Indian coffee chain launches IPO to ward off Starbucks

A file picture shows Indian Chairman and Managing Director of Coffee Day Enterprises and owner of the Cafe Coffee Day chain VG Siddhartha posing for a photograph after meeting the press in Ahmedabad. (Photo: AFP/Sam Panthaky/Files)

MUMBAI: India's Cafe Coffee Day chain launched the country's largest stock market flotation in nearly three years on Wednesday (Oct 14), seeking to fend off Starbucks as it taps the tea-loving nation's growing taste for coffee.

Coffee Day Enterprises, which owns the chain of cafes, hopes to raise US$176 million through the Initial Public Offering (IPO) to help it stay well ahead of its American rival in the Indian market.

India's biggest coffee chain opened its first store in Bengaluru in 1996 and has grown to have 1,538 cafes spread across 219 cities and towns throughout India.

It commands the biggest market share in Asia's third-largest economy, largely because it was established first, but faces fierce competition from global behemoths Starbucks and Costa Coffee as well as Indian chain Barista.

"We intend to build an Indian brand owned by Indians. It takes 50 years to build a brand and we have finished just 19. You wait and watch us grow," Chairman V G Siddhartha said.

Cafe Coffee Day sources all of its beans from southern India and is hugely popular among young professionals, students and teenagers for its cheap coffee, around US$1.50, and down-to-earth vibe.

With shops on almost every corner of India's major cities, its presence is far greater than Starbucks', which also has a more elitist image among the country's growing middle classes.

Starbucks only entered the Indian market in October 2012 and currently has around 75 stores.

"Cafe Coffee Day is way ahead of Starbucks and other competition as far as brand recall and appeal goes," retail analyst Alok Churiwala told AFP.

"The Indian market is very price sensitive so Starbucks might do well in, say, the main cities but in tier two cities and (the) rest of India, Cafe Coffee Day will hold sway for years," the head of Churiwala Securities in Mumbai added.

BIGGEST IPO SINCE 2012

Cafe Coffee Day plans to use the money raised to pay off loans and open new stores to stay ahead of its rivals and consolidate its dominant position in India's fast-growing coffee market.

Chairman Siddhartha, the son of a plantation owner, said many of the new shops would be opened along India's growing network of highways.

Large stretches of India's new roads lack quality restaurants and clean washrooms, something Cafe Coffee Day wants to capitalise on.

Cafe Coffee Day has priced its shares between 316 rupees (US$4.9) and 328 rupees and is already well on its way to meeting its target.

On Tuesday, the company raised 3.34 billion rupees from key investors ahead of the formal opening of the IPO.

"The stock looks expensively priced but I believe it captures the India growth story of rising aspirations, changing tastes of youth towards coffee and the impact of demographic dividend," said Churiwala. "So I do not think Cafe Coffee Day will run into any trouble raising the money they want."

If it meets its target, the IPO will be the biggest in India since December 2012 when telecom infrastructure provider Bharti Infratel raised 41.7 billion rupees, equivalent to US$638 million in today's currency exchange rates.

Cafe Coffee Day's share sale is being welcomed as marking a revival in India's long-suffering IPO market.

It comes two weeks before India's most successful budget carrier Indigo launches its own IPO in a bid to raise US$400 million.