IPO Note | FMCG
October 12, 2015
Coffee Day Enterprises
NEUTRAL
Issue Open: October 14, 2015
IPO Note - Valuation expensive
Issue Close: October 16, 2015
Coffee Day Enterprises Ltd (CDEL) owns the coffee chain - Café Coffee Day, and is
Issue Details
the largest coffee retail company in India. The company also has diversified
business interests through its subsidiaries across segments like logistics, financial
Face Value: `10
services, hospitality, and technology parks.
Present Eq. Paid up Capital: `170.9cr
Strong brand equity with a substantial market presence: The company has strong
Fresh Issue**:3.5cr Shares
brand equity through its retail coffee chain - Café Coffee Day, which was ranked
Post Eq. Paid up Capital: `206.0cr
second in the Most Trusted Brands in the food service retail category in India by
The Economic Times, BE Survey, 2014. Café Coffee Day outlets enjoy wide
Market Lot: 45 Shares
preference and loyalty among the youth in the country, ie people in the age profile
Fresh Issue (amount): `1,150cr
of less than 35 years. Considering that this age group constituted ~65% of the
overall population of India as of FY2013 (source: Technopak, March 2015), the
Price Band: `316-328
company is in an advantageous position to leverage its business. Over the years,
Post-issue implied mkt. cap `6,510cr*-
the company has been successfully able to create a strong brand on its own
6,757cr**
without any international tie-ups. Its market share in terms of number of chained
Note:*at Lower price band and **Upper price band
café outlets as of December 31, 2014, stood at ~46%.
Strong pan-India coffee retail network targeting multiple consumption points and
Book Building
customer segments: Since the opening of the first outlet in 1996 in Bengaluru, the
QIBs
50%
Café Coffee Day network has expanded to 1,538 outlets, covering over 219 cities.
In addition, the company has 561 Coffee Day Xpress kiosks across 12 cities and
Non-Institutional
15%
412 fresh & ground (F&G) outlets across five states in India (as of June 30, 2015).
Retail
35%
The company also has 30,916 vending machines (as of June 30, 2015) which
serve corporate and institutional clients all over India. Through multiple
consumption points, the company covers high street malls, petrol stations,
Post Issue Shareholding Pattern(%)
highways, airports, hospitals, educational institutions and tourist attractions.
Promoters Group
52.6
Outlook and Valuation: CDEL, on a consolidated basis, has reported ~30% CAGR in
MF/Banks/Indian
revenue over FY2010-15 to `2,479cr. On the EBITDA front, the company reported a
FIs/FIIs/Public & Others
47.4
~26% CAGR over the same period. However, on account of higher depreciation and
interest costs, the company incurred a consolidated net loss of ~`87cr in FY2015.
CDEL has diversified across other businesses, which however have failed to deliver
impressive financial performances so far.
Considering negligible profits/reported losses of subsidiaries and the complex
holding structure of the company, we are of the view that the IPO is priced at a
slightly higher valuation. Thus, we recommend a NEUTRAL on the issue. Investors
having conviction in the long term growth prospects of the company and wanting
to tap this perceived opportunity could consider waiting for a possible correction in
the stock price post the listing of the IPO.
Key Financials
Y/E March (` cr)
FY2013
FY2014
FY2015
1QFY16
Net Sales
2,100
2,287
2,479
623
Net Profit/(Loss)
(21)
(77)
(87)
(20)
OPM (%)
14.3
13.9
15.1
16.4
P/BV (x)
6.0
7.0
7.3
-
RoCE (%)
2.8
1.7
2.7
-
Amarjeet S Maurya
EV/Sales (x)
2.9
2.8
2.5
-
+91 22 3935 7800 Ext: 6831
EV/EBITDA (x)
20.0
20.4
16.4
-
[email protected]
Source: Company, Angel Research; Note: *The above numbers are considering subscription at the
upper end of the price band
Please refer to important disclosures at the end of this report
1
Coffee Day Enterprises | IPO Note
Company background
Coffee Day Enterprises Ltd (CDEL) is the parent company of the coffee chain -
Cafe Coffee Day. It is the largest coffee retail company in India and in operation
since 1996. It owns a network of 1,538 cafe outlets, spread across 219 cities in
India. In addition to having the largest chain of cafes in India, the company
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. The company is one of the largest exporters of
Indian coffee beans, primarily to Europe, Japan and the Middle East.
