When he started Air Deccan in 2003, Captain G.R. Gopinath offered a novel deal to V.G. Siddhartha, late founder of the Café Coffee Day (CCD) Group. How about in-flight catering (snacks and beverages) with no rent or other bills, and air-hostesses doubling up as CCD’s salesgirls? Gopinath’s idea was of stores in the air for a 30 per cent commission. “He (Siddhartha ) sealed the deal in less than an hour,” Gopinath reminisces about an entrepreneur he admired. That, in essence, defined the CCD founder’s business acumen. As Gopinath puts it, just instincts and drive. And loads of ambition.
Despite being former Karnataka CM S.M. Krishna’s son-in-law, Siddhartha was regarded as a self-made businessman. In 25 years, he became the country’s largest coffee exporter, built a popular retail brand with 1,750 CCD outlets, and invested profitably in several tech firms. Despite criticism that banks favoured his group, he was respected for his passion, success and commitment. He had everything going for him. That’s why his friends and colleagues were traumatised by his untimely death. Siddhartha went missing on July 29 and his body was found two days later by three fishermen at the Hoige Bazaar beach in Mangalore. It was billed as a possible suicide.
Of course, there were murmurs in the market about the group’s huge debts—the consolidated balancesheet (2017-18) puts the liabilities at almost Rs 6,000 crore. But, until a few days before his death, the situation seemed under control. He had just sold the group’s stake in MindTree, a tech firm, and made a net profit (minus expenses and taxes) of Rs 2,100 crore. There were media reports of other potential deals to offload portions of the stakes in real estate and coffee. In retrospect, it is evident he was under tremendous pressure. In a typed letter, whose authenticity is in doubt, Siddhartha opened out his heart.
CCD founder V.G. Siddhartha.
He listed how he was under pressure from a private equity investor to buy back its shares, and from other lenders who wanted their money back. There was harassment from the income tax (I-T) department, which attached his shares, and blocked and delayed the MindTree transaction, leading to a “serious liquidity crunch”, and he also confessed that his colleagues and family were “totally unaware of all my transactions”.
This last comment, reports about the state of the businesses, and I-T officials’ contention that the signature on the letter didn’t match with the one in the annual reports forced the board of the holding company, Coffee Day Enterprises, to take prompt action. It appointed Ernst & Young “to investigate into the circumstances leading to (his) statements”, and “to scrutinise the books of accounts of the company and its subsidiaries”.
The I-T department says it probed Siddhartha and CCD Group because of the leads it got from its raids on Congress leader D.K. Shivakumar. Its press release claimed that the CCD founder admitted to an unaccounted income of Rs 480 crore in a sworn statement. However, when the I-T return was filed, he did not “offer the above undisclosed income”. Hence, the move to provisionally attach his shares was to protect the government’s revenue interests. A look at the balancesheets of the holding company, and its 51 subsidiaries, associate companies and joint ventures, reveals that the group was in a financial mess. At a consolidated level, it earned a net profit of Rs 148 crore on revenues of Rs 3,851 crore, or a margin of just under 4 per cent. Of the 52 companies, 13 incurred losses, and there were no figures for another 10 firms. May be the latter were non-operational. In fact, the holding company incurred a loss of Rs 61.5 crore on a turnover of Rs 142 crore in 2017-18. Of the 29 other companies, 23 earned profits that were less than Rs 10 crore each.
According to media reports, profits from the MindTree deal were used to bring down the loan amount to Rs 4,970 crore by July 2019. In a recent regulatory filing, the holding company has appealed to lenders and creditors for more time to honour its repayments. The consolidated loan, it said in a recent regulatory filing, would come down to Rs 2,400 crore if it sucessfully divests its stake in Global Village Tech Park. Clearly, the MindTree profits were used to pare down the loans. In a separate filing, a listed subsidiary, Sical Logistics, asked for a one-time moratorium of three months to service its debt of Rs 1,488 crore in July 2019. This is surprising because, as Anant Koppar, founder of Kshema Technologies puts it, “with finance, Siddhartha was brilliant”. He adds, “It wasn’t the money. Siddhartha would say that once you earn enough, you go on because of your passion, rather than anything else.” In 1996, Kshema Technologies was the first technology firm that Siddhartha invested in. Koppar recalls that the company’s first press conference to announce quarterly results was held in a CCD outlet on Bangalore’s Brigade Road, though such conferences were normally held in five-star hotels.
The story of Siddhartha’s baptism in business as a stockbroker in Mumbai in the early 1980s became a legend among youngsters in Karnataka’s coffee-growing Malnad region. The only son of a wealthy, landed family, he took Rs 5 lakh from his father, and went on to build a coffee empire with over 12,000 acres of plantations. Since the 1990s, when coffee marketing was opened for private initiatives, the Malnad coffee-growers came to depend on CCD, a large buyer.
Many remember Siddhartha as soft-spoken and friendly, one who made it a point to attend local weddings and social events. He was also media-shy, although the media loved him and he was well-connected, both in business and politics. This led to suggestions of crony capitalism. His father-in-law Krishna’s abrupt switchover to the BJP from the Congress two years ago was seen as a move that would benefit Siddhartha’s businesses. “There are many uncharitable stories going around that he built his empire due to political patronage,” wrote Ashok Soota, former Mindtree chairman in a financial newspaper last week. “CCD was built outlet by outlet, and person by person. It also required a savvy businessman.” Hence, his death was shocking, to say the least.
Were his problems insurmountable? The answer is elusive until a complete picture of his financial situation is revealed. But the problems were there, both with debt and tax. “Most of the assets were illiquid, which couldn’t have been sold immediately,” suggests one financial expert. “You had the whole credit cycle tightening, and that’s when this came to the fore.”
Siddhartha’s friends believe he couldn’t bear the burden of not being able to honour the loan commitments. He belonged to the elite of the Gowda community, and couldn’t possibly face the new reality, where the lenders and investors were more in control. “Our breakout entrepreneur was Siddhartha,” says Congress Rajya Sabha member M.V. Rajeev Gowda. “No one has come anywhere close.”
By Ajay Sukumaran in Bangalore