Mutual funds' exposure to Coffee Day Enterprises, whose founder VG Siddhartha has died, is close to Rs 200 crore including debt and equity, according to data compiled from Morningstar India.
Coffee Day Enterprises, which was locked in lower circuit on July 30, wiped out almost Rs 800 crore in market capitalisation in a single trading session after Siddhartha, who launched Café Coffee Day (CCD) chain, was reported missing. His body was found early July 31, police said. He is suspected to have committed suicide.
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Canara Robeco Small Cap Fund has an exposure of almost Rs 5.7 crore, while ICICI Prudential S&P BSE 500 ETF has a marginal exposure of Rs 1 lakh.
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Though much of the exposure is on the debt front. As many as seven funds have direct or indirect exposure to Coffee Day Enterprises, Morningstar India data showed.
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Three fund houses that have exposure to Coffee Day group are BOI AXA, DSP, and Indiabulls (see the table).
Coffee Day Enterprises is the parent company of the Coffee Day Group that pioneered the coffee culture in the chained café segment in India.
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What should investors do?
The stock could remain under pressure for some more time, and could well slip into double digits or below Rs 100, as a letter that Siddhartha purportedly wrote to the board and staff of Coffee Day a few days earlier underscores company’s troubles.
In the July 27 'letter', the founder spoke of a liquidity crunch due to harassment from a previous Director General of Income Tax about the Mindtree deal. Siddhartha recently sold 20.3 percent stake in Mindtree to L&T.
None of his team, auditors, and senior management were aware of these transactions, Siddhartha said , taking complete responsibility for the situation.
The board of Coffee Day Enterprises held an emergency meeting on July 30.
"In the interim, the Board is evaluating and assessing the situation, formulating appropriate steps to ensure business operations are unaffected, and has resolved to co-operate with authorities," the company said in a statement to stock exchanges on July 30.
The big question facing investors: should they catch the falling knife or exit in case they hold Coffee Day?
The answer is not that simple and largely lies in the type and extent of risk you could take as an investor/trader.
Any amount invested at current levels should be from the idle cash and not leveraged because the trade could go either way for a horizon of more than a year, say experts. Investors who are holding the stocks should remain invested and watch for further developments. They could choose to exit the stock on rallies, they say.
Analysts advise investors to watch out for the outcome of the board meeting and financial results for the June quarter scheduled to be out on August 8, 2019.
Tuesday’s fall in the stock price was purely on negative sentiment, as the founder of the company had gone missing, Sanjeev Jain, VP Equity Research, Sunness Capital India, told Moneycontrol. "Here investor should hold the stock, as the missing founder doesn't mean that the company will close,” Jain said.
Investors must watch the company's board-level business steps, he said. “It would be early to say on the liquidity issue until the full picture is clear. The company fundamental are not impressive, as from the last several quarters there is no improvement in its bottom line due to higher interest outgo,” Jain said.
Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.Subscribe to Moneycontrol Pro and gain access to curated markets data, exclusive trading recommendations, independent equity analysis, actionable investment ideas, nuanced takes on macro, corporate and policy actions, practical insights from market gurus and much more. First Published on Jul 31, 2019 10:28 am