Is this a good time to buy Cafe Coffee Day shares for the long term?
You can check the answer of the people under the question at Quora “cafe coffee day share price“
Is this a good time to buy Cafe Coffee Day shares for the long term?
You can check the answer of the people under the question at Quora “cafe coffee day share price“
Some Background
I am lucky to have discovered the news publishing service The Ken which writes a well though out well researched article every day and provides reasonable and valuable insights by well experienced journalists of that field.
Almost a year ago, the article was on the toxic culture brewing at CCD and how one of their employees committed suicide blaming their CEO to be behind the toxic culture of aggressively pushing for sales for almost 10x/20x of what the outlets would do on special days like Valentine’s Day etc.
Unrelated menu diversification and also pushing to add cream / ice – cream every time you ordered coffee was also a pain point that I have always discovered first hand at their outlets. (you can read the article by a simple google search)
I still remember once being on a date and how the associate came and tried to sell me a magic cup by first showing a demo and saying:
“Ye madam ke lie pack kar du?”
Financials
A lot of analysis and articles have done the rounds with respect to the debt position of CCD. I will make it simple.
The business does a Return on Capital Employed (ROCE) – something I like to call ‘ dhandha ka return’ (meaning business’s return in Hindi) of 5% and the average cost of debt in this country is 13–15%. It is a no – brainer that the dhandha did not make any economic sense to pursue no matter how strong asset backed your debt is.
Most of these entrepreneurs in the country, in my opinion right from the Flipkarts to the Future Retails have had a vision to sell it to an Amazon or a Walmart when they came to India and do everything you can to make a convincing MVP for acquisition in India. While a reverse story happened both with Flipkart and Future Retail where the former got sold to Walmart and as of 15 mins back, a moneycontrol article reads that Amazon is buying a 49% stake in Future Retail, we cannot deny that CCD was also trying to build something similar maybe to sell out to a foreign competitor.
We did hear speculation around Coca – Cola wanting to pick up a stake in CCD after having had their billion dollar acquisition of Costa Coffee.
Final Take
A company where employees are not happy, sales targets are unrealistic and the dhandha does 5% against a cost of Debt of 14% that too with no Operating Leverage can be better – off avoided. Also, it will not be surprising if governance issues crop up when the due diligence is conducted on the offshoot that a global giant may pick up a stake.
Unless, you’re confident and have a strong value belief that someone shall come and “turnaround” this chain, I see no reason in buying this stock.
Word of caution – We all know how Jet Airways has been “turned around” as on date after being grounded after 17th April.
As a tribute
Why COFFEE DAY ENT. Never be so enthusiastic about such stock specific which has a disastrous activity gone by. Death of V.G. SIDDHARTHA is disastrous to every extent. There is no answer whether it is pressure of Coffee day ent. or other companies in terms of debt with working of respective companies or what.
It is Falling knife and only informed high risk takers will enter into it. Retailers completely avoid it but try to exit on any rise.
Thanks
Hello,
Let’s see if you can or not.
See what is happening or happened, do you still need my answer?
if you see above, the valuation of company is ₹439.40 crore but the loan on company is ₹7214 crores which is almost more than 16 times the value. Also company’s profit is -451%
Still do you think you should invest? still do you want to hear my answer? Although I never recommend to buy or sell but here my answer is, a BIG NO!
Quora may delete my answer for giving direct recommendation but it is OK for me if I am able to save money for many.
Please do your own research before taking any decision.
Cheers!
Now you can ask direct questions on my Quora space : Sunil Sethi [ https://sunilsethi.quora.com/ ]
> Disclaimer : Please be fully informed regarding the risks and costs associated with trading or investing in the financial markets. it is one of the riskiest investments forms possible. The …
That would be akin to walking in a dark alley. Let us wait for more clarity on financials. While the shares sold in the cash market on Wednesday was a mere 165,000, shares offered for sale pending (supply) amounts to 15,567,164 – enough for 94 days at yesterday’s volume on both bourses. So the shares could go down a lot more in the short term. Catching a falling knife is not considered wise.