Is It a Good Time to Invest in Café Coffee Day Shares?
The recent developments in the Café Coffee Day (CCD) share market can be quite confusing for investors. Let's delve deeper into the current situation and what should guide your investment decision. (Keyword: Café Coffee Day)
Valuation and Debt: A Cautionary Note
As of the latest valuation, the company stands at a 439.40 crore market cap, but with a loan burden of 7214 crores. This debt is almost 16 times the value of the company. In addition, the company reported a profit of -451 crore, which is quite alarming. (Keyword: Investment Decision)
Despite this, some news has emerged indicating potential positive changes. Private equity firms have shown interest in a significant investment in CCD, which could resolve some of the logistical and financial troubles the company is facing. However, the current share price has been fluctuating, and if these rumors prove true, it may drop to around 80-100 Rs levels.
News Highlights and Their Impact
Private Equity Investment: Recent news suggests that private equity firms are interested in investing in CCD. This development is a positive sign as it could help stabilize the company's current issues. However, the impact on the stock price remains to be seen.
AGM Extension: ROC has granted Coffee Day an extension for the AGM, which adds to the uncertainty around the company's future.
Outlet Closures: Around 500 CCD outlets have been shut down across India since April, indicating a significant operational challenge. This is a concerning sign for the company's overall health.
Financial Analysis: Understanding the Numbers
The return on capital employed (ROCE) for the business is around 5%, while the average cost of debt is in the range of 13-15%. These figures indicate that the business was not generating sufficient returns to cover the cost of debt, making the venture economically unviable. (Keyword: Stock Analysis)
It is common for many entrepreneurs to focus on creating a strong MVP to attract international acquisitions. However, both Flipkart and Future Retail have seen a different trajectory, with the former being acquired by Walmart and the latter receiving an investment from Amazon. It is possible that CCD was trying to build a similar model to attract a global player.
There were speculations that Coca-Cola might want to invest in CCD, and we can't rule out the possibility of other foreign companies taking an interest in the company.
Conclusion and Final Take
Given the current situation, employees are not happy, unrealistic sales targets, and a business return (ROCE) of 5% compared to a debt cost of 14%, it is advisable to avoid this stock unless you hold strong confidence in the ability to turnaround the business.
Historically, "turnaround" stories often fail. As seen with Jet Airways, which is still recovering from its collapse in April 2017, investors should proceed with caution. (Keyword: Investment Decision)
Before making any investment decision, please do your own research. Stay informed about the risks and costs associated with trading or investing in financial markets. Trading and investing can be risky.