Why did CCD’s founder commit suicide? What is CCD’s full business model? 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 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 and discussed the issue He resolved the issue and 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 Bean Company Here 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. Now 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 mind. 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, 30,000 employees 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. If I talk about my childhood, CCD coffee used to be very expensive. Then when I started making money I realised that CCD is fine because if we compare it with Starbucks, it is cheaper. CCD, I have used a lot during my MBA time because during my MBA, we were taught about CCD’s business what are their vision and marketing objective? Here, the best thing that I like about CCD is their marketing vision which is A lot can happen over coffee I used to organize my clients’ meetings in my freelancing days in CCD only because I didn’t have an office at that time. If I would have called them to my office (which didn’t use to exist) the other person would have judged me. and if I say I do not have an office, then the client wouldn’t have agreed to the meeting as well. I used to meet at a common place for meetings the other person didn’t see my office the expense used to be just 300-400 but because of that but because of that, I used to get a prestigious client and the internet was there, I used to give my entire presentation on the laptop. Nobody used to disturb me 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 my 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 so that 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. Above in the I button, I’ll put my share market series. There you’ll all these terms what are debentures and 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. Now 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 but 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 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 my known companies where 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. That is why I have always stayed against investment 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. One more video I will put in the I button above about leverage there you will understand how much you should pick up on loan and how much you should put yourself. 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 Now in my office and also to my students, 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. See my investment series you would understand everything. 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. If you want all the information in the blog format I’ll put the link in pin comment. we have started putting out on blogs on Lapaas if you wanna check you can. I hope you would have enjoyed this video Do like, share and tell me the in the comments how did you like find the video? Bye Goodnight goodbye Good morning Good Afternoon whatever time you are watching the video.