A lot can happen over coffee! The tagline aptly captures what’s happening at Café Coffee Day (CCD). The company’s subsidiary, Coffee Day Global (CDGL), is the leader with 46% share of India’s café market, thanks to its 1,700 stores spread across 240 cities. The cafe chain’s footprint is nearly three times that of the combined footprint of its next six competitors: Starbucks, McCafe, Coffee Bean & Tea Leaf, Costa Coffee, Dunkin Donuts and Barista. From Rs.6,700 crore in FY14, India’s organised café market is projected to grow at 15% CAGR by FY20. Of the organised café market, the café chain segment is growing at a much faster rate of 20% CAGR. This should, in turn, set the stage for CCD’s coffee revenues to grow at 15% every year for the next two years.
One of the pioneers of India’s cafe culture, CCD’s core coffee earnings before interest and tax is likely to grow at 48% CAGR over FY16-FY19, led by high-margin vending-machine coffee sales and higher revenue per outlet. At 75% of our sum of the part (SOTP) anlaysis, CCD’s coffee business has been resilient amid slower discretionary spending. We foresee a re-rating now because the café business has seen five consecutive quarters of 5%-plus same-store sales growth and a fall in net debt-to-equity to 0.5x in H1FY18 from 2.3x in FY15.
Coffee for all
Generally, it takes about six months for a café outlet to break even. Those in tier II and tier III cities are less profitable because of lower average sales