Holding a stock which holds 50 percent of your portfolio is quite risky. Most importantly, we need to be mentally prepared for un favorable outcomes too. Keeping the above points in mind, I hold Cafe Coffee day shares on my portfolio which accounts 50 percentage weightage overall. Cafe Coffee day enterprises is a Indian iconic brand which sells premium coffee , beverages, snacks to consumers.
Primary reason to hold Cafe Coffee day shares:
- Its a simple business which I can understand and also been to their stores & used their products personally. I liked them! Just a great hang out spot with friends , dating in a good ambience without much disturbance. The store doesn’t put holes in pocket and their products are priced fairly.
Add on: I knew few employees CCD, how the stores are operated , how employees are taken care etc.
2. It got a terrific brand value & perceived as an Indian coffee house chain in the eyes of masses. Since 1996, CCD opened its first store in Bangalore, Karnataka. Its in the industry for more than 25 years across nationwide.
3. It owns 20000 acres of coffee plantation in chikkamagaluru, Karnataka and also its the largest producer of arabica coffee bean in Asia & exports to various countries.
4. Leadership change – After the sad demise of V.G. Siddhartha (Founder of CCD) his wife Malvika Hegde took charge as CEO of coffee day enterprises limited. She is doing an exceptional job in turning around the company from debt to paths of profitability.
5. Loss making to profit: After several loss of quarters, recently the company is posting profit for the past 2 quarters. But the fiscal year is still in loss, reduced from loss of 584 Cr to loss of 121 Cr. Its on a traction to profit, just need patience.
Must read: How Warren Buffett advice stands true in 2022?
Time frame to hold:
Right now the company is a bad phase. There are a lot of news hovers around this company negatively a usual. So I stay away from news and professionals views about this firm which will have an impact on my decision making.
According to me, Investing is something very special ,true self as an individual. I don’t want that to be spoiled by external views points.
I am not focused on next quarter or quarterly earnings , I am assuming minimum 2 years is needed to put the firm back on profitability and pay off all the debt, have strategic goals to widen their product portfolio.
So I am planning to hold for minimum next 2 years, If a nice story continues in this business, If I can understand the business dynamics my holding tenure will be increased without a second thought. Anyways, Time will tell the answer!
Note: Please do not consider this as an investment advice/recommendation. Its for education purpose alone.
Leadership & Management:
Reason for my high conviction in this stock is Cafe Coffee day leadership ” Malvika Hedge”.
When V.G. Siddhartha died the Coffee day enterprises had INR 7000 crores or 900 million USD as debt in their books. In less than 2 years, Malvika hegde paid INR 5000 crores / 640 million USD to her debtors.
Given a choice, easy way out is to flee abroad along with her children and file for bankruptcy. Fleeing to abroad is not a novelty for Indian entrepreneurs. Many who are in the list are Vijay Mallaya (owner of Kingfisher airlines), Nirav Modi, Mehul Choksi etc.
But for everyone amusement, Malvika stood her ground and pay off the debt. Now all the media houses lauding her for achievement.
Not only that, she managed the business very efficiently in times of COVID (its period of nightmare for quick service restaurants & hospitality sector). Also she did not shy away from shutting down stores in abroad , India which are not able to generate profit/ less ROI.
She also sold some of the non core business like way 2 wealth, Global village Techpark in Bangalore to Blackstone group. Selling these assets helped her to pay off the massive debt in a short period of time.
After reducing the debt, Malavika pens a letter of encouragement & hopeful future to 25,000 employees. She is resolutely committed to revive the brand & preserve the story of CCD.
CCD has a terrific brand image combined with their leadership will have a great success story in next five years. Supported by rising level of disposal income, large younger population and their spending habits , migration to tier 1 cities due to employment etc.
Why I am taking this risk?
I believe betting big, when odds are in favor. I missed many big wins like Balkrishna industries, kitex garments, associated alcohol etc because of small holding in it. I consider those missed opportunities as a part of learning.
Those were the business I understand, had a moat, run by great managements. I believe CCD possess those qualities.
Also the quote from Legendary Charlie Munger instigated me.
In a year or two , I will be writing a updated post on it. Then we will come to know whether Coffee day enterprises is a wise bet or not.
Consider this post for education purpose, not as an investment advice/ stock tips. Please do your due diligence before you invest in any assets.
Thank you for reading. Happy investing!