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Coffee Day Shares Ends the Day 18% Lower Than the IPO on Debut

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Shares in Coffee Day Enterprises, operator of India's biggest coffee chain, fell over 18 per cent on its debut on Monday, as investors fretted over a generous price tag they said underestimated concerns around its complex structure.

Apart from selling cappuccinos to office workers and India's middle classes, the group also owns a logistics firm, a brokerage, three luxury boutique resorts and has a stake in software company MindTree Ltd.

Coffee Day, which runs the Cafe Coffee Day chain and faces strong competition from a Starbucks joint venture, raised Rs 1,150 crore in an initial public offering that was twice subscribed, valuing the company at around $1 billion.

It attracted cornerstone investors including Blackrock who bought their shares at Rs 322 each, betting on tea-drinking India's growing taste for coffee. That compares to an IPO price of Rs 328. But traders and analysts said on Monday that concerns over a lofty valuation were dampening market enthusiasm, along with the fact that Coffee Day is using IPO proceeds to pay down debt.

"It can only be a long-term story, not a short-term story because the valuation comfort is not there," said G. Chokkalingam, founder of Equinomics, a research and fund advisory firm.

At the IPO, Coffee Day's enterprise value was around 25.6 times its core earnings, according to financial services company India Infoline (IIFL) - despite the fact that it has posted after-tax losses in the three previous fiscal years.

There are no obvious peers for Coffee Day in India. IIFL said Jubilant Foodworks, which runs the Domino's Pizza franchise in India, was trading at 40 times core earnings, but the company generates a profit.

"It's being sold at a huge premium," said a fund manager who was not authorised to talk to the media about the IPO.

"If you are a long-term investor there's no great hurry to buy," he added.

Coffee Day shares closed at Rs 270.50, down 17.5 per cent from its IPO price. The broader NSE index ended down 0.2 per cent.

The debut comes ahead of a listing by Interglobe Aviation, parent company of the IndiGo airline, which last week raised Rs 3,020 crore in India's biggest IPO in nearly three years.

Cafe Coffee Day has more than 1,500 outlets in India, having expanded aggressively after opening its first shop in 1996 in the tech hub of Bengaluru, previously known as Bangalore.