Coffee Day Enterprises Ltd (CDEL) – the holding company of popular Cafe Coffee Day (CCD) chain of coffee outlets – is expected to launch its INR1,150 crore initial public offering (IPO) by mid-October. Kotak Mahindra Capital, Citigroup Global Markets India, Morgan Stanley India, Axis Capital, Edelweiss Financial Services and Yes Bank will be handling the IPO. CDEL’s IPO application was cleared by SEBI last month in merely 49 days, marking the fastest turnaround by the regulator.
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Though the initial plan of CDEL was to launch the IPO this month after getting SEBI approval in August, poor market conditions and weak response to many IPOs made CDEL defer the plan.
CDEL raised INR100 crore in pre-IPO funding that valued the company for INR6,200 crore. Investors in the round included Rakesh Jhunjhunwala’s Rare Enterprises, value investor Ramesh Damani, Infosys co-founder Nandan Nilekani. While VG Siddhartha-led promoter group holds 92.74% stake in the company, private equity firm KKR and Nandan Nilekani make it to the list of major shareholders with 3.43% and 1.77% equity stake respectively. Standard Chartered Private Equity, New Silk Route and Bennett Coleman & Company Limited are other prominent investors in the company.
Though the price band is yet to be ascertained, the company will be eyeing valuation of at least INR6,200 crore – the same it was valued at in the previous funding round.
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Cafe Coffee Day was launched in 1996 and at present, it boasts of more than 1,470 cafes in India and internationally. The proceeds are intended to add 216 more in its home country by next year. Major chunk of the proceeds amounting to INR632.8 crore would be used to repay loans. The rest is reserved for expansion, manufacturing and assembling of vending machines and refurbishment of existing outlets. CCD’s competition includes new entrants like MacDonald’s McCafe, Starbucks and Costa Coffee. Despite the competition, CCD leads the market with the largest market share of 46% followed by 5% by Barista in terms of outlets.
Despite CCD’s immense reach and network, CDEL has more to it. Housing several other businesses many of which are unrelated, CDEL should be eligible for conglomerate discount and this is evident in the company’s financial performance in recent years.
Although the performance of recent IPOs can’t be termed encouraging, CDEL’s investor road shows have received positive reactions along with impressive institutional investment commitment. We will get to know in October if the market has enough liquidity for IPOs. Apart from CDEL, another large IPO of InterGlobe Aviation – parent of budget carrier IndiGo – is expected to hit the markets in October. At INR2,500 crore, Interglobe Aviation’s IPO will be the biggest in recent years.
