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Home / Market / Stock-market-news /  Coffee Day Enterprises giving final touches to listing plans

Bengaluru: Coffee Day Enterprises Pvt. Ltd, the holding company of the V.G. Siddhartha-led conglomerate, is close to winding up preparation for an initial public offering (IPO) and may file a prospectus with the markets regulator within three months, three people familiar with the matter said.

Kotak Mahindra Bank Ltd and Morgan Stanley are likely to be appointed as lead bankers for the IPO, the people said on condition of anonymity. Edelweiss Capital is also helping Coffee Day with its IPO filing, one of the people said.

The Coffee Day group has been working with audit firm KPMG for more than a year to spruce up the accounting of its subsidiaries to bring it up to the standard of a public company, the people said. KPMG was given the task to ensure that the accounting policies of all the units are in sync and that they adhere to the rules of the new Companies Act, the people said.

“There are more than 50 subsidiaries under the holding company and it’s a very complex process, so that’s why it’s been taking so much time. They are close to finishing up now," the first person said.

Coffee Day Enterprises is planning to raise up to $250 million at a valuation of more than $1 billion from the proposed IPO, the three people cited above said. The Economic Times newspaper reported the $1 billion valuation in December.

KPMG declined to comment. Café Coffee Day did not respond to an email seeking comment.

The Economic Times parent Bennett Coleman and Co. Ltd owns a minority stake in Coffee Day Enterprises. Three private equity firms KKR and Co., New Silk Route and Standard Chartered also own stakes in Coffee Day group companies.

The Coffee Day group includes the Café Coffee Day chain of coffee stores, a coffee machine business that sells to companies, coffee exports, financial services arm Way2Wealth, Serai Resorts in Karnataka and Sical Logistics Ltd, which is listed in Mumbai.

The Coffee Day chain, which is the most valuable business of the group, has seen a sharp slowdown in growth over the past two years because of a broader slowdown in consumer spending and increased competition from the likes of US-based chain Starbucks Corp.

The coffee chain’s parent Amalgamated Bean Coffee Trading Co. Ltd reported sales of 1,154.19 crore for the year ended March 2014, just 2.5% more than the previous year. Apart from weak demand at its cafes, coffee exports also slumped, contributing to the slowdown in sales growth. Losses for the year at Amalgamated Bean narrowed to 2.73 crore from 4.66 crore in the previous year. Amalgamated Bean is a unit of the holding company Coffee Day Enterprises.

As growth at Coffee Day slowed sharply, it focused on increasing margins over the past year by cutting down expansion and pushing sales of its coffee machines to corporate customers.

Coffee Day, which has more than 1,500 cafes currently in India, was forced to cancel its aggressive expansion plans because of the economic slowdown in India over the past two years. Instead of its initial plan to open roughly 200 cafes every year, Coffee Day has added barely 60-70 cafes since the beginning of 2013.

However, with the proceeds of the proposed IPO, Coffee Day plans to significantly increase its café footprint in India, according to a second person among the three people cited earlier.

Coffee Day, which has more than 20 cafes in Austria, the Czech Republic and Malaysia, is also planning to enter new markets in South-East Asia this year.

In comparison with the company’s café business, its higher-margin coffee machines business has fared much better, reporting sales growth of more than 15% in 2014, two of the three people said. Coffee Day has also improved margins by reducing its vendor base and buying ingredients in bulk from fewer vendors.

The coffee chain has also increased its business with Sical, the group’s logistics arm. Trucks owned by Sical now deliver more than 20% of Café Coffee Day’s products to its cafes from less than 10% earlier, the two people said.

Coffee Day is also building a new e-commerce portal and has hired entrepreneur Srikanth Gururaj to lead this business, the two said. The new portal is expected to go online this year and will offer a range of products such as packaged coffee, single-cup coffee machines and Coffee Day-branded merchandise.

The e-commerce portal is part of the company’s strategy to become a comprehensive coffee company by increasing presence of its products presence in people’s homes, the two people said.

“They want to be present in all the three areas—eating out, offices and homes. The cafes are already widely present, the coffee machine business is also growing rapidly. Now they are planning to expand sales of at-home products such as single-cup machines and packaged coffee," the second person said.

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