The Indian Coffee giant with a global spread, Cafe Coffee Day founder Siddhartha is seeking a valuation of between Rs 8,000 crore and Rs 10,000 crore from Coca-Cola for the coffee chain he set up over twenty years ago, according to people directly aware of the development, while also aiming to retain a controlling stake in the business. The US beverages maker is in talks with Siddhartha for a slice of equity in the coffee retailing business headquartered in Bengaluru, as reported by ETon Thursday.
“The promoters are asking for a valuation of between four to five times of sales (in the coffee business) on the back of some valuation trends in the industry both companies are privy to,” said a source in the know of the matter.
The group’s coffee business expects to close the year ending March 2020 with sales of about Rs 2,250 crore, according to a senior company executive. The business, which includes some exports of the bean, had revenue of Rs 1,777 crore and Rs 1,814 crore in fiscal year 2018 and 2019, respectively, according to regulatory filings. CCD, set up in August 1996, has grown to include 1,750 stores across India with 60,000 vending machines. It also has outlets across Europe as well as in Malaysia, Nepal and Egypt. Siddhartha was not reachable for a comment while queries emailed to Coca-Cola India did not elicit a response.
Experts are of the view that for Coca-Cola, an investment in CCD means access to retail outlets nationally. “CCD is the only pan-India coffee retail chain, the rest have not been able to scale to its level,” said Siddharth Khemka, head-retail research,Motilal Oswal Financial Services Ltd.
“While Starbucks is doing good, it doesn’t have so many outlets,” Khemka said. “This also would fit with the strategy of Coca-Cola to diversify into other products considering that there is growing awareness against sugary and carbonated drinks,” he said. As one of the country’s largest individual coffee planters, Siddhartha heads a coffee plantation group with over 20,000 acre and is “bullish on coffee consumption trends in India”, said one of the people cited above. The group expects India to emerge as the third-largest coffee market after the US and China in 20 years.