Tata Consumer & Coffee Day deal in a limbo over valuation

Bengaluru: Tata Consumer Products’ talks with the Coffee Day group for a stake in the latter’s vending business have got stuck over valuation, people with knowledge of the matter said.

The existing shareholders, as well as the lenders with whom part of promoters’ shares are pledged, are reluctant to sell at the price proposed by the Tata Group company, the people told ET, speaking on the condition of anonymity.

ET last week reported that Coffee Day Enterprises (CDEL), the listed firm of the group, had put a Rs2,000 crore price tag on its vending machine business and that Tata Consumer was likely to offer only Rs1,000 crore.

Vending is the most profitable segment of Coffee Day’s businesses. Shareholders would not agree to hive off and sell a profit-making vertical unless the valuation justified it, one of the people said. Sections of shareholders feel a deal is worthwhile only if the transaction value can leave some surplus on the plate for reinvestment in other verticals, after paying off debt, this person added.

Private equity firms and financial institutions control more than half of CDEL. The family of late founder VG Siddhartha holds about 17%. About 15 financial institutions have lent to the group against promoters’ shares, and they need to be convinced for a deal to go through.

Tata Consumer, which runs 185 Starbucks stores in India, is looking at a strategic deal with the Coffee Day group, which is the market leader in the vending business.

Responding to an emailed query, Tata Consumer said: "The company evaluates various opportunities on an ongoing basis. As a policy, we do not comment on speculative information.” The Coffee Day group didn’t respond to a request for comment.

The Coffee Day Group currently runs a chain of about 750 outlets and operated, until lockdown, about 60,000 vending machines in places such as technology firms, hospitals, offices, malls, and educational institutions.

In June last year, Siddhartha, who was found dead the following month, was seeking a valuation of about Rs 8,000 crore from Coca-Cola for the coffee chain he set up over two decades ago.

After the death of Siddhartha, most of the top executives have stayed back at the company, which showed their confidence of being able to turn the corner, a company executive, not connected with the Tata talks, said.

The coffee business, which included some exports of the bean, had revenue of Rs 1,777 crore and Rs 1,814 crore in fiscal 2018 and 2019, respectively, according to regulatory filings. As on March 31, 2020, NSR, KKR and Affirma Capital held 10.6%, 6% and 5.6% stake in the company.

According to the last audited figures available, as on March 31, 2019, CDEL had debt of Rs 7,000 crore. The company has since brought it down by about Rs 4,000 crore.

With the trimming of outlets and staff, Coffee Day will turn around by December, and pick up as Covid-19 concerns ebb, said the person cited earlier. “Without Covid, CCD would have turned around by now,” he said, adding that its promoters were hands-on and determined to battle the difficulties.

CDEL’s debt would come down by half from the current level after the company exit subsidiary Sical Logistics. It is expected to drop further to about Rs 1,050 crore, after US private equity firm Blackstone pays the balance towards its purchase of the Global Technology Village park in Bengaluru for Rs 2,700 crore in March this year. The company plans to use part of the proceeds to repay debt.