Coffee Day Enterprises IPO Review

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Coffee Day Enterprises (CDEL) is entering the market with an initial public offer (IPO) to raise Rs 1,150 crore at a price band of Rs 316-328 per equity share. The company owns the popular coffee chain – CafĂ© Coffee Day – and is the largest coffee retail company in India. The company also has diversified business interests through its subsidiaries across segments like logistics, financial services, hospitality, and technology parks.

The entire issue is for fresh equity which would be used by the company to finance the expansion of its coffee business, repayment and pre-payment of loans to the parent company as well as subsidiary and utilise the rest for general corporate purposes. At present, its promoters hold 63.3 per cent stake in the company; post-issue the shareholding will come down to 52.6 per cent.


Issue Details:

 Issue Open: Oct 14, 2015 - Oct 16, 2015
 Issue Size: Equity Shares of Rs. 10
 Issue Size: Rs. 1,150.00 Crore
 Face Value: Rs. 10 Per Equity Share
 Issue Price: Rs. 316 - Rs. 328 Per Equity Share
 Market Lot: 45 Shares
 Minimum Order Quantity: 45 Shares
 Listing At: BSE, NSE

At the higher end of the issue price, adjusting for the valuation of the listed plays (SLL and Mindtree) along with IT play, the coffee business is available at 25-26x its FY2015 EV/EBITDA which is in line with some of the listed comparable companies and thus is not cheap. However, given the strong brand image, extensive distribution reach and growing disposable income in India, the company is an attractive play on urban discretionary consumption and investors could look at it with mid-to-long term investment horizon. There may be listing gains, which risky traders would want to take to.

SEBI increases lot sizes to Rs. 5 lakhs

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In a major move that could change the game in derivatives market, the Securities and Exchange Board of India (SEBI) has increased the minimum contract size in equity derivatives segment from Rs. 2 lakhs to Rs. 5 lakhs.

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Accordingly, the framework for determination of lot size for derivatives contracts is modified as under:

  • The lot size for derivatives contracts in equity derivatives segment shall be fixed in such a manner that the contract value of the derivative on the day of review is within Rs. 5 lakhs and Rs. 10 lakhs.
  •  For stock derivatives, the lot size (in units of underlying) shall be fixed as a multiple of 25, provided the lot size is not less than 50. However, if the contract value of the stock derivatives at the minimum lot size of 50 is greater than Rs. 10 lakhs, then lot size shall be fixed as a multiple of 5, provided the lot size is not less than 10.
  •  For index derivatives, the lot size (in units of underlying) shall be fixed as a multiple of 5, provided the lot size is not less than 10.

The aforesaid provisions shall be made effective from the next trading day after expiry of October 2015 contracts. The stock exchanges shall review the lot size once in every 6 months based on the average of the closing price of the underlying for last one month,

This move will impact derivatives volumes in the short-run, since retail participation will be reduced substantially.