The document provides details on valuation of Coffee Day Enterprises. It includes an executive summary noting the company has not performed strongly financially and the valuation finds the fair value differs from the market price. A brokerage firm advised investors to avoid the IPO price as it was higher than their estimated value of Rs. 265 per share. The valuation methodology uses discounted cash flow analysis with free cash flows to firm and equity. Ratio analysis shows high debt levels and negative profitability initially, improving over time. Fair valuation details provide projections and calculate the present value of free cash flows to equity to determine value per share.

1. FMA Project
Coffee Day Enterprises
Submitted To : Submitted By:
Dr. Shikha Bhatia Anisha Chauhan (PGSF 1404)
Prasanjit Barua (PGSF 1436)
Sarthak Omer(PGSF 1443)
Supriya Singh (PGSF 1456)

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CONTENTS
EXECUTIVE SUMMARY ........................................................................................................................3
Coffee Day Enterprise.........................................................................................................................4
VALUATION CONSIDERATIONS/ASSUMPTIONS.....................................................................................5
VALUATION METHODOLOGY...............................................................................................................7
VALUATION DETAILS...........................................................................................................................8

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EXECUTIVE SUMMARY
The purpose of the project titled "Valuation of Coffee Day Enterprise " is driven
by the goal of examining if the theoretical price of Coffee Day Enterprise share is
undervalued, overvalued or equal to the market price. The method of the process in
the project is primary divided in financial statement analysis, ratio analysis and
valuation and recommendation.
In the financial statement analysis, Coffee Day Enterprise has not performed
strong. The financial statement analysis is characterized by finding financial value
drivers with the purpose of using them together with the non- financial drivers to
provide strong budgeting in the valuation. The valuation is done by the FCFE and
FCFF model, and the fair value comes out different as compared to the current
market price.
Seeing that the prices were different has resulted in a creation of different scenarios
which is done to analyze how changes in the cost of equity, cost of debt and the
risk free rate affects the share price through movements in WACC. The scenario
analysis showed that Coffee Day Enterprise share was strongly affected by changes
of the variables in WACC.
On 12 October, a day before the initial public offering (IPO) of Coffee Day
Enterprises (CDEL, also called CCD) was to open, brokerage Prabhudas Lilladher
(PL) had advised investors to avoid the stock, suggesting the issue price was on the
higher side.
They estimated the value per share of CCD at Rs265 which is a significant
discount to offer price band of Rs316-328/share. They believe that unproductive
investments, complicated organization structure and low throughput in the Café
business are a drag. They recommend investors to avoid the stock."

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Coffee Day Enterprise
Our story with coffee in India began in 1993 in 1996, ours was a new vision—one
where coffee was more than just a beverage. It was a cup that brought coffee
aficionados, budding coffee drinkers, and well, friends together over a cup of
freshly brewed coffee. Today, our subsidiary Coffee Day Global Limited has
established the largest footprint of café outlets in India-spread across more than
200 cities.
Our forays into diverse businesses are marked by the same passion with which we
started Coffee Day Global Limited. Our portfolio includes Technology Parks &
SEZs, Logistics, Investments, Financial Services and Hospitality.
We are where coffee is today, and where it’s going next. We bring coffee from the
bean to the cup. Over time we've developed the science of nurturing the yield, how
to roast it-to coax just the right flavour from it-and how to extract that flavour in
the brew. Yet, we do more than please the palate. In every bean, we see the
potential of each day ready to be released.
Coffee is our purpose. It inspires us because we can see the boundless possibilities
in the lives of our guests.
Mr. V G Siddhartha founded Coffee Day in 1993. The company is where it is
today because of the people who made it. Their vision and responsibility towards
making our community better are the driving forces behind this organization.

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VALUATION CONSIDERATIONS/ASSUMPTIONS
OVERVIEW
Our valuation engagement is based on relevant information made available by the
management of Coffee Day Enterprise limited industry related information
collected and analyzed by us. Our report is subject to ‘Assumptions and Limiting
Conditions’ included below in this report. The accompanying report presents the
data, assumptions, approaches and methodologies employed in developing our
recommended share price value.
VALUATION DATE
The valuation date is a specific point in time as of which the valuator’s opinion of
value applies. For this engagement, valuation date is till March 31st 2014.
ASSUMPTIONS AND LIMITING CONDITIONS
The assumptions and limiting conditions under which this engagement has been
performed form a crucial part of this valuation report. The assumptions and
limiting conditions that apply to current business valuation are listed below:
 The conclusion of value arrived at herein is as of the date of the valuation
mentioned above. This valuation reflects facts and conditions existing or
reasonable foreseeable at the valuation date.
 The company and its representatives warranted to us that the information
supplied to us was complete and accurate to the best of their knowledge and
that the financial information properly reflects the business conditions and
operating results for the respective periods in accordance with generally
accepted accounting principles.
 Financial information of the company is included solely to assist in the
development of a value conclusion presented in this report and should not be

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used to obtain credit or for other purpose. Because of the limited purpose of
the information presented, it may be incomplete and contain departures from
generally accepted accounting principles.
 We do not provide assurance on the achievability of the results forecasted by
the client because events and circumstances frequently do not occur as
expected; differences between actual and expected results may be material;
and achievement of the forecasted results is dependent on actions, plans, and
assumptions of management.
 The conclusion of value arrived at herein is based on the assumption that the
current level of management expertise and effectiveness would continue to
be maintained.
 Since the company’s management has not advised us otherwise, we have
assumed that there is full compliance with all applicable central, state, and
local laws and regulations.
 Our compensation is not contingent on an action or event resulting from the
analysis, opinions, or conclusions in, or the use of, this report.

