India’s biggest chain of coffee outlets: Café Coffee Day (CCD) has finally decided to go public. Against a rough valuation of $1 billion or Rs 6300 crore; CCD plans to raise approximately $180 million or Rs 1150 crore by selling their shares to general public.
We had reported last year about speculations of such an IPO, considering that CCD was in urgent need of capital to reduce debt and for expansion and growth.
CCD filed a draft red herring prospectus yesterday, wherein they have stated that Rs 632 crore from the raised funds would be used to repay their loans and the rest of the amount would be used to open new outlets and stores. During the next two years, CCD is planning to open 215 outlets and 105 kiosks.
Kotak Mahindra Capital, Citigroup Global Markets and Morgan Stanley were hired as global book running lead managers and Cyril Amarchand Mangaldas was the legal counsel to the firm.
Started in 1996, Café Coffee Day has now expanded to 1600+ outlets across 28 Indian states. Internationally, they have presence via 16 outlets in Pakistan, Austria, the Czech Republic and Malaysia and UAE. As per the filing, CCD has a debt of Rs 2864 crore as of December 31, 2014.
For the 9 month period ending on December, 2014, CCD had posted consolidated revenue of Rs 875 crore, against a net loss of Rs 10.9 crore. VG Siddhartha, the main promoter of the company holds 54.78% stake in the venture, while the rest of the stake is being held by various investors including Nandan Nilekani, co-founder of Infosys.
As per inputs derived from various experts, there are three main problems which CCD needs to overcome for more profits:
– Compared to the Western countries, India coffee outlet customers prefer to spend hours inside the place. In Western countries, the concept of takeaway is more prevalent, which increases the revenue. To counter this, CCD needs more outlets and more kiosks.
– Due to poor locations, CCD had to shut 300 outlets during the last three years. In the filing as well, they have mentioned that they will close 20-30 outlets every year owning to low revenues. Hence, selection of the best location is paramount for CCD in future.
– Competition from Starbucks and Barista is threatening CCD. Starbucks, which is world’s biggest coffee chain, have molded their Indian operations to serve tea and Indian snacks; and it seems that CCD will need to reinvent themselves, if they wish to thwart the competition.
SEBI will require 2-3 months to approve this IPO filing; and once its done, the listing would be done within a month.
The profitability started getting effected 5 years back. 3 years back it came to zero. Since last 3 years losses are going up. Still I don’t blame CCD. It takes lots of cash to start an outlet. CCD is growing up so fast, they might have taken lot of debt. It takes long to break even while the cost of financing debt is still high in India. Once they retire some debt CCD will become green. Barista or Starbucks is not the problem. There is so much business, CCD will continue to grow.
Only glitch is nowadays IPOs are not giving the benefits which investors want. I checked with 2 of my friends. They confirmed they are not subscribing. They will wait for the listing. I will apply for the minimum lot without locking up money. What ever is your subscription (7K or 2L), they will allot by lottery. If I get, it is a real lottery. If not nothing to worry. Just have blocked 7K for 15 days.
Just my two paisa :)