Shares set apart for institutional investors were subscribed 4.38 times in the three-day IPO, while the retail and non-institutional investor categories were subscribed 90% and 53%, respectively
Mumbai: Coffee Day Enterprises Ltd (CDEL), which runs India’s largest cafe chain Café Coffee Day (CCD), received investor orders for 1.8 times the stock it offered in a ₹ 1,150 crore initial share sale that ended on Friday, inspiring hope that other issuances, too, would find takers.
Shares set apart for institutional investors were subscribed 4.38 times in the three-day initial public offering, while the retail and non-institutional investor categories were subscribed 90% and 53%, respectively. The portion reserved for employees was subscribed 84%.
“CCD was one of the largest issues in recent past, and saw almost twice the subscription. That sends a strong signal that a company with a good track record can sell in the market," said Prithvi Haldea, chairman of Prime Database, a primary market tracker.
“However, we are still far away from the frenzy in the IPO market," said Haldea.
Next in line is the ₹ 2,500 crore initial share sale of InterGlobe Aviation Ltd, the owner of India’s biggest and most profitable airline IndiGo, which is likely to hit the capital market on 27 October.
The airline, the only one in India that has been consistently profitable since 2009, will sell shares between 26 and 28 October at between ₹ 400 and ₹ 418, Mint reported on Wednesday.
“Indigo may see pricing at a premium, given its decent track record, and high profitability, and the fact that it is a market leader," said Haldea.
Although it was oversubscribed, some analysts have been sceptical about CDEL’s valuation, which they say is stretched. CDEL offered 25.8 million shares in a price band of ₹ 316-328 per share.
“There may be no fireworks at listing," said Deven Choksey, group managing director, KR Choksey Investment Managers Pvt. Ltd.
“Market has not liked the holding company structure. Too many different businesses were being sold under one umbrella. While they wanted to buy CCD, they were not interested as much in other businesses. At the same time, if the issue opens lower, it could lead to a buying opportunity to enter the stock," added Choksey.
CDEL owns Coffee Day Global Ltd (formerly known as Amalgamated Bean Coffee Trading Co. Ltd), the company that runs the cafe chain. CDEL had 1,538 stores as of 30 June with 61% of them located in seven cities—Delhi, Mumbai, Bengaluru, Chennai, Pune, Kolkata and Hyderabad.
It has a presence in other unrelated businesses such as development of technology parks, logistics, financial services and hospitality services. Besides, it owns a 16% stake in Mindtree Ltd and a 52.8% stake in Sical Logistics Ltd, apart from some other investments.
For 2014-15, CDEL reported revenue of ₹ 2,548.7 crore compared with ₹ 2,352.7 crore in the previous year. In the year, it reported a loss of ₹ 87.2 crore compared with a loss of ₹ 77 crore in the previous year.
Of the funds raised, a large amount will be used to reduce debt. About ₹ 625 crore will be spent on refinancing debt, ₹ 88 crore on setting up new cafés and Coffee Day Xpress kiosks and ₹ 104 crore for refurbishment of existing cafés and on setting up a new coffee roasting facility.
On 13 October, CDEL raised ₹ 334.2 crore from anchor investors, including both foreign and domestic institutional investors, according to the company’s filings with the stock exchanges. These shares were issued at ₹ 322 a piece.
“Given the consumer growth story of India, the issue has seen quite strong institutional demand, especially from foreign institutional investors (FIIs). Including the anchor investors, almost 30 institutional investors subscribed to the issue. There was good demand from domestic mutual funds and insurance firms too," said a merchant banker involved in the IPO, requesting anonymity.
On the retail investor side too, the interest was good and the issue saw almost 100,000 applications, he said, but high net- worth individuals were largely missing. “However, given the speculative nature of HNI investors, the lower subscription in the category will serve the stock well," the merchant banker said.
The grey market for this offering was lacklustre, dealers said, due to bleak response from HNIs. It started with a premium of ₹ 32 per share, but that fell to ₹ 2 per share, a dealer, who did not want to be named, said, adding that investors had expressed concerns that the issue was expensive.
FIIs such as Merrill Lynch, Platinum Asset Management, Jupiter Fund Management Plc and BlackRock subscribed to the firm’s shares on 13 October.
Domestic investors included ICICI Prudential Mutual Fund, Axis Mutual Fund, Reliance Life Insurance and private equity fund Faering Capital.
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 issue.
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