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VALUATION METHODOLOGY
We have valued the company using FCFE and FCFF and this section discusses
this technique in detail.
DISCOUNTED CASH FLOW (DCF) VALUATION
DCF is one of the most popular approaches employed having its roots in the time
value of money concept. DCF approach values a company by discounting the
future expected cash flows. For the purpose of this engagement, we have estimated
future cash flows based on ‘Free Cash Flows to Firm’ (FCFF) approach. The cash
flows for the projected period under FCFF are computed as under:
FCFF = Net Operating Profit After Tax
[+] Non cash expenses (including depreciation &amortization)
[+/-] Changes in working capital
[-] Capital expenditure

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VALUATION DETAILS
Tax Rate 34.0%
Secured Loan 316.0%
Interest on Secured Loan 8.9%
MAT Rate 18.9%
Risk Free Rate 7%
Beta 1.50
Equity Risk Premium 12%
Cost of Equity 25%
Terminal Growth Rate 6%
DEPRICIATION SCHEDULE
Depreciation % for Gross Block 15%
Depreciation % for New Offices 5%
Depreciation % for Computer Peripherals 20%
FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18
Addition in Fixed Assets
Addition in Gross Block (Fixed
Asset)
6,789 2,417 1,092 6,380 8,283 7,336 9,571
Less: Depreciation Charged During
the Year
1,018 362 164 957 1,242 1,100 1,436
Total Gross Block 5,771 2,054 928 5,423 7,040 6,236 8,136
Total Depreciation Charged Each
Year 1,018 362 164 957 1,242 1,100 1,436

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RATIO ANALYSIS
FY 13 FY 14 FY 15 FY 16 FY 17 FY 18
Profitability Ratios
EBITDA Margins -5% -9% 6% 16% 22% 25%
EBIT Margins -3% -6% 10% 19% 24% 28%
Net Profit Margin -1% -3% 10% 17% 21% 24%
Return on Investment
Ratios
Return on Assets (ROA) 41% 41% 61% 61% 60% 50%
Return on Invested Capital
(RoIC) 299% 378% 555% 772% 1042% 1426%
Return on Stockholder's
Equity (ROE)
300% 378% 555% 773% 1042% 1427%
Activity Ratios
Working Capital Turnover 3 3 1 1 2 2
Fixed Asset Turnover 1 1 1 1 1 1
Total asset Turnover 0 0 1 1 1 0
Liquidity Ratios
Current Ratio 0.72 1.19 0.89 0.70 0.53 0.51
Quick Ratio 0.38 0.53 0.50 0.45 0.38 0.39
Debt Ratios
Debt-to-Assets Ratio 45.52% 58.43% 76.71% 76.17% 73.30% 61.36%
Debt-to-Capital Ratio 367.9% 598.3% 773.2% 1054.4% 1370.2% 1902.7%
Debt-to-Equity Ratio 15066.9% 20966.1% 25625.5% 33327.3% 40947.5% 52638.3%
 Due to high debt and very low Equity in the company, Debt -Equity
Ratio is too high.
 The company is highly leverage.

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FAIR VALUATION DETAILS
Free cash flows to firm have been computed based on financial projections for the
period FY 2015 to FY 2018 as provided by the data.
FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18
Net Income (128) (638) (1,416) 3,157 8,221 13,327 19,427
Add:Depreciation 1,018 362 164 957 1,242 1,100 1,436
Add: Interest*(1-Tax Rate) 1,603 2,045 2,263 2,504 2,745 3,016 3,328
Less: Changes in working Capital (1,437) (9,068) 6,115 (3,887) (5,394) (10,499) (7,514)
Less: Capex 6,789 2,417 1,092 6,380 8,283 7,336 9,571
Free Cash Flow to the Firm(FCFF) (2,859) 8,421 (6,196) 4,124 9,319 20,606 22,132
Less: Interest*(1-tax rate) 1,603 2,045 2,263 2,504 2,745 3,016 3,328
Add: Net Borrowing 8,590 789 9,360 7,678 12,772 13,005 19,623
Free Cash Flow to the Equity (FCFE) 4,129 7,165 901 9,298 19,346 30,595 38,427
Terminal Value
2 3 4 5 6 7 8
Present Value of FCFE 1,648 1,907 180 1,485 2,575 3,490 3,836
Total Present Value of FCFE
Total No. of Equity Share
Value Per Share
Change in Working Capital 4,951 (4,117) 1,998 (1,888) (7,282) (17,781) (25,294)
 Free Cash Flow of Firm is growing year by year.
 Free Cash flow to Equity has growing but at a low rate due to less net
borrowing.
 Value per share is 1152.58