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Monday, October 12, 2015

Coffee Day Enterprises Ltd. (CDEL) IPO Review


Issue Highlights

Issue Period
14/10/15-14/10/16
Price Band (Rs.)
316-328
Issue Size(shares) #
3.63-3.50 crore
Issue Size (Rs.)
1150 crore
Issue Type
100% Book Built
Face Value (Rs.)
10
Listing
BSE,NSE
Industry
Indian chained café market, Logistics
Registrar
Link Intime India Pvt. Ltd.
Minimum Bid Quantity
45 shares
Maximum Retail Subscription
Rs. 1,91,880
BRLM
Axis capital, Edelweiss, Yes bank
# derived figure

Issue Details


Fresh Issue:  3,50,60,976 eq. shares
Equity Shares Outstanding Prior to the Issue: 11,67,32,408
Compulsorily Convertible preference shares (@ Rs. 10): 1,35,74,100
 Equity Shares Outstanding after the Issue: 15,17,93,384 #
 #derived figure

Objects of the Issue

(1)
Financing the coffee business
Rs. 287.5 crore
(2)
Loan Repayment
Rs. 632.8 crore
(3)
General Corporate Purposes
NA

Industry Profile

India is primarily a tea-drinking country especially in non-southern reasons but coffee culture is picking up with the rising prowess of the cosmopolitan culture coupled with the expansion drive of various domestic and international café brands. Per-capita coffee consumption in India was just 110 grams per year in stark contrast to developed world countries with the same being 8 KG per year.
The present organized café market in India is estimated to be Rs. 67 Billion and is supposed to grow at a CAGR of 15 % to Rs. 151 Billion by 2020. 

Company Profile

The company is country’s largest coffee outlet chain with a market share of 46 5 %.  CDEL carries out its businesses with its 40 subsidiaries
The  operates in 4 business segments- Coffee Business, Logistics, Financial Services and Technology Parks  contributing 50 %,37 %,7.5 % and 3 % respectively  of its consolidated revenue.
Presently CDEL boasts 1,423 CCD (Café Coffee Day) and 42 The Lounge outlets.
CDEL operates in the technology parks business through its wholly own subsidiary Tanglin Development Limited or TDL. TDL is engaged in development and management of technology parks and related infrastructure facilities for IT/ITES enterprises.
CCD enjoys leadership position
Sical Logistics Limited (SLL), the 52.83 % owned listed-subsidiary of CDEL, is involved in the business of logistics.
Way 2Wealth Securities Private Limited (W2W Securities) is an 85.53% owned subsidiary involved in the business of investment advisory.
The company is also involved in the hospitality business through its wholly owned subsidiary Coffe Day Hotels and Resorts Private Limited (CDHRPL) under the brand name of The Serai.
CDEL holds investment in few IT-ITES companies like Mindtree, Magnasoft, Global edge and Ittiam.


 Promoters & Marquee Investors

V G Siddharth is the CMD and promoter of the company holding around 55% of the pre-issue shares.
A few prominent investors are KKR Mauritius (3.43 %), Nandan Nilkani (1.77%) and Bennett & Coleman Co. Limited (1.17 %).

Risks & Threats

     (1)    The coffee business segment is highly competitive with competitors like Starbucks, Barista and Costa coffee besides the unorganized sector
      (2)    Though company has positive OCF but incurring net losses for past few years
     (3)    A significant number of outlets were closed for various reasons like non-renewal of lease, low revenue generation and the location turning out to be unfavorable. In future, with soaring real estate costs lease renewal shall be a major challenge
    (4)    Unorganized structure still rules the Indian food and beverage industry and many people still prefer to opt road side cheaper options
    (5)    The success of technology parks business depends on the overall condition of the real estate market
(   (6)    Its logistics business is a capital intensive one and may require further equity dilution or debt financing


Financial Profile #

Parameter
FY 15 Annualized
Total Liability to Net worth
10.7
Price to Book Value
10.7
Operating Cash to Sales
.2
AR collection Period (Days)
47
EV/EBITDA
22.5
M-Cap to Sales
2.1
Current Ratio
.9
# using upper end of the price-band and post issue OS shares

Inference

CDEL has a positive operating cash flow but it has been witnessing net losses for past few years as a major chunk of its revenue, is being eaten up  by the finance cost, other expenses and depreciation. Being a loss making company Return Ratios are meaningless and ratios like Price-to-Book and EV/EBITDA come handy.
Post-issue its Price-to Book is almost 11 whereas EV/EBITDA stands at 22.5.
These valuations are stretched for a loss making company like CDEL.
Even after the loan repayment to the extent of  Rs. 633 crore, a significant amount of debt shall be there on books,
Coffee business and Logistics constitute around 87 % of the total revenue whereas the businesses of financial services,technology parks and other businesses are still in their nascent stages.
Though CDEL is the pioneer of cafe culture in India but considering the per-capita coffee consumption in India,cut-throat competition, higher debts on the books and the stretched offer price of the issue, this issue does not seem that intriguing in the short to medium term and its short-term future might be more  influenced by the hype and exuberance of the market than the valuations.

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