Coffee Day Enterprises (CDEL) is entering the market with an initial public offer (IPO) to raise Rs 1,150 crore at a price band of Rs 316-328 per equity share. The company owns the popular coffee chain – Café Coffee Day – and is the largest coffee retail company in India. The company also has diversified business interests through its subsidiaries across segments like logistics, financial services, hospitality, and technology parks.
The Coffee Day Enterprises IPO will open for subscription on October 14 and close on October 16.
The entire issue is for fresh equity which would be used by the company to finance the expansion of its coffee business, repayment and pre-payment of loans to the parent company as well as subsidiary and utilise the rest for general corporate purposes. At present, its promoters hold 63.3 per cent stake in the company; post-issue the shareholding will come down to 52.6 per cent.
CDEL, on a consolidated basis, has reported around 30 per cent CAGR in revenue over FY2010-15 to Rs 2,479 cr. On the EBITDA front, the company reported a 26 per cent CAGR over the same period. However, on account of higher depreciation and interest costs, the company incurred a consolidated net loss of around Rs 87 cr in FY2015.
Data Source: Angel Broking
Here is what experts say on the IPO of Coffee Day Enterprises:
CDEL has the largest number of consumer touch points compared to any other company operating in the café retail space. With a sprawling network of 1,538 Café Coffee Day outlets across 219 cities in India and 561 Coffee Day Xpress kiosks, CDEL is better positioned than its competitors to capture the benefits of rising middle class income levels, which would aid in increasing discretionary consumer spending.
ICICI Securities believes CDEL, on the back of the Café Coffee Day business, would be a major beneficiary of a revival in urban discretionary consumption. At the price band of Rs 316-328, a target market cap and EV at the upper end of the price band would be Rs 6,756 crore and Rs 10,510 crore, respectively. Given the investment value of the IT, logistics, real estate & hospitality businesses is Rs 5,025 crore, the coffee business is available at 4.3x EV/sales which is around 15 per cent discount to global coffee chain Starbucks. The brokerage house recommends ‘Subscribe’
CDEL has diversified across other businesses, which however have failed to deliver impressive financial performances so far. Considering negligible profits/reported losses of subsidiaries and the complex holding structure of the company, Angel Broking believes that the IPO is priced at a slightly higher valuation. Thus, the brokerage house recommend a ‘Neutral’ on the issue. Investors having conviction in the long term growth prospects of the company and wanting to tap this perceived opportunity could consider waiting for a possible correction in the stock price post the listing of the IPO.
The brokerage house advises investors to avoid subscribing. Most of the proceeds will be used to repay the debt and less than 50 per cent will be used for expansion plans of its coffee business. Moreover the consolidated net loss has witnessed a rising trend in last 3 years. We expect the issue is valued at par and there would barely be any significant gains on listing and going forward.
At the higher end of the issue price, adjusting for the valuation of the listed plays (SLL and Mindtree) along with IT play, the coffee business is available at 25-26x its FY2015 EV/EBITDA which is in line with some of the listed comparable companies and thus is not cheap. However, given the strong brand image, extensive distribution reach and growing disposable income in India, the company is an attractive play on urban discretionary consumption and investors could look at it with mid-to-long term investment horizon.
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