Coffee Day Enterprises Ltd - Value Pick

Coffee Day Enterprises Ltd.
CMP 280 (ACE Equities clients at 260)
Market Cap: 5980 crores
Book Value: 115
52 Week High/Low: 374.60/237
FY18: Sales 3274 Crores, Net Profit 106 Crores, EPS 5.03.

- Headed by V G Siddhartha (ex JM Financial portfolio manager).
- Cafe Chain started in 1990s which triggered cafe culture in India .
- As of date is India's largest cafe chain with a foot print of 1600 + stores across 220+ cities in India. 
- One of the rare chains to have sustained in the same business for more than 2 decades despite regular competition from global players like Costa Coffee, Barista, Coffee World and now Starbucks.
- CCD also has outlets outside India in countries like Nepal, Malaysia, Czech Republic and more.
- Coffee Day Enterprises as the holding company for Cafe Coffee Day outlets business and Coffee Machine vending business, It has stake in Mindtree (17%) 53.8% holding in SICAL Logistics, Land parcel of 135 + acres in Bangalore and Mangalore, The Serai (resorts) and 85% stake in way2wealth stock broking.
- In late 2018, Cafe Coffee Day signed exclusive agreement with UBER Eats to launch new cloud kitchen brands in partnership, Cafe Coffee Day outlets would have new exclusive menus for Uber Eats that will create exclusive brands.
- Company tied up with Australian dairy player named Frosty Boy for milk shakes (The deal went largely under-reported in Indian media). FrostyBoy remarked it as their entry to Indian Food Market.
- Company also recently tied up with PowerSquare to offer wifi charging soon at all its outlets.
- Company has launched interesting combos as it looks to take on the entry and increasing competition from Starbucks.
- Company has launched its own app called CCD and gives discounts etc to users. Also the ability to order on the go through the app, take a pick up and stuff like that. 
- Company has announced a restructuring plan to divest their stakes in group businesses such as Sical Logistics, Kotak is advising them on the same.



 I believe Coffee Day which is India's first cafe chain is cautiously cooking up something really interesting, First their tie up with FrostyBoy, then their exclusive tie-up with Uber Eats and now their plan to divest stake in various other businesses.

As remarked above: Cafe Coffee Day holds 17.08% stake in Mindtree, Current Value about 2400 crores, CCD has total debt of 5000 crores, Interest Cost FY18 was 349 crores on PAT of 106 crores, if interest cost is halved PAT would be 280 crores and EPS of 13 in FY18 itself.

This Uber-Eats tie up and creation of new exclusive brands can create lot of value for the shareholders sooner or later.

The company's first brand with uber-eats is named Home Cravings and is offering combo meals and home cooked style food experience in Bangalore. The brand appears to be in beta stage to test the market dynamics but the ratings across bangalore on the Uber-Eats app have been good.

Key Risk: Failure in combating Starbucks threat and deteriorating brand value.

However, here actually our bet is on the Jockey (V G Siddhartha) more than the horse itself, A guy who was doing a stock market job and can do so many exciting things such as Way2Wealth, Build such a great empire, Pioneer Cafe Culture in India, survive in the business despite global competitors would surely do something to sustain further. The developments they have been under-taking such as tie-ups and all does hint at one thing, The promoter is not willing to let this business die a slow death.

All in All, Coffee Day at 1.40 mcap/sales does not look expensive to me at all.
The Costa Coffee acquisition by Coca Cola with an eye on China network does show us how the sector is exciting with more global players looking to get into this space.

Note: The above is not a research report but information as available on public domain and it should not be treated as a research report.

Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”

Disclosure: It is safe to assume that i might have Coffee Day Enterprises Ltd in my portfolio and hence my point of view can be biased. Readers should consult their financial advisory before any investments.