With Café Coffee Enterprise’s IPO opening up this week, a lot of people seem so excited that their favorite brand is getting listed, while some are suggesting to just “avoid” the issue. The interviews with the proprietor and the future plans of the company are convincing, yet the books of the company may take you away from it. To make a smart decision here’s what you must know about the company, its business and financial before putting your money for it in the primary market.
About the company
Coffee Day Enterprise has 40 subsidiary companies. All of its business is carried out by these, with not much operational activities in the hand the parent company. Therefore the profits of the company depend on how its subsidiaries and other investments perform. Its business is fractioned into four major tranches:
The company is more than just a “coffee chain company”. The proprietor VG Siddhartha is so very positive about the growth of the company that in an interview he said, “We are only 1,550 stores and around 31,000 vending machines and 12,000 corporates. So there is a lot of potential to grow”… comparing itself with coffee big daddies.
“Café Coffee Day” is a huge brand, widely recognized. The company’s success and fame truly depends on this. The first CCD outlet started brewing in 1996 in Bangalore and added up to more than 1500 cafés now. Amalgamated Bean Coffee Trading Co. runs this brand under its parent Coffee Day Group.
Subsidiaries and investments.
Its Coffee day group includes Coffee Day Beverage, Coffee Day Fresh & Ground, Coffee Day Exports and Coffee Day Hotels &Resorts. In non-coffee business its subsidiaries are Tanglin Development Ltd. (technology parks), Sical Logistics Ltd (logistics), Way2Wealth Securities (financial services), Coffee Day Hotels & Resorts Private Limited (hospitality).
Coffee Day Enterprise owns 16% of MindTree and other IT-ITES companies such as Ittiam, Magnasoft and Global Edge.
The company can be counted in the coffee industry, quick service restaurant (QSR) sector and also in beverage retail business. All of which are highly competitive.The size of QSR market is around Rs. 137 billion and is projected to grow at 19%CAGR by 2020.
In the cafeteria business CCD enjoys 46% market share in India and ahs aggressive expansion plans. Its competitors include Starbucks, Dunkin, Barista, Costa Coffee and a few individual cafés.
The Indian Food service market is sized Rs. 2,728 billion and is expected to grow at 11% CAGR by 2020.
On a consolidated basis the company has been incurring losses for quite a long time now. As per the data in the prospectus, it’s a loss making company since 2012. The financial performance of the company for last five years has been like this:
Costs: opening a store costs around Rs. 37 lakhs across 3 years. The breakeven (PBIT) can be achieved in 12 to 15 months depending on the location.
Private equity now
The private equity investors KKR, New Silk Route have put their money in for the coffee company.
Use of capital/ Objects of the issue
The money you invest in this company will be used for the following purpose.
• Repayment of debt
• Out setting new Café Network outlets and Café Xpress kiosks,
• Manufacturing vending machines
• Renovating existing cafeterias
• Setting a new coffee roasting plant.
IPO highlights and facts
Issue of CCD will be open from Oct 14th to Oct 16th and the price band of the issue has been finalized at 316-328 per share. The trading of the CCD share on NSE/BSE will start from November 2nd.
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Disclaimer : All matter published here is purely for information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial adviser prior to making any actual investment decisions, based on information published here in this IPO. The writer cannot be held liable for any loss arising by following this article.