Coffee Day Enterprises: Should You Invest
Manjiri Meshram / 14 Oct 2015
The Bengaluru based Coffee Day Enterprises (CDEL), which is parent company of Coffee Day Group (CDGL) that houses Café Coffee Day, is taping the primary market with an initial public offer. The company is raising Rs 1150 crore through issue of fresh equity. The price band of the issue is Rs 316- Rs 328. At the upper end of the price band the company will be issuing 3.15 crore of equity shares while at lower price band it will issue 3.64 crore of equity shares.
The Bengaluru based Coffee Day Enterprises (CDEL), which is parent company of Coffee Day Group (CDGL) that houses Café Coffee Day, is taping the primary market with an initial public offer. The company is raising Rs 1150 crore through issue of fresh equity. The price band of the issue is Rs 316- Rs 328. At the upper end of the price band the company will be issuing 3.15 crore of equity shares while at lower price band it will issue 3.64 crore of equity shares.
The company plans to use these funds for mostly repayment of debt and that too for the holding company. In addition to repayment of debt in the coffee retailing business, nearly 25 per cent of the fund raise will be used for setting-up of new café outlets, refurbishment of 240 cafes, manufacturing and assembling of vending machines and setting-up of a new coffee roasting plant facility, along with an integrated coffee packing facility and tea packing facility.
Issue Detail:
Issue Open: Oct 14, 2015 - Oct 16, 2015
Issue Type: 100 per cent Book Built Issue IPO
Issue Size: Equity Shares of Rs. 10
Issue Size: Rs. 1,150.00 Crore
Face Value: Rs. 10 Per Equity Share
Issue Price: Rs. 316 - Rs. 328 Per Equity Share
Minimum Order Quantity: 45 Shares
Listing At: BSE, NSE
Business and Financials
CDEL through its subsidiary CDGL operates the largest coffee chain business with over 1,538 stores across 219 cities in India with a market share of 46 per cent. The company has procuring, roasting, curing (60,000 MT) and roasting facilities which supplies consistent grade of coffee beans to its retail outlets. It also manufactures the vending machines used in its café outlets. Company’s brand Café Coffee Day ranked second in the Most Trusted Brands in the food service retail category in India. CEDL is a holding entity with varied and diverse business interests, ranging from Café chains to logistics to real estate and financial services. The company has 40 subsidiaries and 5 diverse and unrelated businesses. The coffee business accounted for about 51 per cent of CDEL’s turnover and 55 per cent of EBITDA over FY13-15.
The company has posted a CAGR of 16.7 per cent in its topline for the four year ending FY15 and was Rs 2479 crore for FY15. The EBITDA in the same period has increased at a CAGR of 15 per cent and was Rs 375.18 crore for FY15. However, Company has incurred losses in Financial Years 2013, 2014 and 2015, and the three-month period ended June 30, 201 of Rs 21.4 crore, Rs 77 crore, Rs 87.2 crore and Rs 20.04 crore, respectively. One of the reasons for such poor performance in the bottomline is higher interest burden of the company that has increased from Rs 123 crore at the end of FY12 to Rs 326 crore for FY15.
As of June 30, 2015, company’s consolidated net indebtedness totaled Rs 2762.25 crore (total debt in accordance with the restated consolidated financials less convertible debentures, less loans from related parties and cash and bank balance including fixed deposit and margin money deposit with bank).
Valuation
Coming down to the valuation of the company, since it is a loss making company we have used EV/EBITDA and price to book value (PBV) method to gauge the attractiveness of the IPO. At lower price band the EV/EBITDA comes to around 25 times, which looks expensive. Even on the PBV ratio of approx 3.92-4.07 on post issue book value of around Rs 80.53 per share, the issue seems to be steeply priced. Hence we advise our readers to stay away from the issue.
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