Photographer: Brent Lewin/Bloomberg

Starbucks' India Rival Coffee Day Falls in Mumbai Trading Debut

  • Coffee exporter and cafe IPO is India's biggest in three years
  • KKR-backed co. to use funds to lower debts, pay for expansion

Coffee Day Enterprises Ltd., the Indian cafe operator and coffee exporter, fell in its trading debut after the company and investors including KKR & Co. raised 11.5 billion rupees ($176 million) in India’s biggest share sale in three years.

The stock slumped to 270.45 rupees, 18 percent lower than the initial offering price of 328 rupees, by the close of its first day of trading in Mumbai.

Coffee Day is a holding company for several businesses, the most prominent of which is Cafe Coffee Day, which runs about 1,650 cafes across the country. That’s more than three times all its rivals combined, including Starbucks Corp, which entered India in 2012. The entity also includes two technology parks, a port logistics operator and financial services company Way2Wealth. 

Retail investors may have been deterred because of the company’s diversification into areas not related to its core business of coffee, and due to concerns over its high debt levels, Rajnath Yadav, an analyst at Choice Equity Broking Pvt. said. “The long gestation period for each store to become profitable may have also dissuaded investors.”

Meet-Up Venues

Rising incomes and demand for meet-up venues has led to a doubling of the number of coffee houses in the five years to 2014, according to Euromonitor International. Coffee Day is the market leader with a 64 percent market share, compared to 4 percent for Starbucks, data from the researcher showed.

Coffee Day’s IPO was 1.82 times oversubscribed when the issue opened last month, lagging airline operator InterGlobe Aviation Ltd. which received 6.14 times shares offered, and food flavoring maker SH Kelkar & Co. which was 27 times subscribed. The company will use proceeds from the IPO to trim its debt and expand the network, chairman V.G. Siddhartha said in an Oct. 7 interview.

The company plans to open 135 outlets and install 5,000 vending machines in commercial and corporate venues each year for the foreseeable future, Siddhartha said. Apart from the IPO, the company also raised 3.34 billion rupees from anchor investors, selling shares at 322 rupees a piece on Oct. 13.

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