Coffee Day Enterprises IPO – Should you invest?
Bengaluru based, Coffee Day IPO will open for subscription on 14th October, 2015. Coffee Day is engaged into Coffee Business in India. Its revenues have grown by 2.2 times in last 5 years and it generated Rs 1,808.64 Crores revenues for 9 months ended Dec-14. Cafe Coffee Day is popular coffee shoppe which is part of Coffee Day Enterprises. You should go through complete article before taking any investment decision in this IPO. What are the positive factors of Coffee Day Enterprises IPO? What are hidden factors of Coffee Day IPO? Should you invest in such IPO?
About Coffee Day Enterprises Ltd
Coffee Day Enterprises is engaged in coffee business through its subsidiary, Coffee Day Global Limited and its subsidiaries. They are also engaged in coffee trading through CDEL and Coffee Day Trading Limited. In addition to having the largest chain of cafés in India, they operate a highly optimized and vertically integrated coffee business which ranges from procuring, processing and roasting of coffee beans to retailing of coffee products across various formats.
Issue details of Coffee Day IPO
- IPO opens: 14-Oct-2015
- IPO closes: 16-Oct-2015
- Face Value: Rs 10 per share
- Issue price band: Rs 316 to Rs 328 per share
- Minimum Shares: 45 shares and in multiples of 45 shares there-of
- Minimum amount: Rs 14,220
- Issue size: Rs 1,150 Crores
- Lead Managers: Kotak Mahindra Capital, Citigroup and Morgan Stanley
- Listing: BSE and NSE
- Download Coffee Day IPO Prospectus at this link
Purpose of the IPO
Company proposes to utilise the Net Proceeds towards funding the following objects:
A. Financing its coffee businesses
- Setting-up of new Café Network outlets and Coffee Day Xpress kiosks;
- Manufacturing and assembling of vending machines;
- Refurbishment of existing Café Network outlets and vending machines; and
- Setting-up of a new coffee roasting plant facility, along with integrated coffee packing facility and tea packing facility.
B. Repayment or prepayment of loans of Company and Subsidiaries; and
C. General corporate purposes
Company Financials (reinstated)
- Company generated revenue of Rs 1,096.91 Crores for the year ended Mar-11 and Rs 2,352.77 Crores for the year ended Mar-14. Its revenues for 9 months ended Dec-14 are Rs 1,808.64 Crores.
- Company posted a profit of Rs 17.5 Crores for the year ended Mar-11 and a loss of Rs 77.02 Crores for the year ended Mar-2014. It incurred loss of Rs 75.23 Crores for 9 months ended Dec-14.
- Its EPS for FY 2014 is minus Rs 6.83 and last 3 years average EPS is minus Rs 5.73. 9 months ending Dec-14 is minus Rs 7.97
Reasons to invest Coffee Day IPO
- Good revenue growth in last 5 years. It revenues increased by 2.2 times in last 5 years.
- No listed peers in such business model in India.
Reasons not to invest in Coffee Day IPO
- Company has been incurring losses in the last 3 years. Investors would not get any returns by way of dividends.
- Company demanding issue price of Rs 316 to Rs 328 per share for such loss making company.
- Company operations are conducted through its Subsidiaries. Therefore, its ability to pay dividends on the Equity Shares depends on company ability to obtain cash dividends or other cash payments from its Subsidiaries.
- Consolidated net indebtedness and company failure to comply with certain restrictive covenants under its loan agreements could adversely affect company financial condition and results of operations.
- There are outstanding litigations against the Company, Directors, Promoter, Subsidiaries and Group Companies.
- Certain of its Subsidiaries are involved in criminal proceedings, SEBI proceedings and have received adverse findings from SEBI, in the past, in relation to non compliance with securities laws.
- Company Promoter has provided personal guarantees and may in the future provide additional guarantees and/ or collateral of shares of the Company and certain Promoter Group companies to secure the loans availed by the Company, Subsidiaries and its Promoter Group companies. Its business, financial condition, results of operations, cash flows and prospects may be adversely affected by the invocation of all or any personal guarantees or enforcement of the collateral provided by its Promoter.
- Company has pledged certain equity shares held by it in certain Subsidiaries and associate companies.
- Some of its Group Companies has incurred losses in the last three financial years.
- Company has issued Equity Shares during the last one year at a price that may be below the Issue Price.
- Company success depends on the value, perception and marketing of its brands, most particularly, the “Café Coffee Day” brand.
- The coffee business segment is highly competitive.
- They are subject to risks associated with leasing space subject to long-term agreements and they may not be able to operate its Café Network outlets and Coffee Day Xpress kiosks successfully.
- Company relies on the skills and experience of its personnel to maintain the quality of company service.
- Its business is highly dependent on consumer preferences, the cafe-going culture and sales of food and beverage at Cafe Network outlets, F&G outlets and Coffee Day Xpress kiosks.
- Company closed its cafe outlets in the past, owing to various market factors which may affect its revenue and result of operations.
- Other risk factors (Internal and external) can be viewed in prospectus Page no. 24 onwards.
Recommendation / Investment strategy:
- Company is asking for issue price band of Rs 316 to Rs 328 per share. Its last 3 years average EPS and last 1 year EPS is minus, hence P/E ratio cannot be worked out.
- Though, Coffee Day Enterprises revenues have been growing consistently in last 5 years, it has been incurring losses in last 3 years. Investors would not get anything by way of dividends. Its asking price would not justify for such loss making company. I would advise investors to stay away from such IPO’s. In future, if it is able to generate profits, one can look to invest. As of now, just stay away.
Disclaimer: I do not have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.
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Coffee Day IPO – Should you invest