ccd case study
Why did CCD’s founder commit suicide?
What is CCD’s full business model?
i will cover everything about ccd case study.
In today’s case study we will be talking about
How was CCD started? How were its subsidiaries started?
Also, why did its founder commit suicide?
We will talk about all the things in detail
sir VG Siddhartha completed his post-graduation in Economics from
Mangalore university. After that when he returned home his father said
to join their family business. They had
300 acres of coffee beans farms which is not a less area.
So life was all set.
But he said no I want to start my business.
For that, his father gave a sum of 5 lakh
as a part of seed investment.
Out of which for 3 lakhs he bought land and went to Mumbai with
with the other 2 lakh. There he worked as an intern in a company
and also learned
about the share market there.
Sometimes after working there he returns home
and start his own sare market firm
by the name of Sivan securities that
they take to a very good level in terms of
broking and trading.
In 2000, it’s name was changed to Way2Wealth securities
Now along with his share market business, he was also managing his family’s business.
So there he identifies a very big
problem. What happens there that you cannot directly
supply coffee beans to the International market
So there was a government agency through which you could supply
Because of which three times more profit
were earned by the International people.
So ultimately Indian producers used to stay in a loss.
Then, he went to the finance minister of that time, Manmohan Singh with his friends
discussed the issue
He resolved the issue
ultimately liberalization was started on coffee beans.
that meant you were able to supply coffee beans yourself outside.
Now he started his own company ABC, Amalgamated
he started exporting coffee beans
now his market was set together with
he also started roasting and doing all the processes related to coffee.
They opened their own outlets in Bengaluru and Chennai
With time they became the
the largest company in India that was exporting coffee outside.
Once upon a time, he met the owner of Tchibo brand which used to be a very
big coffee beans system in Germany.
He heard their story and got immensely
inspired. He met him to sell the coffee beans
but got inspired seeing their idea.
he returns to India and thinks that I will also do my own work.
But who will buy a 25-30 Rs. coffee in those times?
He stopped that idea at that time.
He was a regular traveler to Singapore and saw that
there are some shops with a huge crowd.
There he analyzed that free internet was provided.
Now all these things were going at the back of his
Now when he was doing his coffee beans business he realized that
there isn’t much profit margin. Then he thought to open his another vertical
of selling coffee and also providing free internet with it.
Now here he combined these two ideas and started his own coffee business with
an investment of 1.5 cr.
25 rupees coffee they used to sell and give
1 hour of free internet with it.
Now they have around 1750 stores of their own,
and 60,000 coffee vending machines. They make everything on their own
Whatever number of verticals they have, they supply everything on their own.
All of their supply in their own stores is what they presently do.
Now if I talk about the second number company
that comes after CCD, is Barista.
Only 220 outlets they have
If I talk about Starbucks, they have
around 140 outlets of their own in India. That’s it.
There is a huge difference if you see the market share.CCD
Is cheaper as compared to starbucks
Here, the best thing that I like about CCD is their marketing vision which is
A lot can happen over coffee
People can organize clients’ meetings in in CCD
If they don’t have an office. i t may be a problem .
suppose you are having a deal with your client but you dont have any office the client may judge you .
its better to invite your client at ccd . its a great idea
Nobody is going to disturb you that sir your coffee is over and you please
go as there are people waiting outside.
The best I liked about them.
Till now, its all glory now let’s talk about some bad things
Now their business idea
is debt centric. Debt centric means
you have to borrow from the market as a lot of money is required.
To make the first store in those times it took around 1.5 cr.
How much would it cost now?
Now its an investment only right?
To do that investment where will you raise the money from?
You cannot earn that much money from selling coffee in the beginning.
So this much stores they have opened in the starting
because of which debt was accumulated.
In 2015, around 6300 cr.
debts were accumulated with them.
Of Around 1150 cr.
they launched an IPO
IPO means Initial Public Offer.
If I want to raise money from the public
How will I do it? I can take a loan from bank or from my friends
or I can sell my company’s partnership in the form of equity
Take my 20% share and give me this much money.
so become my partner in the company.
or I can make it a public ltd.
I say my company’s 10% share one person cannot buy
So that 10%, I have distributed among several people
you also can become a partner in my company.
Share market listings are because of IPO. They registered themselves in the share market.
