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Why CCD’s coffee vending machines cost Rs1.15 lakh each

Coffee-Vending-Machine

As per the prospectus, during FY2015, Coffee Day Enterprises’ capitalised coffee vending machines at Rs1.62 lakh per unit. The company, however claims that the cost is Rs1.15 lakh and its machines are much superior than those available for Rs15,000-40,000

Coffee Day Enterprises Ltd (CDEL) that owns the coffee chain – Café Coffee Day, which just concluded its initial public offering (IPO), in its draft red herring prospectus (DRHP), has mentioned the cost of its coffee vending machines as Rs1.62 lakh per unit, taking its fixed assets under this head to Rs378.78 crore for FY2015. Although, there are coffee vending machines available in the market for around Rs15,000 to Rs40,000 per unit, the company claims that its machines are much superior and hence not comparable with other machines in India.

During FY2014-15, the company had shown Rs378.78 crore as tangible fixed asset under the head of coffee vending machines. The same as on 1 April 2014 is stated as Rs310.68 crore. Therefore, the company added fixed assets worth Rs68.10 crore under coffee vending machines.

According to DRHP, for the financial years 2013, 2014 and 2015, and the three month period ended 30 June 2015, the total number of coffee vending machines placed at client locations were 21,594, 25,561, 29,760 and 30,916, respectively.

As on 1 April 2014, CDEL had 25,561 coffee vending machines, which increased to 29,760 as on 31 March 2015. So the number of these machines grew by 4,199 during FY2015 at a cost of Rs68.10 crore. This means, the cost for each machine is about Rs1.62 lakh.

When we enquired whether this cost is on the higher side, Jayaraj C Hubli, chief financial officer (CFO) of Coffee Day Global Ltd, a unit of CDEL, denied the cost as Rs1.62 lakh per coffee vending machine. “During FY15, a total of 5,237 new machines were added. Excluding the refurbishment cost incurred for 3,514 existing machines (at an average of Rs22,831 per machine) the cost of new machines added works out to Rs1.15 lakh per machine. Excluding the cost of branding, cabinet and other accessories the cost per machine works out to only Rs99,500.” Even considering the company had added 5,237 new machines, at a total cost of Rs68.10 crore (shown as fixed asset for FY15), the unit cost comes to Rs1.30 lakh.

When asked about the higher cost of CDEL coffee vending machines compared with similar machines in the market, Mr Jayaraj said, “These (machines) are not comparable with our machines since they use a pre-mix of milk and coffee powder in a pressure-less method to dispense coffee beverage. Our coffee vending machines use pressurised brewing technique using fresh coffee beans and fresh milk to dispense a variety of coffee beverages. Our machines have a grinder, an advanced metallic brewing system and other special features. More than 25% of the components in our machines are imported. Our machines are comparable with imported coffee vending machines which cost around Rs7 lakh.”

CDEL’s global vending business has a strong base of 30,916 vending machines across 12,500 corporate and growing at 25%-30%. CDG plans to grow the vending business by introducing new variants, leveraging its network and also target new customers like hotel, restaurant and catering companies (HORECA) market, for which it has tied up for a joint venture with Germany-based WMF.

“We currently manufacture coffee vending machines in Bengaluru… in eight to 12 months, we will start joint manufacturing of coffee machines in Chikmagaluru with German giant WMF. WMF is the Rolls Royce of coffee machines,” said media reports quoting CDEL chairman VG Siddhartha last week.
On a consolidated basis, during FY201-2015, CDEL has reported a CAGR of about 30% in revenue growth to Rs2,479 crore. However, due to higher depreciation and interest costs, during FY2015, the company had incurred a consolidated net loss of about Rs87 crore.

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