While the financials of Coffee Day Enterprises (CDE) improved with the sale of Mindtree shares to Larsen & Toubro in May, promoter V.G. Siddhartha’s pledged shares continue to remain high at 75% of his stake in June.

Soon after the Mindtree sale, Siddhartha told analysts in a conference call that he reduced his personal debt by Rs 600 crore – he owned 3.33% stake in the tech company in individual capacity – apart from diminishing the debt of Coffee Day Enterprises, the listed company with interests in coffee, logistics, financial services among others.

The Mindtree transaction was concluded on May 3 and the proceeds, net of expenses, and taxes to the tune of Rs 2,100 crore were received. The amount was utilised to reduce debt by both CDE and Siddhartha, he said in a conference call with analysts on May 24.

In value terms, the promoter stake in CDE stood at nearly Rs 3,500 crore in March 2018. It declined to Rs 2,600 crore in June 2019 even after the Mindtree sale.

Also read: CCD Founder V.G. Siddhartha Reported Missing, Blames Taxman for Harassment in 'Letter'

CDE lost 20% or Rs 813 crore of its market value on Tuesday on news of Siddhartha’s mysterious disappearance. This has resulted in promoters’ stake falling to Rs 1,750 crore.

The stress at the promoter level can perhaps best be indicated by share pledging.

The proportion of promoter stake which was pledged was zero in March 2016. The share of promoter shares which were pledged rose to 53.87% in December 2016. It rose to 60% by March 2018. In June it stood at 75.7%.

The erosion in CDE stock price, which has fallen 44.4% since January this year till July 30 will put pressure on Siddhartha’s personal finances, triggering margin calls on the promoter’s pledged shares. Siddhartha, with 53.9% stake in the company, had also borrowed more by pledging his shares in CDE as collateral over the years.

CDE, which had seen a substantial rise in its net debt in FY19, will not see much change in its net liabilities despite the Mindtree sale compared with its financial position in March 2018.

According to a report by Maybank Kim Eng dated July 3, CDE’s net debt went up from Rs 2,323 crore reported on March 2018 to Rs 4,068 crore in March 2019. The brokerage expects net debt to fall to Rs 2,358 crore by fiscal ending March 2020.

Also read: What's Been Troubling Cafe Coffee Day Founder V.G. Siddhartha?

CDE’s financials too have been stretched. The company had raised around Rs 1,000 crore in October 2015 through a public issue and had a debt-to-equity ratio of 1.7 times at the end of FY16 which shot up to 2.6 times in FY19.

The current ratio, a measure of liquidity over the short-term, has been on the decline. It was at 1.43 in 2016. This has slipped in subsequent years. The latest March numbers show that it is at 1.01. This is a level at which current assets are just about enough to meet current liabilities.

At 1.1 times in FY16, its interest coverage ratio was precarious with the company just about able to service its interest expense. This had improved to 1.6 times in FY18. But the FY19 numbers show a decline to 1.47 times.

By arrangement with Business Standard. 

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