Cash in latte

VG Siddhartha-owned Coffee Day Enterprises will soon hit the public market to raise about ₹1,100 crore to fuel its expansion in the café business. Surely, Siddhartha is a visionary having identified the potential in the café business nearly 20 years ago when the retail boom in India had barely begun. That foresight ensured that Siddhartha made a very profitable transition from being a commodity player hawking coffee beans and powder to India’s biggest café chain.  

A potent mix of coffee and quick bites, good café experience, and right pricing has ensured Café Coffee Day (CCD) has been able to attract customers and establish itself as a third place – the preferred meeting venue as an alternative to office and home, the positioning cafes occupy. CCD today is leaps ahead of competition in India with a network of around 1,500 outlets, while its oldest competitor has struggled all the way. But the market is changing. Consumer aspirations are rising and suddenly, Coffee Day has the biggest coffee chain in the world as a competitor on its home turf. Can CCD really hold its own and grow profitably? To find out, read our cover story Can VG Siddhartha Continue To Sit Pretty? 

For those who are wondering whether or not to subscribe to the IPO, the key consideration has to be: What exactly are you buying? When you buy Coffee Day Enterprises, you are not just paying for the coffee business that only accounts for 50% of its revenue but also it’s holdings in logistics and software, its real estate business that includes IT parks and its hospitality and financial services business. Some of them are strong assets and others have been laggards in their space. Although Siddhartha has committed that no incremental capital from the holding company will be deployed into non-coffee subsidiaries, it is a structure pure-play preferring investors might not be happy with. Holding companies almost always trade at a discount to their intrinsic value, but considering the frenzy around consumer companies in India, it will not be surprising if we see some initial euphoria.