Cafe Coffee Day not looking beyond beans, for now

Coffee Day Enterprises, which is looking to raise Rs 1,150 crore through an Initial Public Offering (IPO), is into logistics, technology parks, financial services, hospitality, which have little to do with the group's core coffee business. But promoter V G Siddhartha views them as opportunities and investments that have supplemented the core. 

Coffee Day Enterprises runs India's biggest coffee chain, Cafe Coffee Day.

Coffee Day Enterprises will continue to be a coffee company and will continue to focus on its brands. And in keeping with this philosophy, the company will not allocate any capital to these non-coffee businesses for the next five years.
 

In conversation with Business Standard, Siddhartha said: "The money raised from the IPO will be raised to retire debt of the coffee business and for expansion plans." The company plans to utilise nearly Rs 633 crore of the capital raised to retire debt, which will bring down the interest burden and improve profitability. On a consolidated basis, the company's debt stood at Rs 2,863 crore, which includes long-term borrowings (debt) of Rs 320 crore of the coffee business.

The company has expansion plans that will require Rs 290 crore over the next two years.

Explaining the logic behind diverse businesses under one holding company, VG Siddhartha, said: "In 2008, I took a call that whatever investment I have, we will put it into the holding company. Except plantations, all our interest is in this company. We have not put the plantations business, as foreign direct investment is not allowed in plantations. However, we will not make any fresh capital allocation to any business other than coffee."

The company has 16.1 per cent stake in Mindtree and that is worth a little over Rs 2,000 crore. It has given 40 per cent IRR (internal rate of return) over the last 16 years. The Sical Logistics investment is valued at Rs 500 crore. The value of the listed investments is estimated at $400 million. 

"We have one SEZ business and I bought land at Rs 10/sq ft. It is Rs 7,000/sq ft. Today, four million sq feet is ready. I don't need to invest capital," says Siddhartha.

These investments will be more like a war chest that can be leveraged to grow the core coffee business in times to come. The major investments that the company will make in the next five years will only be coffee. The others will generate value, which will give the company financial muscle in future to grow the coffee business further.