No, I won't date here as I cannot two time my existing partner CCL Products

Anyway, seriously, at 1 billion USD valuation and a PAT of 80 crore as per your above post, it is straight away getting 70 PE? While strictly not comparable, CCL Products is available at 15-17 times FY17E EPS of 14-15 and 24 times FY16E 10-11 EPS.

However, India is a predominantly a Tea drinking country as so far we did not have this coffee culture, westernisation thing not yet penetrated broadly. I myself in my 20s felt aspirational drinking coffee in a Barista or Coffee day so with Indian demographics in support the coffee culture is going to explode and market opportunity could be huge.

After reading the above post, I personally would stay away from this IPO as the capital allocation strategy is not encouraging and so is the company's stake in unrelated fields. Also, the business is real estate intensive. For coffee culture, you need to be present in HIGH cost locations with appealing interiors etc.

Café Coffee Day well known for its CCD outlets operates outlets since 1996. They are present in about 209 cities in India. They have a market share of about 46% and are the largest in terms of total number of chains. Café Coffee Day (CCD) has come out with an IPO for an amount of Rs 1150 crores with fresh issue of 35060976 shares valuing the company at ~ Rs 6756 crores approximately. Post issue Promoter Holding will stand at ~52.55%

Apart from this CCD owns about 16.6% stake in Mindtree. Their consolidated debt stands at 2762 crores.

Logistics Business:
Sical Logistics Limited is a listed company and most of the financial information for this company is available in public forum. This company is available at a market cap of ~900 crores.

Techparks Business(Similar to NESCO):
They have 2 tech parks in Bangalore and Mangalore with a built-up area of 3.1mn square feet. This division does a top-line of around ~95-100 crores on a yearly basis. This is around 4% of their top-line.

Coffee Division:

Coffee division #s:

The above table has the break-up of Coffee segmental revenues reported for this company. Of this 80% of the revenues are from retail outlets and these outlets operate at an EBITDA margin of ~20%. The other 20% of the revenues come from trading business which has an EBITDA margin of about ~2%.

So their retail coffee business is doing approximately 1000 crores/FY. Their retail coffee business is operating at an EBITDA of ~20% going by their EBITDA.

Consolidated Revenue from all divisions:

The company is planning to raise around Rs 1150 crores and the objective of this issue is to accomplish the following major heads:
1. Repay loan amount of about ~630 crores.
2. Set-up 215 new CCD outlets at a cost of 37lakhs/outlet – ~79 crores
3. Set-up 8000 new vending machines at a cost of 1.2lakhs/machine - ~97 crores
4. Set-up 105 new kiosks at a cost of 7.4lakhs/kiosk - ~7.77crores
5. Refurbishment of existing outlets – 60 crores
6. Setting up an additional 7000 MT coffee roasting plant capacity – 41 crores

Conservatively assigning Holding price discount for their investments in Sical Logistics & Mindtree:
1. Sical’s market cap is 900 crores. They have a 50% stake. So at 1/6th (holding price discount), Sical investment can be valued at 80-90 crores.
2. Mindtree’s market cap is 10,500 crores. They have a 16.6% stake. So at 1/6th (holding price discount), Mindtree investment can be valued at 338 crores.
3. They have cash/cash equivalents of about 197 crores.
4. Techpark & Financial services contributes to 4% & 10% respectively to their top-line. (150crores valuation on the optimistic side?)

At the issue price of 328/share the company is asking for a valuation of 6756 crores. Factoring in the above valuation for their other businesses, you roughly get the coffee business(retail + trading) at a market cap of 5815 crores. Add debt of about 2100 crores. The company’s enterprise value stands at 7900 crores.

Coffee retail business doing a top-line of about Rs 1000 crores, operating at 20% EBITDA has a market share of about 46%. Even if they manage to do 8-10% PAT margin (on the optimistic side), you get PAT of 80 crores(very optimistic #). Jubilant is valued at 100 PE. Most of the front end retail companies are valued at north of 70-80PE.

From here valuation of CCD is an individual’s call.

The big negatives here for me are:
1. Poor capital allocation – Their cash cow is their retail coffee business, they are pumping in money in to low RoE Techpark, Financial & Logistics business. They borrow to do this. Most of their borrowings stand at around 13-15%. So they borrow at this rate and invest in these low RoE business
2. No specific Niche – As an investor I am interested only in their 40% retail business. This IPO is looking to raise cash for their holding company
3. Their culture of funding growth(??) through Debt.

