CDEL’s IPO closes on Friday. It is selling 25.8 million shares in a price band of INR 316-328.
Its a slow start for the IPO of Coffee Day Enterprises Ltd (CDEL), parent company of Cafe Coffee Day. It received investor demand for 14% of the shares in its INR 1,150 crore IPO. As of 17:00 hrs yesterday, the institutional investor category was subscribed 16% while the retail and high net-worth individuals categories were subscribed 2% and 16% respectively, according to data from stock exchanges.
CDEL, whose IPO closes on Friday, is selling 25.8 million shares in a price band of INR 316-328.
Valuation, complex organization structure, performance metrics and allocation of IPO proceeds for non-coffee businesses are the main concerns over the IPO by CDEL. Several experts flagged valuation as their biggest concern.
In a note on Tuesday, IIFL Holdings Ltd, a financial services company, said that although CDEL has a strong promoter background, strong brand identity and pan-India presence, which instills confidence in its business model, the issue looks 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.
The structure of the business, which has several unrelated businesses under the parent company, is also a concern, said others. “Coffee is just a part of a larger but unbalanced dish. The company’s structure (40 subsidiaries) and five diverse and unrelated businesses make the company’s structure that of a conglomerate; moreover, all the businesses have a history of poor RoCE (return on capital employed),” Ambit Capital said in its report.
Capital allocation to and utilization of free cash flows from the coffee business to non-coffee businesses is a risk, Ambit added.
On Tuesday, Oct 13, CDEL raised INR 334.2 crore from anchor investors, including both foreign and domestic institutional investors, according to the company’s filings with the stock exchanges. The shares were issued to these investors at INR 322 apiece.
CDEL is using the IPO proceeds to retire over INR 500 crore debt that does not relate to the Café Coffee Day business. “The demand is expected to pick up over the next two days. We expect institutional investors category to be subscribed by 4-5 times, while retail and HNI categories should be subscribed over one time each,” said an investment banker.
