IPO Report on Cafe Day Enterprises Limited

COMPANY OVERVIEW

Coffee Day Enterprises Ltd (CDEL) is the parent company of Coffee Day Global Ltd which is into the business of coffee  retail chain of Cafe Coffee Day (CCD). CCD has create the coffee chain segment culture in India. It opened its first CCD outlet in Bengaluru in 1996 and has now established the largest market of cafe outlets in India. The company had 1,538 cafe outlets across 219 cities. In terms of market share, it hold 46% market share in the organised coffee market with its cafe market being nearly four times larger than the its competitors.

Apart from coffee business, CDEL also operates in other businesses via its subsidiaries or through stake in the company, namely, development of IT-ITES technology parks, logistics, financial services, hospitality and IT/ITES. 

The company has 16.0% stake in a listed IT company, Mindtree. Further, it also has a controlling 52.83% stake in the listed logistics company, Sical Logistics.

SECTOR OVERVIEW

• PRODUCTION

India is the sixth largest coffee producer globally. India’s coffee production was 0.30 million MT in Financial Year 2014 and estimated to be 0.33 million MT in year Financial Year 2015, growing at a CAGR of 4% from F.Y 2009 to ‘15. India produces both Arabica and Robusta coffee beans, but the share of Arabica in total production is slowly declining. In Financial Year 2015, it is estimated that Robusta will contribute 69.4% to the total production.

Coffee-growing regions in India are located in South India, mainly in the state of Karnataka, Kerala and Tamil Nadu. Karnataka is the largest coffee growing state in the nation contributing 71% of the total coffee production. Karnataka and Kerala are mainly Robusta growing states whereas Tamil Nadu produces both Arabica and Robusta.

• INDIAN CAFE MARKET

In present situation, India has moved aggressively towards cafes. Due to entry of new players,  increase in consumer purchasing power, high exposure towards cafe market so CCD is gradually expanding its number of outlets which has increased to about 1500 outlets. The size of the organized café market is estimated to be 67 billion in 2014 and is projected to grow to 151 billion by 2020 at a CAGR of 15%.

RISK AND CONCERNS OF THE COMPANY

1. Tough competition from competitors like BARISTA LAVAZZA, COSTA COFFEE, STARBUCKS.
2. Most of the property are lease term on which company pay significant amount of its operating expenses.
3. The company has not registered its TRADEMARK.

OBJECTIVE OF ISSUE OF SHARES

For the expansion of the business & new set up      287.5

Repayment or pre-payment of loans                          632.8

For general corporate purpose & issue expense        229.7

TOTAL         1150

BOOK RUNNING LEAD MANAGERS

• Kotak investing banking.
• Yes bank limited.
• Axis capital limited.
• Morgan Stanley.
• Edelweiss financial services limited.

MANAGEMENT

• V G Siddhartha – Chairman & Managing Director
• MalavikaHegde – Non Executive Director
• Sanjay Om Prakash Nayar- Non Executive nominee Director
• S V Ranganath – Independent Director
• Albert Hieronimus – Independent Director
• M D Mallya – Independent Director

Litigation involving company

Indirect Tax   – no. of cases 1     – amount    0.763 crores

Litigation against Directors

Civil     –     no. of cases 4   -amount   nil

Litigation against promoters

Direct Tax- no. of cases 1–   amt involved nil

civil   – no. of case 4      – amount    2.365 crore

Litigation against subsidiaries

Criminal      no. of cases 6 –  amt   2.1 crore

Civil              no. of cases  2 –  amt  1 crore

Direct Tax-    no. Of cases 4 –    amt 168.1crore

Indirect tax   no. of cases  4   –  amt   20 crore

Others           no. of cases   2   – amt    2 crore

Read: Understanding Initial Public Offer (IPO)

FINANCIAL OF THE COMPANY

According to financial analysis the financial status of the company is not good. We can see in the Balance sheet of the company that current liabilities  is more than co.’s net worth and also we can find  that the company is making a continuous loss from F.Y 13 TO 15.

PEER GROUP ANALYSIS

Compared to peer group companies such as Starbucks coffee, Dunkin coffee, Barista and costa coffee, CCD having better market  performance.

RECCOMENDATION

We can conclude from the above analysis that the company holds a good market share. The Company has a strong business model and is ready to face competition with its pan India presence. However company’s financial position is not providing a better picture for investment purpose and the company is making a continuous loss from the last consecutive three years. We can also see that company is reducing its Reserve and surplus  and increasing its liability( short+ long term). So I believe we should wait to apply for the IPO and once the share gets listed on the exchange, depending upon the company’s financial performance and share price,  we can possibly think to invest. 

You can learn basic insight of IPO and IPO case studies in NSE Academy Certified Stock Market For Beginners Courses on Elearnmarkets.