company can consider selling non-core assets to raise funds and pare down debt.Streamlining operations and closing down unprofitable outlets can help reduce costs.It’s crucial for the company to maintain transparent communication with its investors, creditors, and employees during this challenging period.

The default of Rs 433.91 crore by Coffee Day Enterprises is a stark reminder of the fragile nature of business, especially in unpredictable economic climates.

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The company’s journey ahead is fraught with challenges, but with a calculated approach and necessary restructuring, it can hope to steer its way back to profitability.

Investors, employees, and customers alike will be watching the brand’s moves closely in the coming months.

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