Coffee Day Enterprises Ltd, which runs India's top coffee chain under the Cafe Coffee Day (CCD) brand among other businesses, has filed its documents with securities market regulator Securities & Exchange Board of India (SEBI) to float its initial public offer (IPO).
The Bangalore-based company that had roped in a string of private equity backers, including KKR, is looking to raise Rs 1,150 crore ($181 million) in its IPO. This would make it one of the largest IPOs in the recent times and would top the public issue of Inox Wind, that went public in March this year.
As per disclosures, the company raised Rs 100 crore from a group of private investors including Infosys co-founder Nandan Nilekani, ace private investors Rakesh Jhunjhunwala and Ramesh Damani. Nilekani led the round with Rs 75 crore.
Given the pricing of these shares and the subsequent bonus issue, the company is eyeing a valuation of around Rs 6,800 crore (1.06 billion), as per VCCircle estimates.
CCD, an early mover in the coffee chain business successfully fended off competition from Barista (later acquired by Italy's Lavazza) among others. However, it now faces a challenge as US-based Starbucks, the world's top coffee chain, is aggressively expanding in the country with its joint venture with Tata Global Beverages.
Notably, none of the PE investors is looking to cash out in the IPO.
Here's a snapshot for the IPO:
Issue comprises entirely of fresh issue of shares to raise RS 1,150 crore; Rs 15 crore of the overall issue to be reserved for employees.
Bankers: Kotak Mahindra Capital, Citigroup, Morgan Stanley,Axis Capital, Edelweiss and Yes Bank.
Use of proceeds:
More than half of the total is to be used to repay debt (Rs 632.8 crore) with the rest for setting up new Café Network outlets and Coffee Day Xpress kiosks (Rs 87.7 crore); manufacturing and assembling of vending machines (Rs 97.3 crore); refurbishment of existing Café Network outlets and vending machines (Rs 60.58 crore); and setting up a new coffee roasting plant facility, along with integrated coffee packing facility and tea packing facility (Rs 41.8 crore). The rest will be used for general purposes.
Company:
Coffee Day Enterprises is the parent company of the Coffee Day Group, which houses Café Coffee Day. Its coffee business also straddles the entire value chain including processing and roasting of coffee and trading. In addition to the core coffee business, it is also engaged in development of IT- ITES technology parks, logistics, financial services, hospitality and IT-ITeS.
The company, promoted by VG Siddhartha, opened its first Café Coffee Day outlet in Bangalore in 1996 and has established the largest footprint of café outlets in India, with a network of 1,472 outlets spread across 209 cities in India and a few overseas markets such as Austria, Czech Republic and Malaysia, as of December 31, 2014. In terms of the number of chained café outlets, it claims a market share of approximately 46 per cent in India (source: Technopak). It also operates 590 kiosks.
Besides the coffee chain, it has a vending machine business with 28,777 units installed in corporate and institutional workplaces. The firm also has 424 outlets of Fresh & Ground, selling exclusive blend of coffee powder.
The coffee business is housed under Coffee Day Global Ltd (earlier known as Amalgamated Bean Coffee Trading Company Ltd) and its subsidiaries. The coffee business unit's revenue rose from Rs 1,070.37 crore to for the ended March 31, 2012 to Rs 1,1541.92 crore in FY14. Its EBITDA rose much faster in the same period from Rs 147.8 crore to Rs 189.47 crore. In the first nine months of the last fiscal (April-December 2014), the company churned out revenue of Rs 881.9 crore with EBITDA of Rs 150.23 crore from the coffee business. It generates half of the overall turnover and consolidated EBITDA from coffee business.
Under the non-coffee business, it's wholly-owned subsidiary Tanglin Development Ltd has two technology parks, namely Global Village in Bangalore and Tech Bay in Mangalore. It holds majority stake in public listed Sical Logistics Ltd. Its subsidiary Way2Wealth Securities Pvt Ltd is a retail focused investment advisory company which provides wealth management, broking, portfolio management and investment advisory services. It also owns and operate three luxury boutique resorts under the brand The Serai with resorts located in Chikmagalur, Bandipur and Kabini. In addition, it holds a minority interest in and manages a luxury resort located in Andaman and Nicobar Islands. It also has investments in certain IT-ITES and other tech companies such as Mindtree, Ittiam, Magnasoft and Global Edge.
Financials:
The company's consolidated revenue from operations grew from RS 670 crore in FY10 to Rs 2,281.9 crore in FY14. In the same period the firm's operating profit rose from Rs 144 crore to Rs 384.5 crore and net loss rose from Rs 27.5 crore to Rs 77.03 crore. For the first nine months of FY15, it generated income from operations of Rs 1,759.7 crore with EBITDA of Rs 310 crore and net loss of Rs 75.2 crore.
The debt repayment, as envisaged from the IPO proceeds, could boost its margins going forward. As of December 31, 2014, it had long term borrowings of Rs 3,188 crore.
Investors:
New Silk Route is the lead private equity investor in the company and would hold around 12 per cent stake post issue while KKR would own just under 10 per cent and Standard Chartered PE would hold around 7-7.5 per cent post IPO, as per VCCircle estimates.
Then there are a few other small investors like Aditya Birla PE, which bought some shares from promoter V G Siddhartha and later subscribed to non convertible debentures of the company.
Nandan Nilekani, who invested Rs 75 crore in the company and led the funding round in March this year, will own a little over 1 per cent post the IPO. Jhunjhunwala and other shareholders including ad-for-equity media investor Bennett, Coleman & Co Ltd will own under 1 per cent post IPO.