Mumbai: Coffee Day Enterprises Ltd (CDEL), the holding company of the Cafe Coffee Day (CCD) chain of restaurants founded by V.G. Siddhartha, is planning to launch its 1,150 crore initial public offering (IPO) by mid-October, two people aware of the development said.

“The company’s investor road shows are in its final stages. They have received a strong response from investors, both domestic institutional investors, especially mutual funds, and foreign institutional investors," said one of the two people cited above, requesting anonymity as he is not authorized to speak to reporters.

The company has received institutional investment commitments worth almost 7-8 times its anchor book size of 350 crore, which is a good response, given the size of the issue, he said.

The anchor book is that portion of the IPO which bankers can allot to institutional investors on a discretionary basis. Anchor book subscription opens one day prior to the launch of the IPO.

A CDEL spokesperson declined to comment.

CDEL had earlier planned to launch the IPO in the last week of September, but the market crash towards the end of August and the subsequent poor response to several IPOs made the company and its merchant bankers a bit cautious, said the second of the two persons mentioned above, also requesting anonymity.

“The price band for the issue will be decided in the next few days. They are looking at a valuation of around 6,200 crore," he said.

CDEL was valued at 6,200 crore based on a pre-IPO round of funding in March.

According to documents available with the registrar of companies (RoC), CDEL raised 100 crore from five investors, including Infosys Ltd co-founder Nandan Nilekani, investor Rakesh Jhunjhunwala’s Rare Enterprises and stock broker Ramesh Damani.

Nilekani led the investment round, putting in 74.99 crore.

Kotak Mahindra Capital Co. Ltd, Morgan Stanley India Co. Pvt. Ltd, Citigroup Global Markets India Pvt. Ltd, Axis Capital Ltd, Yes Bank Ltd and Edelweiss Financial Services Ltd are managing the IPO.

Private equity firms KKR India Advisors, New Silk Route PE Asia and Standard Chartered Private Equity invested $149.07 million in the holding company in February 2010, according to VCCEdge, which tracks investments. According to the draft papers filed with the Securities and Exchange Board of India (Sebi), KKR holds a 3.43% stake in CDEL.

CDEL got Sebi’s approval for the IPO in August.

Another large IPO, from the promoters of IndiGo airline, is also expected to hit the markets in October.

On 16 September, Mint reported that InterGlobe Aviation Ltd, the owner of India’s biggest and most profitable airline IndiGo, is likely to open its 2,500 crore IPO in October.

Together, the two firms could mop up over 3,500 crore from the primary market in October, more than half of what has been collectively raised by all IPOs this year. According to data from Prime Database, a primary market data tracker, 15 firms have raised 6,348 crore through the IPO route this year.

“We do not see any challenge in two big IPOs going through in one month. Markets are better than last month and investor interest in CDEL is quite strong," said the second person mentioned above.

However, several other large IPOs in the pipeline will wait out October to see how CDEL and IndiGo perform and will look to launch in November-December, he added.

CDEL owns Coffee Day Global Ltd (formerly known as Amalgamated Bean Coffee Trading Co. Ltd), the company that runs the cafe chain.

The firm plans to use the IPO proceeds to set up new outlets and kiosks, refurbish existing outlets, manufacture and assemble vending machines and set up a new coffee roasting plant, along with a coffee and tea-packing facility.

Under its flagship format of Café Coffee Day, CDEL operates 1,423 outlets across 209 cities in India and 16 international outlets across Austria, the Czech Republic and Malaysia.

The consumer story remains strong in India given a huge middle class population, changing lifestyles and an increase in number of nuclear families, according to Dhanraj Bhagat, partner at Grant Thornton India Llp.

He, however, cautioned that scalability remains a big challenge in the industry, especially in the food and beverage space. “To gain scale you will have to open more outlets across different geographies. But when companies start doing that, then sometimes the business arithmetic starts to go wrong," said Bhagat.

Companies have to be very nimble in their strategy, shutting outlets that are not doing well, so that the overall business doesn’t get dragged down because of a few bad stores, he said.

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