Ever since the tragic loss of its founder V.G. Siddhartha in 2019 the Cafe Coffee Day (CCD) has been facing financial struggles. Malavika Hegde, Siddhartha's wife, assumed the role of CEO in December 2020 and has been working diligently to reduce the company's debt from Rs 7,000 crore to Rs 465 crore by 2023. However, on August 8, 2024, the Bengaluru bench of the National Company Law Tribunal (NCLT) approved insolvency proceedings against Coffee Day Enterprises Ltd (CDEL) the parent company of CCD due to a default of Rs 228.45 crore.
Subsequently, an interim resolution professional was appointed to oversee CDEL's operations. Nevertheless, on August 14, 2024, the National Company Law Appellate Tribunal (NCLAT) in Chennai issued an interim stay on the insolvency proceedings in response to Malavika Hegde's appeal. This stay will remain in effect until the next hearing, providing a temporary relief to the company.
A few experts point out that there were a lot of unknowns which does not bode well for a public company. Unfortunately it has been revealed by the NFRA that the auditors and in this case BSR &Co which is a part of the KPMG network have not exercised due caution and have been negligent in certifying the accounts.
“In a public company, the role of the auditor holds a huge significance since investors base their decisions on the independence of the auditor. The firm as well as the signing partners have been imposed a fine. Apart from this CCD has also defaulted in paying interest on debentures and IDBI has dragged them to NCLT. Both of these come as a double whammy to a company which was trying to find its feet again. It will be a very hard climb again if they want to continue operating in the ecosystem,” pointed out Sathya Pramod, CEO, Kayess Square Consulting Private Limited.
Looking forward, CCD's journey to financial stability hinges on adept debt management, operational enhancements, and adaptability to market shifts. The leadership of Malavika Hegde and CCD's strategic decisions in the upcoming period will be pivotal in shaping its future course.
After the passing away of Siddhartha, revenues virtually went for the free fall and the company faced a challenge to pare their debts. In light of the past, the recent resurrection of the company speaks volume on how the new management turned around a dismal situation.
“Despite current challenges, Hegde's leadership has been characterized by her commitment to preserving her late husband's legacy and supporting CCD's employees. Through strategic initiatives such as downsizing, closing unprofitable outlets, and forming partnerships, she aims to enhance revenue and reduce expenses. While the company's financial future remains uncertain, the stay on insolvency proceedings offers a glimmer of hope. Hegde's resilience and strategic decisions have been instrumental in guiding CCD through these turbulent times. The outcome of the legal proceedings will be crucial in determining the company's path forward, but her leadership brings optimism for stability in the future,” observed Girish Linganna a space and aerospace expert who has also been following the company for the last many years.
It is expected that looking ahead to the future of Cafe Coffee Day (CCD), crucial factors such as ongoing legal proceedings, debt management, and operational strategies will shape the company's trajectory. “CCD's ability to negotiate favorable terms with creditors and further reduce debt could lead to financial stabilization. This may involve cost-cutting measures, strategic partnerships, and potential new investments. With Malavika Hegde at the helm, CCD has already improved operational efficiency. Continued efforts to boost profitability, close underperforming outlets, and enhance the customer experience could aid in reclaiming market positioning. External factors such as economic conditions and consumer trends will heavily influence CCD's prospects. Positive market trends and increased consumer spending on dining out could benefit the company. The pause in insolvency proceedings offers CCD a crucial opportunity to address financial challenges proactively. Effective use of this time for negotiations and financial restructuring could help CCD avoid insolvency,” added Linganna.
Experts point out that the stay granted by the NCLAT presents immediate advantages for CCD as the company can sustain business activities without the disruptions that insolvency proceedings would bring, maintaining trust among customers and employees. The stay grants CCD more time to engage with creditors for debt resolutions, explore new investment avenues, or divest non-essential assets. Halting insolvency proceedings shields CCD from the immediate risk of liquidation, safeguarding the interests of employees, customers, and stakeholders. The extended time frame enables CCD's management to devise and implement strategic initiatives to enhance financial health and operational efficiency.
“With insolvency on the horizon, the legendary coffee chain in India has severe headwinds to face. While the company finds the best route to resurrect its glory, it must prioritize transparent communication so that the anxieties are addressed to the best possible extent. By focusing on supporting their workforce through these challenges, Cafe Coffee Day can not only preserve goodwill among its employees but also uphold its brand strength,” remarked Aditya Narayan Mishra, the MD and CEO of CIEL HR.
