This is the right time to give an exit route to investors: CCD’s VG Siddhartha5 min read . Updated: 29 Sep 2015, 07:39 AM IST
The chairman of Coffee Day talks about the IPO, expansion plans and his dream of making CCD a preferred Indian brand for global high streets
Bengaluru: Coffee Day Enterprises Ltd, the holding company of the Cafe Coffee Day (CCD) chain of restaurants founded by V.G. Siddhartha, is planning to launch its initial public offering (IPO), to raise ₹ 1,150 crore, before Dussehra (22 October). The proceeds of the IPO will be used to reduce debt and to expand the number of CCD outlets over the next three years. Siddhartha, chairman of Coffee Day Enterprises, talks about the IPO, business expansion and his dream of making CCD a preferred Indian brand for global high streets. Edited excerpts:
How will you deploy the money raised through the IPO?
Of the ₹ 1,150 crore to be raised through IPO, about ₹ 625 crore will be spent in refinancing debt, ₹ 88 crore in setting up new Café Network outlets and Coffee Day Xpress kiosks, ₹ 97 crore in manufacturing and assembling of vending machines, ₹ 60 crore for refurbishment of existing Café Network outlets and vending machines and about ₹ 42 crore in setting up a new coffee roasting plant facility, along with integrated coffee-packing facility and tea-packing facility.
Couldn’t you have accessed other financing routes for these?
In 2010, we raised about ₹ 900 crore from private equity firms KKR, StanChart PE and New Silk Route. Together, they own about 34% in the company. Before IPO, we have brought all our businesses—coffee retailing (cafés, in-home, out-of-home), non-coffee business (special economic zones/IT Parks), logistics (Sical Logistics), hospitality (luxury boutique resorts) and financial services (Way2Wealth Securities Pvt. Ltd)—under one roof, excluding the plantation business and my personal investments in companies, including Mindtree.
Is this the right time for an IPO?
See, we had to give an exit route to our investors. We feel that this is the right time for an IPO, and in the pre-IPO round, we got a valuation of ₹ 6,200 crore for the company. Post issue, 54% of the company will be with the promoters, 27% with investors (all existing investors are staying back as they believe in the potential) and the remaining 15% will be with the public. Considering the response we received from potential investors (domestic and overseas), there is good amount of interest and appetite.
What is your expansion plan in the near future?
Over the next three years, we plan to open 135 new outlets every year at an estimated spend of ₹ 400-450 crore. Today, there are about 2,000 cafés across India, of which we have 1,518 stores—1,423 CCD outlets across 209 cities, 42 CCD Lounge outlets in seven cities and seven CCD Square outlets in four cities. I don’t really know how many outlets we’ll have in next five years, but there will be at least 5,000 stores in five years. Like before, all CCD outlets in India will be owned by the company. About 70% of the new stores will come up in existing cities where CCD already operates and the remaining will come up in new cities and on highways. We see a lot of opportunities in cafés across highways. At present we operate 137 CCDs on highways. Over the next five years, we believe, there will be at least 1,000 coffee outlets on highways. There’s a huge scope in all the top-tier cities.
At the net level, you are still making losses. When will you start making net profits?
Yes, at net level we are reporting loss (about ₹ 140 crore). That’s because of high depreciation and expansion costs. At operating level, we are profitable. In FY16, we hope to report net profit, and in FY17, we’ll be a cash-surplus company.
You have outlets in Austria, Czech Republic and Malyasia. Will you further expand your global footprint?
Over a period, I would like CCD to be the most preferred Indian brand on all high streets globally. Unlike India, we franchisee CCD for the global markets and get royalty. We are one of the few Indian brands that earn royalties, and don’t pay to the global brands. The existing 17 global outlets are extremely successful, and the future is optimistic. We have built CCD into a preferred destination for meetings across Indian cities, why can’t it be a global story in future? All these years, we have been learning as a start-up. The real game will be over the next 10-15 years.
What are the changes that you would like to bring into the business? What are the things that require improvements?
The world is changing fast. Data, analytics and engagements with customers are becoming more important. There is a need to improve service quality. I think we can still improve by about 30% to be at par with the international giants. We are working on many things, such as service quality and food offerings. However, we’ll always be a beverages destination where food is a supplement, not food outlets where beverage is a supplement.
Also, there will be integration of technology that would ensure better engagement with the consumers in the coming months. These would make order-supply smoother, better offers for the consumers ensuring better services. We would like to offer better connectivity at CCD, much better than what we offer today. A lot can happen over a cup of coffee—at CCD or through CCD.
What made you enter the coffee retailing business?
My family was in the business of coffee growing since 1970s. Prices were much lower as compared to the global prices. But I believed that one day the coffee market will open up for India. Between 1986 and 1993, I bought 3,500 acres of coffee estates. The market opened up when Manmohan Singh was the finance minister and we started selling coffee directly to international buyers. Between 1993 and 1995, we became India’s largest coffee exporter.
Around that time, I met a member of the family who owns Germany’s best-known coffee brand Tchibo—which was our second largest coffee buyer. Tchibo started with just a 10 sq. ft outlet in 1948 in Hamburg to become the second largest coffee roaster in Europe. If Tchibo could have made it so big in 40 years, why couldn’t we? That was what inspired me to get into the café business. Initially, the idea of setting up cafés did not get a shape. In 1996, I visited Singapore and saw people surfing Internet at beer cafés. So we started CCD with internet connectivity in 1996 with a corpus of just ₹ 1.5 crore.