In addition to the coffee business, the company operates select other businesses
that are aimed at leveraging India's growth potential, namely, development of
IT- ITES technology parks, logistics, financial services, and hospitality.
Exhibit 1: Café Network outlets across various cities in India
City in India
FY2013
FY2014
FY2015
1QFY16
Bengaluru
207
220
201
200
Chennai
84
92
94
95
Hyderabad
76
78
74
76
Kolkata
67
77
83
85
Mumbai
187
202
202
204
New Delhi*
208
225
207
211
Pune
74
78
75
74
Others
551
596
582
593
Total
1,454
1,568
1,518
1,538
Source: Company, Angel Research
Exhibit 2: Number of kiosks outlets in India
FY2013
FY2014
FY2015
1QFY16
Company Owned and operated
844
873
546
528
Franchised
75
72
33
33
Total
919
945
579
561
Source: Company, Angel Research
Exhibit 3: Vending machines placed at client premises
FY2013
FY2014
FY2015
1QFY16
Placed at clients premises
21,594
25,561
29,760
30,916
Source: Company, Angel Research
Exhibit 4: Revenue Mix of Café Network outlets
FY2013
FY2014
FY2015
1QFY16
Food
36.7%
36.5%
36.0%
32.7%
Beverages
56.5%
57.5%
59.1%
60.7%
Merchandise
6.8%
6.0%
4.9%
6.7%
Source: Company, Angel Research
October 12, 2015
2
Coffee Day Enterprises | IPO Note
Issue details
The company is raising money through an IPO via the book building process
aggregating to `1,150cr. Shares could be subscribed to in the price band of
`316-328 (face value of shares: `10/- each). The fresh issue of shares will
constitute ~17% (at the upper end of the price band) of the post-issue paid-up
equity share capital of the company.
Exhibit 5: Shareholding pattern
Particulars
Pre-Issue
Post-Issue
No. of shares
(%)
No. of shares
(%)
Promoter group
1082,67,296
63.3
1082,67,296
52.6
Others
626,73,448
36.7
977,34,424
47.4
Total
1709,40,744
100.0
2060,01,720
100.0
Source: Company, Angel Research
Objects of the offer and proposed utilization of IPO proceeds
Setting-up of new Cafe Network outlets and Coffee Day Xpress kiosks: ~`88cr
Manufacturing and assembling of vending machines: ~`97cr
Refurbishment of existing Cafe Network outlets and vending machines:
~`61cr
Setting-up of a new coffee roasting plant facility, along with integrated coffee
packing facility and tea packing facility: ~`42cr
Repayment of loans of the company and subsidiaries: ~`633cr
The balance amount would be utilized towards general corporate purposes
October 12, 2015
3
Coffee Day Enterprises | IPO Note
Key investment rational
Strong brand equity with a substantial market presence
The company has strong brand equity through its retail coffee chain - Café Coffee
Day, which was ranked second in the Most Trusted Brands in the food service retail
category in India by The Economic Times, BE Survey, 2014. Café Coffee Day
outlets enjoy wide preference and loyalty among the youth in the country, ie
among people in the age profile of less than 35 years. Considering that this age
group constituted ~65% of the overall population of India as of FY2013 (source:
Technopak, March 2015), the company is in an advantageous position to leverage
its business. Over the years, the company has been successfully able to create a
strong brand on its own without any international tie-ups. Its market share in terms
of number of chained café outlets as of December 31, 2014, stood at ~46%.
Strong pan-India coffee retail network targeting multiple
consumption points and customer segments
Since the opening of the first outlet in 1996 in Bengaluru, the Café Coffee Day
network has expanded to 1,538 outlets, covering over 219 cities. In addition, the
company has 561 Coffee Day Xpress kiosks across 12 cities and 412 fresh &
ground (F&G) outlets across five states in India (as of June 30, 2015). The
company also has 30,916 vending machines (as of June 30, 2015) which serve
corporate and institutional clients all over India. Through multiple consumption
points, the company covers high street malls, petrol stations, highways, airports,
hospitals, educational institutions and tourist attractions.
