Coffee Day, Sical stocks hit lower circuit

Chennai: After Café Coffee Day owner V G Siddhartha went missing on Monday evening, the shares of Coffee Day Enterprises and Sical Logistics owned by him hit the 20 per cent lower circuit on Tuesday.

A letter purportedly written by Siddhartha, before he went missing, was found in Bengaluru and addressed to the board of directors and CCD family said that he was pressured by a private equity investor to buy-back shares. He had partially completed the transaction six months ago by borrowing a large sum of money from a friend. “Tremendous pressure from other lenders lead me succumbing to the situation,’ the letter said.

Coffee Day is backed by private equity firms KKR, Rivendell PE (formerly New Silk Route) and Affirma Capital, which manages the portfolio of Standard Chartered PE. KKR owned a 6.07 per cent stake in Coffee Day, Rivendell 10.61 per cent and Affirma about 5.67 per cent by June-end.

He also accused former Director General of Income Tax department of harassment. “There was a lot of harassment from the previous DG Income Tax in the form of attaching our shares on two separate occasions to block our Mindtree deal and then taking position of our Coffee Day shares, although the revised returns have been filed by us. This was very unfair and led to a serious liquidity crunch,” the letter said.  

Income Tax department had attached 4.5 per cent Mindtree stake to cover any tax liabilities prior to stake sale to L&T.

Many are questioning the veracity of the letter. “When he clearly mentions the IT official, why did not he mention the name of the private equity firm. While losses are common in the private equity space, all the investors in Coffee Day are sitting on at least 20 per cent profit. Further, this is a listed entity. They can sell their shares in the open market and why should they pressurise on buying back?” asked a PE industry observer.

In the letter, Siddhartha says he failed to create a right profitable business model. For the quarter ended December 2018, Coffee Day's consolidated revenue stood at Rs 996.51 crore, while its net profit had jumped to Rs 73.15 crore from Rs 27.99 crore in the corresponding quarter a year ago.

There has been a lack of clarity as to how much debt does Coffee Day and Sical have in their books. One report says that as of March 2019, Coffee Day has a net debt of Rs 4,068.08 crore and Sical Logistic has a net debt of Rs 1,052.80 crore. Another report says total borrowings of Coffee Day were Rs 6,547.38 crore as of March 2019, up 64 per cent from the previous year. As the company is in a quiet period, officials declined to comment.

Siddhartha had used a major part of the Rs 3,269 crore proceeds from the sale of 20 per cent of his shares and Coffee Day's stake in Mindtree to pare the debts.

Shares of Coffee Day Enterprises fell 20 per cent to hit a low of Rs 154.05 on BSE and Sical Logistic too fell 20 per cent to Rs 72.80 a share. Coffee Day shares have been on a slide since the Mindtree stake sale. Year to date, it has fallen 45 per cent while Sical declined 51 per cent.