Coffee Day Ipo Issue Price

Coffee day ipo issue price

Overall Opinion

Here is a note on the IPO from Coffee Day Enterprises Ltd (CCD), owner of the Café Coffee Day chain.

IPO highlights

  • The IPO is open from14-16th Oct2015 with Issue Price band: Rs.316-328per share.
  • About3.50crore shares will be offered of Face Value: Rs.10. The Bid Lot is 45 shares and purchases can be in multiples of 45 shares.

    Coffee Day to list shares on BSE, NSE on Nov 2

    There appears to be no discount for Retail investors.

  • None of the existing shareholders or promoters are diluting their stake. It is a fresh issue of shares. Amount proposed to be raised: Rs.1150 crores. Utilization of IPO proceeds:

ü Repayment of loans of Rs 633 cr.

ü Setting-up of new Café Network outlets and Coffee Day Xpress kiosks at a cost of Rs 88 cr.

ü Financing their coffee business for mfg and assembly of vending machines at a cost of Rs 97 cr.

ü Refurbishment of existing Café Network outlets and vending machines at a cost of Rs 60 cr.

ü Investments in a coffee roasting plant and coffee and tea packing facilities of Rs 42 cr.

ü Remaining proceeds for general corporate purposes.

  • It will be the biggest IPO to hit the capital market in three years, as per reports.
  • Coffee Day Enterprises is the holding company which also owns the Café Coffee Day chain, which is the coffee chain leader in India.

    Coffee day ipo issue price

    For convenience, we will refer to the holding company as CCD.

  • CCD had revenues of Rs 2549 cr. and losses of Rs 87.2 FY15.
  • Coffee Day has a network of 1,538 café outlets in 209 cities, with brand name “Café Coffee Day”. Coffee Day has a market share of 46% in the organized coffee retail business in India.
  • CCDgroup is into other businesses which include:


ü Production, processing and exports of Coffee

ü Technology Parks – a100% subsidiary, Tanglin Development is engaged in the management of technology parks, offering infra for IT-ITES enterprises, owns two tech parks.

ü Logistics – CCD’s subsidiary Sical Logistics provides integrated logistics solutions (52.8% stake).

ü Financial Services – CCD’s subsidiary, Way2Wealth Securities (85.53% equity holding), provides wealth management, broking, portfolio management and investment advisory to Retail.

ü Hospitality – CCDowns and operates three luxury boutique resorts under the brand TheSerai.

ü Investments – CCD has a 16.04% equity holding in Mindtree and a few other IT-ITES companies.

  • Promoter V.G.

    Siddhartha, holds 54.78% of the stake.

  • Other investors include: Infosys (NS:) co-founder NandanNilekani (1.77%), private equity firm KKR (3.43) and Rakesh Jhunjhunwala (0.24).Rakesh Jhunjhunwala and NandanNilekani had bought the share at approximately Rs 368/share in March 2015.
  • CCD will be investing mainly in the coffee business for the next five years.
  • CCD has a good presence of Coffee Shops in Tier I cities. Now it is expanding operations Tier-II cities and highways.

    Coffee Day Enterprises Ltd. (IPO)

    Theyalready operate 137 highway stores and there is huge potential in that market.

  • Sical Logistics is from a high potential sector. However it has shown flattish revenues and profitability over 5 years. To be a major player in this sector needs heavy investments.

    The corporate strategy appears to be to primarily invest in the CCD chain.

  • CCDplans to invest Rs. 450 cr. over 3 years to open 400 outlets, where 70% of new stores would come in cities where CCD already operates and the rest would come up in new cities and highways.
  • The Mindtree stake is worth Rs 1930 cr.

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    at current mkt cap. Similarly there are several assets on the books of CCD that can be liquidated if required.

  • The brew masters ofCCDwon the topmost awards at the world’s first ‘Women’s Brew master Championship’ held at Coffee Santhé 2015. CCD added five new savory choices of lite bites on their menu starting at Rs 39 to appeal youth in India titled their menu, ‘The High5 Menu’.

Business StrategyandNews

Industry Outlook

We capture details of the Indian chained Café and coffee vending business:

  • India is primarily a tea-drinking nation, and has witnessed a low consumption of coffee (exception of South India), with per capita consumption of 110g/year vis-à-vis 8 kg in developed countries.
  • The size of the organized café market is estimated to be Rs6,700 cr.

    in 2014 and is projected to grow to 15,100 cr. by 2020 at a CAGR of 15%. (CCD Red Herring Prospectus).

  • The chain café market is approximately 27% of the total organized café market at Rs.

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    1,800 cr in 2014 and is estimated to grow to 36% of the total organized market by 2020. The chain café market is estimated to grow at a CAGR of 20%. (CCD Red Herring Prospectus).

  • Over the past 5 years the café culture has grown, with many new cafés being added along with the entry of some international players. See Fig 1b.
  • In the chained café market Café Coffee Day is the largest player in terms of the number of outlets. With 1,538 outlets it has a market share of 46% followed by Barista at 5%.
  • Café Coffee Day has been a pioneer in introducing the bean-to-cup format in the café segment.

    This format has become popular in corporate offices where people value taste over convenience. Its share has also been increasing in the vending market.