Other business segments
Logistics
The company’s subsidiary, Sical Logistics (SLL), in which it holds 53% stake, is one
of the leading logistic service providers with experience of over five decades. The
subsidiary is listed on the BSE and the NSE and has a market cap of around
`937cr. SLL’s surface logistics business encompasses pan-India transportation over
railways and roads, combined with value-added services viz. container freight
station facilities, warehousing, custom clearances and documentation, and
specialized cargo handling facilities.
Financial Services
CDEL holds 85% stake in Way 2 Wealth Securities Pvt Ltd. The subsidiary has
presence in the retail investment advisory business, and provides retail broking,
portfolio management services and wealth management services to its customers.
Hospitality
CDEL owns and operates three luxury resorts in the state of Karnataka. In addition,
it holds a minority stake in and manages a luxury resort in Andaman and Nicobar
islands.
October 12, 2015
4
Coffee Day Enterprises | IPO Note
Technology Parks
CDEL’s wholly owned subsidiary - Tanglin Development Ltd is engaged in the
development and management of technology parks and related infrastructure,
offering bespoke infrastructure facilities for ITITES enterprises. The company has
two technology parks, one in Bengaluru (Global Village) spread over an area of
114 acres (clear title of 91 acres) and another in Mangalore (Tech Bay) spread
over 21 acres. In Bengaluru, the company has developed and leased 2.8mn sq ft
and can further develop approximately 12.3mn sq ft of built-up office space. While
in Mangalore, it has developed and leased 0.3mn sq ft of space and can further
develop 1.8mn sq ft of office space.
Investments
The company also has investments in certain IT-ITES and other technology
companies such as Mindtree, Ittiam, Magnasoft, and Global Edge. It holds 16.8%
equity in Mindtree Solutions, which is listed on the BSE and the NSE.
October 12, 2015
5
Coffee Day Enterprises | IPO Note
Valuation
Coffee Day Enterprises Ltd (CDEL) is the parent company of the coffee chain -
Cafe Coffee Day, and is the largest coffee retail company in India. It owns a
network of 1,538 coffee outlets across 219 cities in India. In addition to the coffee
business, the company operates in areas aimed to leverage on India's growth
potential, namely, development of IT- ITES technology parks, logistics, financial
services and hospitality.
CDEL, on a consolidated basis, has reported ~30% CAGR in revenue over FY2010-15
to `2,479cr. On the EBITDA front, the company reported a ~26% CAGR over the
same period. However, on account of higher depreciation and interest costs, the
company incurred a consolidated net loss of ~`87cr in FY2015. CDEL has diversified
across other businesses, which however have failed to deliver impressive financial
performances so far.
Considering negligible profits/reported losses of subsidiaries and the complex
holding structure of the company, we are of the view that the IPO is priced at a
slightly higher valuation. Thus, we recommend a NEUTRAL on the issue. Investors
having conviction in the long term growth prospects of the company and wanting
to tap this perceived opportunity could consider waiting for a possible correction in
the stock price post the listing of the IPO.
Risks to upside
(a) Faster execution in terms of opening new retail outlets.
(b) Subsidiary companies turning profitable sooner than expected.
October 12, 2015
6
Coffee Day Enterprises | IPO Note
Consolidated Profit & Loss Statement
Y/E March (` cr)
FY2013
FY2014
FY2015
1QFY16
Total operating income
2,100
2,287
2,479
623
% chg
8.9
8.4
-
Total Expenditure
1,800
1,968
2,104
521
Raw Materials
606
575
645
164
Cost of integrated logistic services
602
689
673
120
Cost of traded commodities sold
11
47
13
0
Personnel Expenses
205
226
254
77
Others Expenses
376
431
519
160
EBITDA
300
319
375
102
% chg
6.5
17.6
-
(% of Net Sales)
14.3
13.9
15.1
16.4
Depreciation& Amortisation
203
249
266
67
EBIT
97
70
110
35
% chg
(27.4)
55.7
-
(% of Net Sales)
4.6
3.1
4.4
5.7
Interest & other Charges
210
278
326
83
Other Income
50
66
69
12
Recurring PBT
(64)
(142)
(147)
(36)
% chg
122.0
4.0
-
Prior Period & Extraordinary Exp./(Inc.)