Thanks,
Ravi S

@manoj I did not care (pun intended) to buy into CARE because,

1. There is this conflict of interest with rating agencies all the time. It is behaviourally difficult to downgrade a company's bond etc. when that company is paying you and when that company is a source of your revenues. I read few books related to 2009 financial crisis and was fascinated by how these rating agencies work. Fascinated here in a sarcastic way.

2. It's difficult to rate a company because it is difficult to know practically ALL the details of a company and one fine day some issue sees the light of the day and the rating company which rated it so far will be thrashed.

3. It is for this reason I did not invest in rating agencies and the reason showed up itself in Amtek for example. This is not the first one and the last one, you will see many such instances in corporate India as our economy leaps in the coming years.

4. In way, these are like aviation companies. Once in a while a plane crashes which could be due to manufacturer fault or the airlines but more than manufacturer's stock the airlines stock is hammered. See what happened to Malaysian airlines. Bad example, eh?

5. HOWEVER, I think the BOND market itself is so HUGE that opportunities to grow in this field are AMPLE, just that a black swan event could pull you down by 2-3 years in terms of stock price. So, why buy when there are other opportunities.

6. I won't invest 2-3% in a stock, it should be around 10% at least and I'm not comfortable investing 10% YET.

7. Stock hitting 52 week low due to 'so and so' reason which is beyond companies hands should never be a REASON to buy it.

This is my thinking and I could be entirely wrong.

Did you consider CARE ? With Amtek Auto debacle beating CARE stock price down to 52W low, I feel CARE is cheaper now and more attractive compared to many others. Your take ?

So, here you go with my little observation to understand CCL Products' Continental Coffee.

Tested products were Continental Speciale vs. Nescafe Classic.

1. Both are instant coffees
2. CCL one is Granules type (more premium than powder as it retains aroma better?) while Nescafe was powder.
3. Cost-wise, 50 gms Continental Coffee costed me 75 INR while 25 gms Nescafe costed me 65 INR (could not find 50 gms bottle, not sure if cost would be considerably less). Continental is being offered with 10 INR discount, so looks like product is not moving? Not sure. But then the company has just started it retail entry, so let's give them a bit leeway.
4. Quantity to be used: Nescafe being powder, had to be used a bit more (2.5 spoons Nescafe vs. 2 spoons Continental)

To my surprise, I found Continental to be more Coffee like (strong, rich, aroma - may be granules variety playing part here) while Nescafe is enhanced with something else to make it sweeter. Another way to phrase the sentence, the taste is not so much different at least that Nescafe powder should cost around twice (or 80%) more than the Continental granules.
Disclaimer: Taste is a SUBJECTIVE matter and what I felt might be different from what others feel.

Bias

In order to eliminate stock holding bias, I involved my mother in this little experiment without telling her the intention. All that I told was, we will buy which ever tastes better. She too independently told that Continental is better. I did not say my observation to her first and asked her as in that case psychologically she would be inclined to agree with me not to sound different than from opinion. So, here we have 2 new customers for Continental from today! Bye-Bye Nescafe.

Packaging

1. Nescafe packaging is more premium. The look and feel of the bottle, the top cap color (brown) and feel of the bottle while holding it are premium actually.
2. Continental cap has ridges to open the cap easily while the Nescafe is plain, so rotation is a bit difficult in comparision while your hands are wet. I know, I'm being finicky, but let me put my observations anyway.

Calories

Total calories of Continental calories are lesser than Nescafe while protein content in Nescafe is more.

Conclusion

I feel if people were to try once both of them, majority would vote for Continental and pricing being half is the real kicker! I asked my wife if she would buy after telling the price and my taste observation, she said yes.

With current 1000 MTs of selling coffee in India, does not the domestic market itself has HUGE potential if market were to realize Continental or rather company focuses in building the brand in a cost effective manner (like Page?)

I know this would be too much of positive bias, confirmation bias, holding bias form my side. So, I request other forum member to do this little 140 INR experiment and tell the observations.

Coffee.JPG1224x1632 629 KB