The untimely demise of 59-year-old VG Siddhartha has made me angry and sad. It was back in September 2015 that I met him for the first time, right before Coffee Day Enterprises’ IPO. I had a special fondness for Café Coffee Day, for it was the Worli store that was my favourite place to hang-out with colleagues at work. Before CCD, we were unexposed to the coffee culture. For Mumbai journalists, the conversations were at the water cooler, and the coffee was cutting chai. The food indulgence was butter dosa at anna’s tapri. Coffee and conversation at CCD was a novel idea.
Writing for Business Standard Smart Investor those days (2000-2007), with my limited understanding of businesses, I thought Coffee Day would be a great business. I would certainly buy the stock if it ever listed. It was only when the draft red herring prospectus for Coffee Day Enterprises came out in June 2015 that one understood, the business was not as great as one thought it to be. One, the company was not exactly the coffee retailer one wanted to invest in – it was an amalgamation of businesses of which coffee was a smaller part. Investors don’t like diversified businesses, they detest crossholdings. The company had 40 subsidiaries across the coffee, technology parks, logistics, hospitality and financial services verticals. Besides, the consolidated debt stood at Rs.28 billon, of which the holding company had a debt of Rs.10 billion. A significant part of that debt was raised to buyout existing shareholders — Sequoia Capital — in the retail business. Plus, an additional Rs.2 billion was borrowed to buy Mindtree shares.
Not that Siddhartha did not know the ways of the stock market – he started his career as a stock trader after all. But in his wisdom, he did not pare down any of his holdings and went ahead with the listing. During the IPO his logic was these businesses will create substantial value in the long run, so there was no need to sell or hive them off as long as there was no dire need.
Coffee retailing was an idea whose time had come – it was a great consumer story. Like several other retail-oriented businesses, Siddhartha had still not demonstrated how profitable the business could be – there were investors who bought into the consumer story with the belief it would pay off in th