Subscribe to Coffee Day IPO for long term: AB Money

Coffee Day Enterprises (CDEL) IPO review by Aditya Birla Money"CDEL is an established brand name in the coffee business in India with over 30 years of experience. CDEL’s Coffee business has competitive advantage in the form of pan India presence, its large network of outlets, and strong brand. CDEL’s sales have grown at a CAGR of 24.7% to ~Rs 25 bn while Operating profit has grown by a CAGR of ~28% to ~Rs 26.5 bn respectively during FY11-FY15. Funds from the IPO would be used mainly for a) Expansion of its core business and b) Re-payment/pre-payment of certain borrowings.""At the higher price band of Rs 328, the stock is valued at ~2.0x its FY15 consolidated sales of ~ Rs 24.8bn. We have used SOTP methodology (Table on page 2) as an alternative approach to value CDEL. Our back of the envelope calculations suggest the stock is priced closer to its fair value at its upper price band and our one year forward Sept’2016 target is Rs 376/ share. Given a) CCD’s pan India presence, b) strong brand name and c) only listed paper (thereby giving it scarcity premium) in the space, we recommend “Subscribe” on CDEL IPO for long term investors", says Aditya Birla Money research report.For all IPO News, click hereDisclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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