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 Buy: Coffee Day Enterprises Ltd (CDEL)

CMP: Rs.32.05

Book Value: Rs.184.40.

Triggers:

The latest annual report shows CDEL's, the operator of the Cafe Coffee Day chain of restaurants, plus allied businesses - net debt as on March 31, 2021 to be Rs.1,731 crore. The total loan funds stood at Rs.1,779 crore which comprises of long-term borrowings of Rs.1,263 crore and short-term borrowings of Rs.516 crore. This is against the company's net debt of Rs 2,909.95 crore in FY20. Photo: NDTV

Moreover, the seven subsidiaries of CDEL are awaiting a report by Justice K L Manjunath, former judge of Karnataka High Court, to take a decision on the recoverability of over Rs.3,535 crore allegedly siphoned out of the company into Mysore Amalgamated Coffee Estates Limited (MACEL), a personal firm promoted by its late founder V G Siddhartha.

The valuation of its vending division is Rs.2000 crore, while the company would get Rs.700 crore for selling the IT Park. 

So, total amount of receivables (assets): Rs.2000 + 700 + 3535) crore = Rs. 6235 crore against the loan fund of only Rs.1,779 crore.

Plus, the business coming from 546 outlets (out of 917 outlets), with more outlets expected to get functional as the nationwide lockdown eases. 

Meanwhile, the buoyancy in the international coffee market, easing of liquidity crisis and positive outlook in the multimodal logistics businesses mainly due to relaxation of COVID-19 restrictions will also add to the top and Bottomlines of Coffee Day Enterprises Ltd.

The sector in which it operates has a high P/E of 47.38, which means a small net profit would generate a high market price of the shares of CDEL.

CDEL is present in coffee, logistics and hospitality sectors.

We can refer the case of Imagicaaworld Entertainment Ltd (Rs.11.76) which is hitting continuous upper circuits since some time. If you remember, I recommended the scrip around Rs.3 - 3.50.

The investors are suggested a buy on Coffee Day Enterprises Ltd (Rs.32.05), for the short term, medium and long term targets of Rs.47/81/208/240.

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