Coffee Day Enterprises priced its Rs11.5 billion ($175 million) initial public offering at the top end of guidance on Monday, albeit thanks only to overwhelming demand from qualified institutional buyers.
India’s biggest coffee chain settled the final price at Rs328 per share for non-anchor investors, the highest end of the price band announced earlier this month.
A total of 35 million shares will be issued at that price, equating to 17.02% of the company's enlarged share capital and giving Coffee Day a market capitalisation of Rs67.5 billion, as well as a price-to-sales multiple of 2.65 times on a historical basis.
Helping the deal was a supportive secondary market backdrop, with India's benchmark Sensex stock index adding 1.6% between October 14 and October 16 as Bangalore-headquartered Coffee Day conducted its global roadshow. The index has climbed almost 10% since closing at a 15-month low on September 7, echoing a broader recovery in Asian markets.
The improved mood music nonetheless failed to drum up sufficient interest from individual investors. The retail tranche, making up 35% of the total deal size, was 90% subscribed as of the close on Friday, according to information from the National Stock Exchange of India, whilst the HNW tranche, accounting for 15% of the deal, was only 54% covered.
So it was left to the QIBs to make up the difference, and more. Targeting both local and foreign institutional investors, the QIB tranche was 4.4 times oversubscribed, leaving the total deal 182% oversubscribed.
Anchor investors took 60% of the shares at Rs322 each before the bookbuild began. They included India’s government pension fund, Blackrock, Platinum Asia Fund, and Reliance Life Insurance, according to NSE disclosures.
Institutional investors appear to have faith in the loss-making market leader despite the expansion in India of foreign coffee brands such as Starbucks and Costa Coffee.
There are hopes that the company will to return to profit after three consecutive years of losses. In the last financial year ended March 2015, Coffee Day reported a Rs872 million loss despite achieving net sales growth.
Among the group’s key assets are equity holdings in two listed companies -- a 52.83% stake in Sical Logistics and another 16.04% stake in IT consulting firm Mindtree. The stakes are worth approximately Rs22.8bn ($356 million) in total, based on their respective share prices.
Biggest for now
At $175 million the Coffee Day has set a record as India’s biggest IPO so far this year. But the record could be short-lived with InterGlobe Aviation ready to hit the market with a deal worth up to $500 million towards the end of October.
The operator of IndiGo, India’s largest airline by passenger volume, intends to collect orders for the transaction from October 27 to October 29, according to a banker familiar with the situation.
Coffee Day is scheduled to list on both National Stock Exchange and Bombay Stock Exchange on November 2.
Citi, Morgan Stanley, and Kotak Mahindra Capital are the designated joint global coordinators on the Coffee Day IPO.
