Sequoia Capital India Pvt Ltd, one of the leading private equity funds in India with as much as $1.4 billion (around Rs 7,700 crore) under management, is planning a healthy exit from one of its earlier investments — Amalgamated Bean Coffee Trading Co Ltd, an arm of Coffee Day Group that runs the flagship coffee retailing chain, Café Coffee Day.
According to investment bankers close to Sequoia and the Coffee Day Group, the PE fund may sell most of its stake with returns in the range of 16-18 per cent on its investment, made in two tranches of $10 million each in 2006 and 2007.
“The discussions are at advanced stages and a closure is expected shortly. Coffee Day Group is already raising resources to buy back the stake held by Sequoia,” an investment banker close to Coffee Day Group told Business Standard on condition of anonymity.
If Sequoia manages to exit with 16-18 per cent internal rate of return, it will be a healthy one for the fund, bankers and analysts say. However, the gains will still be small compared to the excellent returns it made when the fund recently exited a part of its stake in the Chennai-based Vasan Healthcare. Government of Singapore Investment Corp, the private equity arm of the Singapore government, invested around $100 million in Vasan Healthcare, a part of which went to buy out some stake held by Sequoia.
These two exits come at a time when Sequoia is understood to be planning to launch a $600-million India-focused fund next year.
While V G Siddhartha, chairman of Coffee Day Group, confirmed he was in discussions with investors, Sequoia did not offer any comment on the issue.
After roping in Sequoia to invest in his venture, Siddhartha went on to raise $80 million from Darby Private Equity, an arm of Franklin Templeton, International Finance Corp and Deutsche Group to expand the coffee retailing business. External investors are believed to be holding 35-40 per cent stake in Amalgamated Bean Coffee, while the rest is with the promoters.
It is understood that Siddhartha is raising debt of Rs 125 crore to buy back the stake from Sequoia, with a combination of Rs 100 crore of non-convertible debentures and loans worth Rs 25 crore.
The Coffee Day Group, which straddles diverse businesses ranging from coffee retailing to furniture to wealth management, has outlined a Rs 400 crore capital expenditure plan for the current financial year. It is likely to add around 300 cafes this year, at a time when the global coffee retailing company Starbucks Corp is expected to open its first cafe in India in September.