Why Coffee Day Enterprises Share Price is Falling

A car without a steering wheel is destined to veer off course.

Similarly, the absence of a visionary leader can send a company spiraling downwards. Coffee Day Enterprises is a stark reminder of this harsh reality.

Coffee Day Enterprises is a conglomerate with interests in coffee plantations, coffee retailing, hospitality, logistics, and other sectors. The company was once a household name, synonymous with the burgeoning Indian coffee culture.

However, the tragic demise of its founder and chairman, V G Siddhartha, in 2019 marked the beginning of a tumultuous period. The company has been grappling with debt, asset sales, and a shrinking business empire ever since.

The stock has been under investors' limelight lately as it slipped 29.2% in the past five days.

Let's find out what factors caused this heavy downfall in the Coffee Day Enterprises share price.

#1 Insolvency Proceedings

On 8 August 2023, the National Company Law Tribunal (NCLT) initiated insolvency proceedings against Coffee Day Enterprises (CDEL), the parent company of the Coffee Day Group, which operates the Cafe Coffee Day chain.

The Bengaluru bench, appointed Ashish Chhawchharia as the interim resolution professional (IRP) to take over the operations of CDEL.

Additionally, IDBI Trusteeship Services (IDBITSL) was ordered to deposit Rs 200,000 to cover expenses for inviting claims and issuing public notices. The insolvency plea, filed by IDBITSL, claimed a default of Rs 2.3 billion (bn) by CDEL.

The company also owns and operates a resort, provides consultancy services, and is involved in the sale and purchase of coffee beans. It defaulted on coupon payments for redeemable non-convertible debentures (NCDs).

In March 2019, IDBITSL had subscribed to 1,000 NCDs through a private placement, paying Rs 1 bn for the subscription. CDEL entered into an agreement with IDBITSL, appointing it as the debenture trustee for the debenture holders.

However, CDEL defaulted on paying the accrued coupon payments due on various dates between September 2019 and June 2020. As a result, on 28 July 2020, the debenture trustee issued a notice of default to CDEL and approached the NCLT.

CDEL opposed the insolvency proceedings, arguing that IDBITSL was not authorised to initiate the Corporate Insolvency Resolution Process (CIRP) as the debenture trustee agreement and debenture trust deed did not grant it such powers.

CDEL claimed that IDBITSL had not sought written instructions from the debenture holders and could only exercise its rights upon receiving instructions from the majority holders, representing at least 51% of the debentures' nominal value.

CDEL also contended that the application, filed by IDBITSL on 7 September 2023, was submitted almost a year later than the deadline of 29 September 2022, considering the default occurred on 30 September 2019.

However, IDBITSL's counsel argued that clause 10.1 of the debenture trust deed allowed the debenture trustee to exercise its rights without specific authorisation from the debenture holders.

The petition also highlighted a government notification from February 2019, permitting debenture trustees to file applications under Section 7 of the Insolvency & Bankruptcy Code (IBC).

Rejecting CDEL's submissions, the NCLT noted that CDEL had acknowledged its default on repayment of Rs 1.4 bn in interest in its annual reports for FY20, FY21, FY22, and FY23. This acknowledgment addressed the issue of limitation.

The NCLT concluded that there was a clear debt and default in this case, and the petition was filed within the limitation period. The tribunal admitted the petition and declared a moratorium under Section 14 of the IBC.

On 20 July 2023, the Bengaluru bench of NCLT admitted an insolvency plea against Coffee Day Global (CDGL), a subsidiary of CDEL that owns and operates the Cafe Coffee Day chain, over a plea filed by IndusInd Bank for dues of Rs 940 m.

However, the appellate tribunal NCLAT stayed the order on 11 August 2023, and the parties later reached a settlement.

These developments have led to increased concerns about the company's future, contributing to a decline in its share price.

How Coffee Day Enterprise Share Price has Performed Recently

In the past five days, Coffee Day Enterprise share price tumbled 29.2%. In the past month its share price is up 40%.

In 2024 so far, its share price is down 46.7% and it is up 5.9% over the last year.

The stock touched its 52-week high of Rs 74.5 on 16 April 2024 and a 52-week low of Rs 33.3 on 13 August 2024.

About Coffee Day Enterprises

Cafe Coffee Day (CCD) is an Indian multinational chain of coffeehouses headquartered in Bengaluru, Karnataka. It is a subsidiary of Coffee Day Enterprises.

Internationally, CCDs are present in Austria, Czech Republic, Malaysia, Nepal, and Egypt.

Cafe Coffee Day Global is a Chikkamagaluru-based business which grows coffee in its own estates of 20,000 acres. It is the largest producer of arabica beans in Asia, exporting to various countries including US, Europe, and Japan.

V G Siddhartha started the cafe chain in 1996 when he incorporated Coffee Day Global, which is the parent of the Coffee Day chain.

For more details about the company, you can have a look at Coffee Day Enterprise company fact sheet and Coffee Day Enterprise quarterly results on our website.

For a sector overview, read our hotels sector report.

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