Bengaluru-based Coffee Day Enterprises Limited (CDEL) – parent of Cafe Coffee Day chain of restaurants – has filed its draft red herring prospectus (DRHP) with market regulator SEBI. The initial public offer (IPO) will be managed by Kotak Mahindra Capital, Axis Capital, Citigroup, Morgan Stanley, Edelweiss Financial Services, YES Bank.
As we reported earlier, CDEL plans to raise INR1,150 crore from the IPO which will only involve issue of fresh shares. As such, there will not be any offer for sale (OFS), although the high-profile company counts Infosys co-founder Nandan Nilekani, investor Rakesh Jhunjhunwala’s Rare Enterprises and stock broker Ramesh Damani among prominent investors.
Use of funds
Out of the INR1,150 crore, CDEL plans to use INR632.8 crore towards repayment of loans while INR87.7 crore will be used for expansion of its retail network. Included in its expansion plans are 216 new outlets and 105 Coffee Day Xpress kiosks by FY 2016/17. Another INR97.3 crore will be invested in manufacturing and assembling of vending machines. The company has also earmarked INR60.6 crore for refurbishment of existing outlets and vending machines while setting-up of a new coffee roasting plant near its existing facility in Chikkamagaluru will involve INR41.9 crore. Following the investment, CDEL’s roasting capacity will double to 14,000 metric ton (MT) per annum.
Cafe Coffee Day: Key behind CDEL’s success
While the group’s history dates back to 1870, it is the success in the retail business in recent decades which has attracted the big names mentioned above to invest in the company. Apart from the popular coffee chain, CDEL’s holdings include Coffee Day Hotels and Resorts Pvt Ltd, Global Technology Ventures Ltd and Tanglin Developments Ltd.
After opening its first Cafe Coffee Day outlet in 1996, the group has been consistently expanding its footprint which stood at 1,472 outlets across 209 cities as on December 2014. While this may not come across as large enough for a big country like India, Cafe Coffee Day’s market share of 46% put things in perspective. Here is another statistic – Starbucks celebrated opening of its 50th outlet last July. Starbucks, Costa Coffee, and Barista are Cafe Coffee Day’s major competitors but quite frankly, they are nowhere close even when combined.
From the initial looks, non participation of existing shareholders and the company’s plan to reduce debt levels come across as big positives. We intend to come up with detailed analysis of the issue of the company’s financial performance in coming days. Keep coming back.