60
My Best Pick
22 December 2017 / Outlook BUSINESSnet sales#3 ,246cr
stock price# 266
A
lot can happen over coff ee! The
tagline aptly captures what’s hap-
pening at Café Coff ee Day (CCD).
The company’s subsidiary, Cof-
fee 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, Cof-
fee Bean & Tea Leaf, Costa Coff ee, Dunkin Donuts
and Barista. From # 6 , 700 crore in FY 14 , India’s or-
ganised café market is projected to grow at 15 %
CAGR by FY 20. 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 coff ee revenues to grow at 15 % every year for
the next two years.
One of the pioneers of India’s cafe culture, CCD’s
core coff ee earnings before interest and tax is likely
to grow at 48 % CAGR over FY 16 - FY 19 , led by high-
margin vending-machine coff ee sales and higher rev-
enue per outlet. At 75 % of our sum of the part (SOTP)
anlaysis, CCD’s coff ee business has been resilient amid
slower discretionary spending. We foresee a re-rating
now because the café business has seen fi ve consecu-
tive quarters of 5 %-plus same-store sales growth and
a fall in net debt-to-equity to 0. 5 x in H 1 FY 18 from
2. 3 x in FY 15.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 profi table because of lower average sales per day
(ASPD). CCD has rationalised stores in the past year
and will be adding new ones at a measured pace in
the next few. It aims to shut down 25 - 30 stores this
year and add another 100 , according to reports.
The operating outlets and kiosks, which have been
around for two decades now, have provided CCD with
a strong understanding of its customer base. It has
developed multiple formats and branding strategies
to serve diff erent addressable customer segments:M-CAP #5 , 489cr
CCD for value-conscious youth, The Lounge for af-
fl uent customers, The Square for coff ee connoisseurs
and Xpress kiosks for coff ee on the go.
Averaging 800 - 1 , 000 sq ft in size, CCD’s outlets can
be found in high streets, malls, petrol stations, high-
ways and traffi c-dense transportation hubs, airports,
etc. The outlets are predominantly located in India’s
seven big cities: Bengaluru, Mumbai, New Delhi,
Chennai, Kolkata, Hyderabad and Pune.
Historically, CCD’s ASPD has been 30 %- 90 % low-
er than those of the other leading café and quick
service restaurant (QSR) chains. This, coupled with
depreciation and interest costs, has weighed on
its profi tability. CCD’s ASPD is less than its peers
as it has chosen to operate largely in the aff o rd-
able segment, with few stores in the premium seg-
ment. However, with the closure of 176 small stores
with low profi tability in FY 15 and 46 such stores inStill hot
The cafe business continues to be the jewel in the crown
Sum of the part
valuationStake
(%)Value
(# bn)Value per
share (#)
Coffee Business (CDGL) 90.0 52.6 256
Technology parks
(Tanglin) 100.0 4.4^22
Financial services
business (Way2Wealth) 85.5 4.8^23
Hospitality business 100.0 0.6 3
STAKE IN LISTED ENTITIES
Logistics business
(Sical) 52.8^629
Investment in Mindtree 16.1 10.5 51
Less: CCD standalone
net debt -9 -44
Fair Value 69.9 340
Valuation Methodology: 15x FY19E EV/EBITDA; NAV; 10x trailing FY17 PER; 1x FY19E EV / Sales
20% hold. co discount on share in mcap; 20% hold. co discount on share in mcap
Source: Maybank Kim Eng Securities IndiaNote: Market related data as on December 1, 2017; Financials for
FY17; Consolidated fi nancials considered wherever applicable
Data: Ace EquityROE 0.36%