Coffee Brand’s Rapid Expansion Continues Amid Rising Costs
Blue Tokai Coffee Roasters, a name synonymous with quality coffee in India, has posted impressive financial results for FY24, marking a milestone in the company’s growth trajectory. With a remarkable 70% year-on-year revenue increase, the coffee brand’s revenue reached Rs 216 crore in FY24, up from Rs 127 crore in the previous fiscal year. This surge continues a five-fold revenue growth the company has seen over the past four years, driven by its expansion into multiple new locations and increasing demand for its products.
A Look at the Financials
Blue Tokai’s business is mainly powered by its coffee operations, which accounted for a massive 93% of its total revenue in FY24. The company’s coffee sales alone brought in Rs 201 crore, with the remaining revenue stemming from the sale of bakery items. This shows that coffee continues to be the star of the company’s menu, drawing in loyal customers who flock to its growing network of outlets.
To date, Blue Tokai operates 130 outlets, with plans to scale that number up to over 350 within the next three years. This aggressive expansion strategy reflects the company’s commitment to becoming a household name in India’s rapidly growing coffee culture. Additionally, Blue Tokai earned Rs 5 crore in interest from deposits and gains from mutual funds, which helped push its total income to Rs 221 crore for FY24.
Expense Breakdown and Rising Losses
However, with significant growth comes considerable costs. The company’s largest expense by far was employee benefits, which accounted for 29.5% of the total cost structure, amounting to Rs 84 crore in FY24. This was a hefty 95% increase compared to the previous year. Additionally, procurement costs increased by 46%, totaling Rs 83 crore. The rise in procurement costs reflects the increased demand for raw materials, likely tied to the growing number of stores.
One of the most significant factors affecting Blue Tokai’s bottom line was a surge in rent expenses. Due to its rapid expansion, rent costs rose by 94%, contributing Rs 33 crore in FY24. The brand also faced rising legal, advertising, and operational costs, with overall expenditure growing by 66%, from Rs 172 crore in FY23 to Rs 285 crore in FY24.
As a result, Blue Tokai posted a net loss of Rs 63 crore in FY24, a 46% increase compared to the Rs 43 crore loss reported the previous year. Despite these losses, the company’s EBITDA margin improved, narrowing from -24.7% in FY23 to -19% in FY24. This signals that while the company is still in the red, it is gradually becoming more efficient in managing its costs relative to revenue.
Growth Prospects and Investor Sentiment
Despite the increase in losses, Blue Tokai continues to maintain a high growth rate. With its current expansion plans, the company is set to exceed a topline of Rs 300 crore by the end of FY25, though its growth rate is expected to moderate to under 30%. This is not unusual for fast-growing companies that begin to reach a larger market and face more intense competition.
The key to Blue Tokai’s future will lie in controlling its costs while maintaining its expansion momentum. Investors have shown strong backing for the company, with Blue Tokai raising over $80 million to date, including a $30 million Series C round led by Verlinvest in August 2024. A91 Partners is the largest external stakeholder, holding a 22.77% share.
Looking to its competitors, Blue Tokai is not alone in the burgeoning coffee market. Third Wave Coffee, another major player in the sector, posted Rs 240 crore in revenue for FY24, but incurred a loss of Rs 110 crore. Meanwhile, Starbucks India has continued to dominate, with revenue touching Rs 1,218 crore in FY24.
The Coffee Race Ahead
Blue Tokai’s ability to scale its operations and reduce losses in the coming years will depend largely on broader economic conditions. A recovery in the Indian economy, particularly in the GDP growth rate, could provide the company with the positive momentum it needs to hit profitability. As the coffee industry continues to grow, Blue Tokai’s ability to align itself with larger players or continue operating independently will play a significant role in its long-term prospects.
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