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Business News/ Companies / Cafe Coffee Day may push back IPO by 9-12 months
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Cafe Coffee Day may push back IPO by 9-12 months

The coffee shop chain looks to shore up its financial performance and cope with increasing competition, including from Starbucks

CCD has seen its sales growth drop over the past two years because of slowing economic growth and high inflation which has hurt demand. Photo: HTPremium
CCD has seen its sales growth drop over the past two years because of slowing economic growth and high inflation which has hurt demand. Photo: HT

Mumbai: Cafe Coffee Day (CCD), founded by V.G. Siddhartha, is likely to push back plans to raise money through an initial share sale by another 9-12 months as the coffee-shop chain looks to shore up its financial performance and cope with increasing competition, including from the world’s best known coffee chain, Starbucks.

In addition, a decision is yet to be taken on whether the listing should be of the holding company—Coffee Day Enterprises Pvt. Ltd (CDEPL)—or the coffee chain itself, said three investment bankers and an investor familiar with the development.

Bangalore-based CCD didn’t respond to an e-mail seeking comment.

Media reports earlier this year had mentioned both options. The reports had valued the coffee chain at $1 billion.

CCD has seen its sales growth drop over the past two years because of slowing economic growth and high inflation which has hurt demand. Alongside, increased competition in India’s dining and fast food market has eaten into the coffee chain’s market share.

The Coffee Day Group, whose holding company is CDEPL, owns Amalgamated Bean Coffee Trading Co. Ltd (ABCTL), which runs the CCD chain across India and eastern Europe. CDEPL also owns a 53% stake in publicly traded firm Sical Logistics Ltd through its unit Tanglin Retail Realty Developments Pvt. Ltd. The holding company also operates a real estate arm Tanglin Developments Ltd, a financial services firm way2wealth.com, and a luxury resort in Chickmagalur in Karnataka.

The promoters, Siddhartha and his associates, own around 70% of CDEPL, with the rest being held by private equity investors KKR and Co., New Silk Route and Standard Chartered.

Sequoia Capital India had a stake in ABCTL that was bought back by the promoters.

“The IPO is still 9-12 months away as the company has not even hired a single banker for the issue. We prepared our pitch and met the company’s executives but they are yet to take a decision and are still in the process of meeting people," said the managing director of a domestic investment bank who did not wish to be identified.

Bankers are citing a decline in the cafe chain’s financial performance as the chief reason for the delay in the share sale.

CCD has 1,640 outlets across India. Started in 1996, the coffee-shop chain has a presence across 200 towns and cities in the country.

In August, Brickwork Ratings assigned credit ratings for debentures of one of the group’s companies and reported the holding company’s financial performance. As of financial year 2013, CDEPL’s total operating revenue was 7.69 crore, compared with 13.85 crore in the previous fiscal. According to the ratings firm, provisional reported revenue for 2013-14 was 44.47 crore.

CDEPL’s estimated net worth in financial year 2013 was 1,184 crore and in 2014, 1,091 crore. Its long-term debt halved to 98 crore that year, compared with 201 crore the previous year.

ABCTL, which is also into other allied businesses including the export of coffee, reported a 5.2% increase in sales to 1,126.4 crore for the year ended 31 March 2013, according to the latest documents available with the registrar of companies. Its losses narrowed to 4.66 crore for the same year from 6.49 crore in the previous year.

An executive at one of the private equity firms that have invested in CDEPL said that the delay in filing of documents was being caused by the fact that the promoter is yet to decide on the entity that it wants to list.

The chain’s rapid growth has put pressure on profitability, added this person who asked not to be identified.

“In India the concept of listing a holding company has not worked out quite well, as the valuations are not fair and justifiable. In some cases, the valuation of subsidiary companies is at least 40% more than the market capitalization of the listed parent company," said Dara J. Kalyaniwala, vice-president, investment banking, at PL Capital Markets Pvt. Ltd.

A second banker who has pitched for the mandate said that listing of the holding company would provide liquidity to the other businesses of the group which are significantly smaller and cannot be listed individually.

On 27 May, Bloomberg reported that CCD, valued at $1 billion, was planning to raise money through a public share sale and would file its papers with the capital markets regulator Securities and Exchange Board of India (Sebi) later.

Of the eight investment bank officials Mint spoke to, six banks said that they have pitched for a domestic listing for the parent company.

According to VCCEdge, the financial data platform of VCCircle, CDEPL raised $149.07 million from KKR India Advisors Pvt. Ltd, New Silk Route PE Asia Fund LP, Standard Chartered Private Equity Fund in February 2010. Later in October 2012, it raised another $8.5 million from Brand Capital. The same year, Aditya Birla Private Equity-Fund I invested $10 million in the company. The data further shows that in the previous round of funding between 2006 and 2008, the cafe chain had raised capital through ABCTL from Darby Asia Mezzanine Fund II, RREEF Alternative Investments, International Finance Corp. and Sequoia Capital India Growth Fund I.

Sequoia, which invested about $10 million in ABCTL in 2006, exited in 2012 through the buyback route.

“The food services sector in India witnessed a slowdown last year. Cafe Coffee Day is popular with the masses and should be able to capitalize on its large presence in a bigger way as compared with its competitors," said Deepesh Garg, managing director, O3 Capital Global Advisory Pvt. Ltd.

pooja.s1@livemint.com

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Published: 19 Sep 2014, 01:09 AM IST
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