-
-
-
-
PBT (reported)
(64)
(142)
(147)
(36)
Tax
10
(3)
12
4
(% of PBT)
(15.8)
2.5
(8.3)
(12.2)
PAT (reported)
(74)
(138)
(159)
(40)
Less: Minority interest (MI)
(7)
(14)
(18)
(2)
Add: Share in profit / (loss) of asso.
60
75
90
23
PAT after MI (reported)
(21)
(77)
(87)
(20)
October 12, 2015
7
Coffee Day Enterprises | IPO Note
Consolidated Balance Sheet Statement
Y/E March (` cr)
FY2013
FY2014
FY2015
1QFY16
SOURCES OF FUNDS
Equity Share Capital
16
16
16
118
Reserves& Surplus
634
540
516
338
Shareholders Funds
650
556
532
456
Minority Interest
488
498
512
514
Total Loans
2,847
3,578
3,550
3,874
Deferred Tax Liability
30
27
29
26
Total Liabilities
4,015
4,659
4,622
4,870
APPLICATION OF FUNDS
Net Block
1,890
1,995
1,981
1,990
Capital Work-in-Progress
749
841
997
1,029
Goodwill
496
492
498
498
Investments
381
431
516
532
Current Assets
1,735
1,934
2,019
2,133
Inventories
162
175
126
110
Sundry Debtors
313
280
334
290
Cash
346
521
743
886
Loans & Advances
766
788
649
665
Other Assets
149
170
168
182
Current liabilities
1,238
1,036
1,392
1,315
Net Current Assets
497
899
628
819
Deferred Tax Asset
1
2
3
3
Mis. Exp. not written off
-
-
-
-
Total Assets
4,015
4,659
4,622
4,870
October 12, 2015
8
Coffee Day Enterprises | IPO Note
Consolidated Cash Flow Statement
Y/E March (` cr)
FY2013
FY2014
FY2015
1QFY16
Profit before tax
(64)
(142)
(147)
(36)
Depreciation
203
249
266
67
Change in Working Capital
(50)
(2)
88
67
Interest / Dividend (Net)
170
245
285
75
Direct taxes paid
(47)
(17)
(21)
(10)
Others
(0)
(27)
1
1
Cash Flow from Operations
212
306
471
163
(Inc.)/ Dec. in Fixed Assets
(930)
(292)
(168)
35
(Inc.)/ Dec. in Investments
(52)
(50)
(85)
(16)
Cash Flow from Investing
(982)
(341)
(253)
20
Issue of Equity
101
-
100
-
Proceeds from / (redemption of)
-
-
-
(71)
preference shares
Inc./(Dec.) in loans
799
362
191
237
Dividend Paid (Incl. Tax)
(3)
(3)
-
-
Interest / Dividend (Net)
(198)
(272)
(303)
(79)
Cash Flow from Financing
700
87
(12)
87
Inc./(Dec.) in Cash
(70)
51
205
270
Opening Cash balances
277
207
258
463
Closing Cash balances
207
258
463
733
Key Ratios
Y/E March
FY2013
FY2014
FY2015
Valuation Ratio (x)
P/CEPS
30.1
35.1
36.5
P/BV
6.0
7.0
7.3
EV/Sales
2.9
2.8
2.5
EV/EBITDA
20.0
20.4
16.4
EV / Total Assets
1.1
1.1
1.0
Per Share Data (`)
Cash EPS
10.9
9.4
9.0
Book Value
55.0
47.1
45.1
Returns (%)
ROCE
2.8
1.7
2.7
Angel ROIC (Pre-tax)
3.5
2.2
3.9
October 12, 2015
9
Coffee Day Enterprises | IPO Note
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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October 12, 2015
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