The money that came from the share market, they thought what I feel would be utilised
to lower the debt
In 2018 also around 4400 crore
the debt was there on them
It rose to around 6600 cr by the time 2019 came.
that means the debt was constant
in their business model.
Now the whole problem according to me
was they were taking short term loans to repay the debt.
short term loan means debentures n all.
They used to proceed debentures
and say take these debentures and I’ll give you this much % of return later on.
With that money, they used to repay the long term money.
On debt only, everything was going on.
If I talk about the profit
this company was profitable
In March 2019 4264 cr. rupees of revenue they did.
143 crore was the profit out of that
The company was profitable
So this 143 crore rupees
were not sufficient obviously to cover the huge debts of around 6500 crores.
when did this whole issue start
when there was an income tax raid.
A person was caught in Singapore
with 1.2 crores of cash and
he tells that this money is of Siddhartha’s.
After that income tax people raid them
20 times in different offices and
they get to know that 362 crores of unaccounted income they have
that means black money on which
they have not paid the tax
Because of which income tax siezes their share.
They say you cannot do any transactions.
Now they were requiring money
as we also talked before their entire business model is very much
debt centric because a lot of capital is required in this business anyhow.
So to raise they
had another business by the name Mindtree
In January 2019, they tried to sell Mindtree
income tax department stopped that deal
because till now they haven’t repayed that tax
Now what did they say that leave those Mindtree shares
you hold the CCD one. By giving CCD’s they
sold Mintrees’s shares to Larsen and Toubro
that does the metro work in Delhi.
now from there, they got 3200 crore
which they were about to use for debt repayment.
Together with that, they had another company that
used to make tech parks, IT parks
by the name Tanglin Developments. They tried to sell but failed.
They were also in contact with Coca-cola to sell a few shares
but that also didn’t turn up.
Together with that
the main auditor of CCD
said that 40 subsidiaries audit we didn’t do
this reached to Board of Directors, all the lenders
and they all said we will not give money
as people do not have trust in them, they won’t
give them money
If they won’t get money, how will they expand?
Together with that, all their shareholders were saying to buy-back
Buyback means my shares you keep
and give me money in the return
Now these people were saying and the company
didn’t have money to give it to them as well, because of which so much pressure was created and ultimately they had to over everything.
If we read it in their letter, it is written that
there was a private equity partner whom I wasn’t able to repay the amount
because of which I did so and also with that I was facing the problem of liquidity.
Liquidity means I wasn’t able
to cash my assets.
Now see you have made a CCD store,everything is set there.
How will you sell and encash it?
because you have invested so much amount in its investment.
Now, this you won’t say right go and sell those two ACs.
How much will you get by doing so? If you wanna sell a store, it is not possible overnight.
With that people were also not going money.
He was not getting funds because of which majorly
he took the step and committed suicide.
Now, what do I believe? What is my perspective?
I always say I do not like funding in very early stage.
yeah if there is a situation you need funding at very early stage then you may go for it .
rules depends on sitation
I believe if you have trust in your business idea.
you too can grow it slowly
Yeah, I believe you cannot become a billionaire by
putting in your own money. Your growth rate might be slow.
But all the money would be your own
all the efforts are yours, the risk would be yours
also, our business model won’t be manipulated by others.
What I have seen most of the time in known companies
they bring an investor in their company
he gives his share of the money
and in return of that, he becomes the owner of your company.
No matter he has 20 %, he’ll say I’ve given you 2 crores,5 crores
you do the work
this is what I want
marketing would be like this
now you’ll say according to me it should be like this, he would say no I have given the money
you do. You feel forced under him and not able to do
business according to yourself.
So that is why if you wanna take an investment, take from a place
that would give you full leverage and have trust in you.
I have said if you think my business model has 40% profit.
So in 10% I can take loan from the market and manage
with 30% profit.
People do not understand all this and ultimately all this happens.
I am not saying he didn’t understand but he
kept on falling in it. He thought everything would work out
but after that income tax department raided, the trust went
and alter said all that. All the game was over.
After his death, if we see the CCD’s share
they have decreased drastically
In my friend circle, I talk
to my friends, I was telling
it won’t only go down but also up. When it would start going up, invest in it
Now if recently from 6-7 days you would be saying it
always the share is on the upper circuit.
Those who do not know about the upper circuit.
The upper circuit is hitting now slowly the share would go up.
I always believe invest when
the market is down and not when it is up.
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