One has to be very cautious while investing in IPO. As they are most of the times over priced. People subscribe to IPO with the hope of getting into the company when it first starts to trade publically for great returns. There have been some super hit IPO like Infosys, Wipro etc who have made investors millionaire. But not every IPO is like that. You have to check the future potential of the company.
Currently, 1150 Crore Rs CCD IPO is buzzing in the street. I can’t comment about whether it is going to give listing gain or not. But from an investing point of view it doesn’t looks impressive to me. Below are the reasons why I won’t subscribe CCD IPO.
1.Company conducts its business through many subsidiaries
CCD has 40 subsidiary companies. This number 40 is very big. It has no substantial operations or fixed assets on its own. It has no source of revenue other than the ownership in those subsidiaries. Company’s income is therefore largely dependent on investment income and dividends from Subsidiaries.
2. CCD won’t pay much dividend
Company run its business through subsidiary companies only. Its business operation, financial condition and profit generation ability fully depends on subsidiaries If subsidiaries don’t earn much or don’t pay dividends CCD also cannot pay dividends.
CCD is also doubtful whether the subsidiaries will be able to make sufficient profit. Check page 24 of offer document.
3. Company loses are growing continuously
CCD incurred losses on a consolidated basis for the Financial Years 2013, 2014 and the nine month period ended December 31, 2014 of `214.05 million, `770.28 million and `752.34 million, respectively. Also the Company is not confident that it can generate profit in the coming years.
4. Heavy debt and possibility of default
The company currently has heavy debt and has default in the past. The promoters have good amount of unsecured loan, which has higher probability of recall.The page 25 of the offer document says.
5. Too many litigations against directors promoters and subsidiaries
There are many legal proceedings pending against before various courts, tribunals, enquiry officers, and appellate authorities against our Company, Directors, Promoter, Subsidiaries and Group Companies.
The amount of these legal proceedings is very high. Also subsidiaries like CDGL, W2W Brokers, SLL and SMART are involved in certain criminal proceedings which include matters initiated under the Prevention of Food Adulteration
6. The company operates in a highly competitive landscape
Coffe cafe chains are everywhere in India such as Starbucks, Costa Coffee, Barista and many other local cafés. There is also competition from quick service restaurants like McDonald, Jubilant, Pizza hut, KFC etc which also serves good coffee. In vending business they face intense competition from Nestle and HUL. This high competition limits the pricing power of the company.
7. Many outlets have closed
In Financial Years 2012, 2013 and 2014 and the nine month period ended December 31, 2014, 36, 42, 44, and 175 cafés were closed down. 25-40 cafes are expected to be closed every year.
Considering the above things I don’t expect much growth in this company and won’t subscribe.