Mumbai: Shares of Coffee Day Enterprises Ltd (CDEL), which runs India’s largest coffee chain, tumbled in their stock-market trading debut on Monday, reflecting concerns about the rich pricing of the initial public offering (IPO) that raised 1,150 crore.

The stock closed at 270.15 on the BSE, down 17.64% from the offer price of 328, on a day the benchmark 30-share Sensex ended 0.37% lower at 26,559.15 points. The shares opened at 313 and touched a high and a low of 318 and 270 respectively.

CDEL, which runs the Cafe Coffee Day chain with 1,650 outlets, received orders for 1.8 times the shares it offered in its IPO, thanks to institutional demand.

Retail and non-institutional categories were subscribed only 90% and 53%, respectively, amid concerns over stretched valuations. The stock was offered in a price band of 316-328 per share.

“Our house view had been that the issue is overpriced. We thought 275-285 would have been the ideal price range for this IPO," said Amisha Vora, joint managing director, Prabhudas Lilladher Pvt. Ltd. “I think companies should learn from this case and try to keep the pricing attractive, by leaving enough on the table for investors."

Shares set apart for institutional investors were subscribed 4.38 times in the three-day IPO that started on 16 October. The portion reserved for employees was subscribed 84%.

“A bad listing is a sure shot sign of keeping HNIs (high net worth individuals) and retail investors away," said Vora.

CDEL’s holding company structure, which gave it a presence in businesses unrelated to its coffee chain such as development of technology parks, logistics, financial services and hospitality services, had been seen as a potential deterrent to investors.

Weak market sentiment may also have contributed to its debut day slump, some analysts aid.

The Sensex has fallen for six straight sessions, losing 3.32%, over the period, as investors gave the thumbs down to lacklustre corporate earnings.

Uncertainties over the results of elections underway in Bihar have also clouded the market.

“While there might be a stock-specific issue, overall confidence in Indian economy has started ebbing away. Even on bellwether blue-chip names, investors are becoming increasingly apprehensive about their exposure to India," said Saurabh Mukherjea, chief executive of institutional equities at Ambit Capital Pvt. Ltd.

“The Bihar election results also add an extra layer of uncertainty. The sixth poor set of corporate results also dishearten investors," Mukherjea said.

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.

“We didn’t expect a blockbuster listing, but we also did not expect the stock to crash this badly on the listing day. The selling pressure was mostly seen from HNI and retail investors," said an investment banker involved in the IPO. He requested anonymity.

Of the funds raised through this IPO, the company intend to use a large amount to reduce debt. Around 625 crore will be spent on refinancing debt, 88 crore on setting up new cafés and Coffee Day Xpress kiosks and 104 crore on refurbishment of existing cafés and on setting up a new coffee-roasting facility.

In a 13 October note, brokerage house IIFL Holdings Ltd said that although CDEL has a strong promoter background, brand identity and a pan-India presence, the share sale looked richly priced when the valuations and key metrics are considered.

“Near-term upside appears limited, if any. However, investors with long-term horizon must monitor stock post listing for attractive entry points," IIFL analysts wrote in the note.

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