  • CCD has a 17% market share in Coffee Vending Market, where Nestle and HUL have 33% and 27%.
  • CCD has a declining EPS trend since Mar2012.

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    CCD has been making losses since 3 years. Fig 2.

  • CCD’s revenue and EBITDA have grown 29.7% and 25% CAGR over 5 years. This is a big positive as it indicates that the business has grown the market and increased its share.

    Consumer tastes and preferences are rapidly moving towards the coffee culture.

  • On the flip side CCD’s losses have grown 25.95% CAGR over the last five years. In the current fiscal, CCD incurred a loss of Rs 87.2 cr.

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    It has a total debt of Rs 4,484 cr. as on 30th June 2015 which includes short & long term debt, and hence it incurs heavy interest costs.

Financials of CCD

CCD Consolidated Financials

  • CCD’s operations have been operational cash positive, but in 5 years they have been free cash flow positive only for two years.

    See Fig 3.

    Coffee day ipo issue price

    CCD also plans to invest another Rs 450 crores to open more outlets and may not have free cash flows for the next financial year too.

  • The financing costs stood at 12.8% of their total revenues this fiscal which is high.

    CCD’s hospitality business has been running on negative margins.

  • Coffee Day cash flow position

  • Strengths

    • CCD is currently the leader in Chained Coffee Café Outlets with 46% market share.

      It has strong revenues and EBITDA growth which is likely to continue as it’s a growth industry.

    • CCD’s has a powerful “Café Coffee Day” brand which has been built up over 2 decades.
    • The holding company Coffee Day Enterprises Limited has diversified business.

      LATEST MARKET NEWS - Coffee day Share Analysis - CCD Share - Hindi

      This helps focus resources on high potential businesses.

    • The financial services segment was making losses until 2014 and now it has finally turned profitable.

      Hence it is a good sign for the overall health of Coffee Group Enterprises.

    • The CCD strategy assumes that after a certain time and cash investment in a network of outlets and brand, the business becomes cash flow positive and profitable.

      Cafe Coffee Day IPO – Should you invest?

      Any changes in economic climate, competition or cost structures can affect these assumptions and potentially delay profitability.

    • CCD’snet indebtedness and their failure to comply with restrictive covenants under certain loan agreements could adversely affect their financial condition and results of operations.
    • The coffee business segment is fairly competitive, with several MNCs entering this area.
    • CCD require a number of approvals, licenses, registrations and permits for theirvarious outlets, vending machine business, distribution centers, coffee curing and roasting plants.

      Failure to obtain or renew them in a timely manner may adversely affect operations.

    Internal Risks

  • The company is dependent on a few suppliers for their raw materials and shortages or interruptions in the supply of products from third party vendors could increase costs or reduce their revenue.
  • Ballooning losses could restrict the growth and investment plans of CCD.
  • If the rate of Indian price inflation increases, CCD’s results of operations and financial condition could be adversely affected
  • A slowdown in economic growth in India could cause their businesses to suffer.
  • CCD already has a powerful, valuable brand.

    It can enhance this with controlled growth. In a few years, the business should become profitable and can be a wonderful business.

  • With an integrated presence in the coffee plantation to retail chain, CCD has the potential to be a global player, and can potentially compete successfully against Starbucks (O:).
  • CCD could continue to leverage their brands “Café Coffee Day” and “Coffee Day” to capitalize on the growth opportunities in vending and coffee retailing businesses.
  • CCD hasextensive knowledge and experience in setting-up café outlets gained over the past two decades.

    It has operational expertise which could enablethem to react quickly to market opportunities and to grow their business.

  • External Risks



    We benchmark CCD against listed firms in related businesses as the CCD café chain.


  • We can see that the debt equity ratio of CCD is high.
  • But EBITDA Margins and sales growth are impressive.
  • Valuations appear to be stretched, as CCD is looking for a market cap (at higher end of IPO range) which is over twice its revenues.
  • The CCD retail business is a high potential sector, on the premium consumption theme.The integrated operations of CCD derisks the business and assures high margins.

    Also CCD has priced its products attractively compared to its peers like Starbucks, Barista, Costa Coffee etc.

  • However CCD has been loss making since the last three years. The group has high debt and interest burden.

    The hospitality sector has negative margins.

    Café Coffee Day IPO: What you need to know

    Coffee Group has overleveraged its debt capacity and hence it is witnessing negative EPS.

Overall Opinion

  • The CCD retail business is a high potential sector, on the premium consumption theme.The integrated operations of CCD derisks the business and assures high margins.

    Also CCD has priced its products attractively compared to its peers like Starbucks, Barista, Costa Coffee etc.

  • However CCD has been loss making since the last three years. The group has high debt and interest burden. The hospitality sector has negative margins. Coffee Group has overleveraged its debt capacity and hence it is witnessing negative EPS.
  • Profitability appears to be 2-5 years away, post the consistent achievement of free cash flows.
  • The stage of growth of CCD appears early growth, and investments carry medium to high risks.
  • TheCCD IPO is rated average and isappropriate for investors with minimum 3 year perspective.
  • Disclaimer

    This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation.

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    This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security.


    The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. JM has no known financial interests in CCD or any related firm.

    Coffee day ipo issue price

    Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor.

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    Either JM or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication.

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