The market is getting all set for one of the biggest Initial Public Offer (IPO) in three years i.e., Coffee Day Enterprises Ltd (CDEL). The company operates popular coffee brand Cafe Coffee Day, plans to come up with an IPO to raise Rs 1150 crore which will open on October 14 and close on October 16. The price band for share sale will be in range from Rs 316 to 328. The stock is likely to be listed on stock exchanges by November 2.
A glimpse of Cafe Coffee Day:
Coffee Day Enterprises Ltd owns and operates well known brand name i.e. ‘Cafe Coffee Day’ in India since 1996. Company has a well woven network of 1,472 Cafe outlets spread across 209 cities in India. As of December 2014, Cafe Coffee Day has market share of 46% in India in terms of the number of chained Cafe outlet
Apart from the glory to have the largest chain of cafes in India, company also operate a highly optimized and vertically integrated coffee business which includes procuring, processing and roasting of coffee beans to retailing of coffee products across various formats. Company is one of the largest exporters of Indian coffee beans, primarily to Europe, Japan and the Middle East market.
Company’s retail outlet includes:
1. Cafe Coffee Day CCD – 1,423 outlets across 209 cities in India
2. Cafe Coffee Day The Lounge – 42 outlets
3. Cafe Coffee Day The Square – 7 outlets
4. Vending Machines – 28,777 vending machines
5. Fresh & Ground outlet – 424 outlets
6. Coffee Day Xpress kiosks – 590 kiosks
In addition to their well renowned coffee business, company operates select other businesses that are aimed at leveraging India’s growth potential, namely, development of IT- ITES technology parks, logistics, financial services, hospitality and ITITES
Issue Details:
- Issue Open: 14th Oct’15 – 16th Oct’15
- Issue Type: 100% Book Built Issue IPO
- Face Value: Equity Shares of Rs. 10
- Issue Size: Rs. 1,150.00 Crore
- Issue Price Range: Rs. 316 – Rs. 328 per share
- Minimum Shares: 45 Shares and in multiple of 45 there-of
- Minimum Amount: Rs. 14,420
- Listing: BSE and NSE
- Download Coffee Day IPO Prospects at this link
Company’s Promoters:
V.G. Siddhartha is the Promoter of the company. Promoter currently holds 63,945,904 Equity Shares, equivalent to 54.78% of the pre-issue of the IPO. Promoter will continue to hold a majority of the post-Issue paid-up share capital of the Company.
Objectives of the IPO:
Company has proposed to utilize the net proceeds of IPO in the following manner:
- Financing the coffee business;
- Opening new Cafe Network outlets and Coffee Day Xpress kiosks;
- Manufacturing and assembling of vending machines;
- Restoration of existing Cafe Network outlets and vending machines;
- Setting-up of a new coffee roasting plant facility, along with integrated coffee packing facility and tea packing facility;
- Repayment or prepayment of loans of the Company and Subsidiaries; and
- General Corporate Purposes.
A close look on the Financials of the Company:
- Sales (Revenue from Operations) for the 9 months of previous year ended 31st December 2014, stood at Rs.1,760 crore which translates into CAGR of 17.45% over 6 years.
- Company has reported loss from past 2 years as well as has reported loss of Rs.75 crore for the 9 months of previous year ended 31st December 2014.
- Return on equity is negative for the last 3 years. The trend is showing heavy declination in RONW figures in the last 3 years.
- Since there are no profits for the last few years, EPS is also negative and for the 9 months of previous year ended 31st December 2014, EPS stood at minus Rs.6.44.
Reasons to Invest in Coffee Day IPO:
- Good Revenue growth in last 5 years. Its revenue increased by 2.2 times in last 5 years.
- No other listed competitor in this business model in India.
- Holding company CDEL has diversified business but the coffee business accounts for more than 50% of the total revenue followed by 36.9 per cent of logistics, 7.5 per cent of financial services and 3.3 per cent of technology parks.
Reasons to NOT to Invest in Coffee Day IPO:
- Investors would not get any benefit of dividend as company is in loss for last 3 years.
- Company is demanding a very high issue price for such a loss making company like CCD.
- CCD has largest PAN India presence but it’s per day per cafe sale is Rs.15,000 to Rs.20,000 which is only one third of its competitor Starbucks; whose sale is approximately Rs.50,000 to Rs.60,000.
- There are outstanding litigation against the Company, Directors, Promoter, Subsidiaries, and Group Companies.
- Company has pledged some of equity shares held by it in certain subsidiaries ans associate companies.
Investment Strategy:
The price of the IPO is not justified since the company is not generating any profits and I would personally rather suggest staying away from the Cafe Coffee Day IPO.
Disclaimer:
Investing in this IPO does not interest me much. The idea of enlisting positive and negative sides to investor in this articles is to create awareness and education about this IPO. Please consult your investment advisor before you invest in such high risk investment option.
