Interested In Partnering Rakesh Jhunjhunwala, Radhakishan Damani, Ramesh Damani & Other Whiz-Kids & Making Mega Bucks From Their Latest Stock Pick?

Café Coffee Day’s list of shareholders reads like a who’s who of the Country’s smartest investors.

Rakesh Jhunjhunwala, the Badshah of Dalal Street, leads from the front with a holding of 34,482 shares (in the name of Rare Enterprises). Radhakishan Damani comes second with a holding of 34,482 shares (in the name of Derive Investments). Ramesh Damani comes third with a holding of 10,344 shares.

Some other whiz-kids who have commandeered large numbers of shares include Nandan Nilekani of Infosys (258,620 shares) and Ketan/ Sonal Sheth (6,896 shares).

While the wizards have pocketed the shares of Café Coffee Day pursuant to a private placement, we have the opportunity of partnering them by subscribing to shares in the IPO. It was revealed yesterday that the indicative price band would be Rs 316-328 per share. The IPO is expected to go live next week and the shares will be listed by the first week of November.

To understand the business model and prospects of Café Coffee Day, we have to turn to the interview of V.G. Siddhartha, the founder. Siddhartha points out that the proceeds from the IPO (expected to be Rs. 1150 crore) will be deployed in refinancing debt (Rs.625 crore), setting up new Café Network outlets and Coffee Day Xpress kiosks (Rs.88 crore), manufacturing and assembling of vending machines (Rs.97 crore), refurbishment of existing Café Network outlets and vending machines (Rs.60 crore) and setting up a new coffee roasting plant facility, along with integrated coffee-packing facility and tea-packing facility (Rs.42 crore).

Siddhartha explained that CCD has ambitious expansion plans. Over the next three years, it plan to open 135 new outlets every year at an estimated spend of Rs.400-450 crore. He pointed out that presently, there are about 2,000 cafés across India and that there will be at least 5,000 stores in five years. He added that about 70% of the new stores will come up in existing cities where CCD already operates and the remaining will come up in new cities and on highways.

However, the disappointing aspect is that CCD is still reeling under heavy losses. Siddhartha candidly admitted that at the net level, CCD is reporting loss of about Rs.140 crore though he clarified that this is because of high depreciation and expansion costs and that the company is profitable at the operating level. “In FY16, we hope to report net profit, and in FY17, we’ll be a cash-surplus company” Siddhartha assured in a confident tone.

Now to understand whether we should trust our hard-earned money to CCD, we have to turn to the analysis by experts.

Rajat Sharma of Sana Securities appears to be lukewarm about CCD’s prospects. He appears to be put off by the fact that CCD has been consistently reporting losses. He does, however, add that “the Company could be an interesting story purely on the basis of business outlook for coffee business of Cafe Coffee Day chain”.

Pallavi Pengonda of livemint is also not gung ho about CCD. In an article titled Coffee Day IPO: the cup looks half-empty, Pallavi Pengonda argues that Coffee Day’s high growth appear to be behind it owing to the increasing competition.

However, a few experts are confident about the prospects of Coffee Day. Dharmesh Mehta of Axis Capital was quoted as saying that CCD’s IPO may be “unique” as it is a “well-known brand” and investors will now get to own them. “There is limited scope to invest in good and large brands in India unlike globally. There is enough money domestic and globally for such deals if valued correctly” he said.

Shishir Asthana of Business Standard is also optimistic about the CCD IPO. It is “another chance to ride India’s consumption story” he says. He also points out that CCD has a well-defined growth strategy of expanding its stores by 135 every year and that such high rate of growth will ensure that the company maintains its lead over its competitors. He adds that investors will give CCD a premium for its market share and that the company will become a proxy vehicle for betting on the aspiring middle class in the country.

Now, the ball is in our court to decide whether we want to partner the living legends who have already invested big chunks of money in Café Coffee Day or whether we want to go a different path.