Coffee Day Enterprises raised Rs 1,150 crore from investors last month. The issue was subscribed 1.81 times, but the non-institutional category and retail investors remained on the sidelines.
The stock of Coffee Day Enterprises (CDEL), which runs the Cafe Coffee Day chain of outlets, tanked nearly 18% on its debut on Monday, making it the worst opening for a company listing on the bourses in calendar 2015. Amidst the weakness in secondary markets, the Bengaluru-based company ended the session at Rs 270.15 per share, down Rs 57.85, or 17.63%, from its issue price of Rs 328. A little more than 2.21 crore shares exchanged hands on the BSE and NSE, exchange data showed.
Coffee Day Enterprises raised Rs 1,150 crore from investors last month. The issue was subscribed 1.81 times, but the non-institutional category and retail investors remained on the sidelines.
Market watchers said the recent bout of correction in equity markets soured the CDEL debut. Indian equities declined for the sixth consecutive session on Monday and the Sensex has lost nearly 950 points or 3.5% in the last one week. “The timing was unfortunate,” observed one merchant banker who, however, conceded the issue may have been somewhat aggressively priced. The poor listing is, however, unlikely to hurt other debutants, investment bankers said, pointing out the fundamentals of other companies were better. InterGlobe Aviation, the parent company of the country’s biggest airline, IndiGo, priced its initial public offering (IPO) at Rs 765 per share on Monday, raising Rs 3,010 crore. The stock is expected to list on the exchanges by the second week of November. So far in 2015, 18 companies have raised more than Rs 11,000 crore from the primary markets — the highest in five years.
Although CDEL operates the largest chain in the country with over 1,500 outlets across more than 200 cities and is a vertically integrated business since the group grows its own coffee, analysts had pointed out that coffee retailing accounted for less than a third of the capital employed.
CDEL had been posting losses for the last three years (FY15 net loss at Rs 87 crore) because of high depreciation—the capital cost of adding stores is high — and interest costs. The company had proposed to use more than half of its proceeds from the public issue towards repayment of debt, especially for the holding company which had borrowed to acquire additional stakes in the coffee retailing and other businesses.
Mumbai-based Ambit Capital had observed “the coffee is frothy’, further highlighting that the coffee business had posted a very limited operating leverage despite being the largest coffee retailer in the country.
“All the businesses have a history of poor RoCE. Capital allocation to and utilisation of free cash flows from the coffee business to non-coffee businesses is a risk… The company plans to use these funds for mostly repayment of debt and that too for the holding company which took on debt to acquire additional stakes in the coffee retailing business or other businesses such as Mindtree,” the brokerage wrote in a note.
The non-instutional category comprising high net-worth individuals (HNIs) was subscribed 0.54 times, with financiers perceiving margin funding as risky in a weak market scenario. The retail book was subscribed 0.9 times, stock exchange data showed.
Low steam
* Worst opening for a company listing on the bourses in calendar 2015
* Issue subscribed 1.81 times, but non-institutional and retail investors remained on sidelines
* Experts say recent bout of correction in equity markets soured the debut
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