How Coffee Day Enterprises turned around to profit?

by 5paisa Research Team Last Updated: Dec 09, 2022 - 05:17 pm 29.1k Views
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In a sense, the story of Coffee Day Enterprises is a story of how the wife of the founder took over the reins of Coffee Day amidst a chaotic situation and turned it around almost single-handedly. The story of VG Siddhartha is by now well known.

In mid-2019, he had gotten into heavy debt and a combination of bad economics and bad politics got him deep into a mess. Things almost came to a head in late June 2019, which is still before the COVID crisis.

On his way to Bengaluru, Siddhartha decided to just jump off the bridge and commit suicide rather than face the pressure he was being subjected to. The decision came as a shock as the stock almost fell vertically and led to a number of quarters of consistent losses.

That was when his wife, Malvika Hegde, took charge. Incidentally, Malvika is also the daughter of eminent Karnataka politician and former Chief Minister of Karnataka, SM Krishna.

One of the primary goals of Malvika amidst the crisis was to extricate the company from its debt. Over the last 3 years, the company has managed to repay debt to the extent possible via monetization of assets.

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More importantly, for the latest quarter, the company has managed to turn around into profits. Here is the story behind the numbers and the numbers behind the recovery story of Coffee Day Enterprises.

For the March 2022 quarter i.e. Q4FY22, Coffee Day Global reported net profits of Rs.65.40 crore as against a net loss of Rs-94.81 crore in the fourth quarter of FY21 i.e. Q4FY21.

Even in the sequential quarter ended December 2022, Coffee Day had reported losses on a net basis. For the quarter, the top line revenues from the core operations were 5.4% higher at Rs.148.71 crore. Clearly traction is building on the top line and the bottom line.

There are more interesting numbers to boot. For example, the average sales per day grew by 11.6% in the latest quarter to Rs.17,140 while the same store sales growth were at 4.9%.

Normally, for any of these quick service restaurant chains, the same store sales is a key metrics of profitability and that has been showing a positive trend. However, the company has consciously reduced the number of CCD outlet to 495 with a view to cut flab costs.

In the last 1 year, the number of stores of CCD have been sharply rationalized from 572 outlets to just about 495 outlets. This has saved them a lot of fixed costs by avoiding outlets that are not ROI rich.

Even the vending machine count was down to 45,217 units in the latest quarter from a high of 45,959 vending machine units in the year-ago period. The company has been consciously cutting down on costs and assets to improve ROI.

While Q4 was profitable, the company was still making losses for the full fiscal. For FY22 overall, Coffee Day Global narrowed net loss to Rs-113.44 crore as against a net loss of Rs-306.54 crore in the previous fiscal year FY21. On a YoY basis, the core revenues from operations were also down -23.81% at Rs.496.26 crore for the full fiscal year FY22.

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