Technology

Coffee Day Enterprises Ltd (CDEL) owns the coffee chain – Café Coffee Day, and is the largest coffee retail company in India. The company also has diversified business interests through its subsidiaries across segments like logistics, financial services, hospitality, and technology parks.
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 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.
Outlook and Valuation: 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.

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