Ajcon Global has come out with its report on Coffee Day Enterprises (CDEL) IPO. The research firm has recommended to "AVOID" the issue, in its research report dated October 13, 2015.
Coffee Day Enterprises (CDEL) IPO review by Ajcon Global
"CDEL incurred losses in Financial Years 2012, 2013 and 2014 and FY15, which may adversely affect the business and financial performance. Its operations are conducted through Subsidiaries. Therefore, its ability to pay dividends on the Equity Shares depends on its ability to obtain cash dividends or other cash payments from its subsidiaries CDEL has pledged certain equity shares held by it in certain Subsidiaries and associate companies held by it in favor of certain lenders to secure loan facilities obtained by our Company and Subsidiaries.
Promoters have provided personal guarantees and may in the future provide additional guarantees and/ or collateral of shares of CDEL and certain Promoter Group companies to secure the loans availed by the Company, Subsidiaries and its Promoter Group companies. On performance front, the company has (on consolidated basis) posted net loss for last three fiscals. Due to heavy expenditures in increasing outlets, higher depreciation and initial break-even periods have caused negative earnings so far. Turnaround will take few more years. All these along with its branding are well discounted in asking price. After issue of initial equity at par, it had issued shares in a price range of Rs. 1768.00 to Rs. 2900 per share during 2010 - 2015 and has issued bonus shares in the ratio of 7 shares for every 1 share held in May 2015 and done conversion of CCDs in to shares in September 2015.
At the upper end of the price band, the Company’s total equity valuation stands at Rs. 6756 crore translating into EV/EBITDA multiple of 26x which seems aggressive and steep. Investors should clearly note it is an IPO of holding Company which houses Coffee business in its subsidiary Coffee Day Global Ltd. and it would receive only dividends from its subsidiaries. With due consideration to above factors, complex holding structure, investors getting other businesses apart from Coffee business in CDEL bouquet which are currently dragging performance on consolidated basis, limited scope to improve EBITDA margins as retail coffee accounts only 30 percent of total capital employed, high capital cost of store addition would be a burden on financials considering low pricing lower as compared to peers like Starbucks in Coffee segment, high debt/equity of 5x, Consolidated Co’s bottomline line in red for past 3 years and steep valuation despite losses we recommend to “AVOID” the issue", says Ajcon Global research report.
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