Caf? Coffee Day, India?s biggest coffee shop chain founded by V.G. Siddhartha in 1996, will launch Initial Public Offer (IPO) of Rs.1,150 crore on 14th October, 2015. Caf? Coffee Day IPO will be the biggest IPO in nearly three years.
About Caf? Coffee Day
Caf? Coffee Day is a caf? chain run by Coffee Day Global Ltd (formerly known as Amalgamated Bean Coffee Trading Co. Ltd) which is subsidiary company of Coffee Day Enterprises Ltd (CDEL). Presently, under the flagship brand of Caf? Coffee Day, CDEL operates 1,472 outlets across 209 cities in India and 16 international outlets across Malaysia, Austria and the Czech Republic. As of December 2014, CCD has dominated Indian Chained Caf? outlets with 46% market share.
Apart from running Caf? Chain, holding company CDEL is also engaged in procuring, processing and roasting of coffee beans and exporting it, primarily to Europe, Japan and the Middle East which makes CDEL one of the largest exporters of Indian Coffee Beans.
Caf? Coffee Day IPO Details
- Issue Opens On: Wednesday, October 14, 2015
- Issue Closes On: Friday, October 16, 2015
- Issue Type: 100% Book Building
- Issue Price Band: Rs.316? Rs.328
- Face Value Per Share: Rs.10
- Minimum Bid Lot: 45 Equity Shares
- Minimum Order Value: Rs.14,220 to Rs.14,760
- Issue Size: Rs.1,150 crore
- Proposed Listing: Bombay Stock Exchange and National Stock Exchange
- Lead Managers: Kotak Mahindra Capital Co. Ltd, Morgan Stanley India Co. Pvt. Ltd, Citigroup Global Markets India Pvt. Ltd, Axis Capital Ltd, Yes Bank Ltd and Edelweiss Financial Services Ltd
- Registrar: Link Intime India Private Ltd
- Company Promoters: V.G. Siddhartha (holding 63,945,904 Equity Shares, equivalent to 54.78% of the pre-Issue share capital)
- Probable Date of Trading: 2nd November, 2015
- Download Caf? Coffee Day IPO Prospectus
Objectives of Caf? Coffee Day IPO
Company has proposed to utilize the net proceeds of IPO in the following manner:
- Financing the coffee business;
- Opening new Caf? 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.
Financial Performance of Caf? Coffee Day
- 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 of Rs.75 crore for the 9 months of previous year ended 31st December 2014 as well as for the past two years.
- Return on equity is also 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.
Caf? Coffee Day IPO Turn-on Points
- Caf? Coffee Day dominated India in Chained Coffee Caf? Outlets with 46% market share. Its nearest competitor is Barista which has a market share of mere 5%.
- Caf? Coffee Day is the most renowned brand of Coffee Shops in India in Tier I cities. Company is expanding its operations Tier-II cities of India.
- Holding company CDEL has diversified business but the coffee business account 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.
- Despite having diversified business, Chairman VG Siddhartha has assured investors and SEBI of investing only in the coffee business for the next five years.
Caf? Coffee Day IPO Turn-off Points
- Instead of having market share of 43%, company is not able to generate profit. Company has reported losses in three consecutive years but at the operating level company is profitable. Huge finance costs eats out total profits.
- CCD has largest PAN India but it?s per day per caf? sale is Rs.15,000 to Rs.20,000 which is only one third of its competitor Starbucks sale of Rs.50,000 to Rs.60,000.
- The nature of the business is highly volatile and the profits margin is pretty thin.
Should you Invest in Caf? Coffee Day IPO?
Company?s financial performance is pretty poor. Though revenues from operation have seen consistent growth but there are no profits. In the last 5 years company has reported profits of Rs.36 core (in 2 years) against losses of Rs.200 crore (in remaining 3 years). Since there is no EPS in the previous years, PE ratio cannot be calculated.
Further, Company has opened its first outlet in 1996 and has established vast network of outlets since then but it still seems to be struggling in getting right mix between number of outlets, demand and cannibalization.
Conclusion: Since company is not generating any profits, the price of the IPO cannot be justified and I would suggest staying away from Caf? Coffee Day IPO.