Starbucks’ Indian rival falls on trading debut

Coffee Day Enterprises, the Indian cafe operator and coffee exporter, fell on its trading debut after the company and investors, including US private equity house KKR & Co, raised 11.5bn rupees (€159m) in India’s biggest share sale in three years.

The stock fell to 270.45 rupees, 18% 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 is more than three times all its rivals combined, including Starbucks, 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 its high debt levels, said Rajnath Yadav, an analyst at Choice Equity Broking Pvt.

“The long gestation period for each store to become profitable may have also dissuaded investors,” he said.

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% share, with Starbucks on 4%.

Coffee Day’s IPO was 1.82 times oversubscribed when the issue opened last month, lagging airline operator InterGlobe Aviation, which received 6.14 times shares offered, and food flavouring 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 last month.