Cello World - Steel & Glassware ramp-up key to revival | Q1FY27 Company Update

Cello World’s Q1FY27 revenue came below our estimates impacted by weakness in consumerware and moulded furniture, while strong growth in writing instruments following the CELLO PENS acquisition provided partial support. Consumerware continued to face pressure from weak discretionary demand, elevated input costs and the ongoing transition from imported to in-house manufacturing of steel bottles, which constrained product availability during the quarter. We expect growth to improve gradually over the coming quarters, supported by normalization of channel inventory, expansion of the steel bottle SKU portfolio, improving utilization at the glassware facility, festive demand and continued traction in e-commerce. However, with the recovery likely to be more gradual than earlier anticipated and near-term growth visibility remaining moderated, we trim our revenue estimates by ~5% each for FY27E and FY28E and introduce FY29E estimates. We roll forward our valuation to Q1FY29E and reduce our target multiple to 25x P/E from 30x earlier, reflecting the moderation in growth visibility and execution risks, and arrive at a revised target price of Rs 470 (earlier TP of Rs 575).

Cello World Ltd. Stock Price Chart

Subdued revenue:

Revenue declined marginally by 0.4% YoY to Rs 5,267mn (MNCL est.: Rs 5,505mn), primarily impacted by weakness across Consumerware and Moulded Furniture. Consumerware revenue declined 8.4% YoY, while Moulded Furniture declined 11.0% YoY, mainly due to subdued discretionary demand, inflationary pressures and disruption in the steel bottle portfolio amid the transition from imports to domestic manufacturing. However, Writing Instruments delivered strong 51.8% YoY growth to Rs 1,119mn, primarily driven by the contribution from the recently acquired Cello Pens business.

GM pressure weighs on earnings

Gross margin contracted  by 159bps YoY to 52.4%, mainly led by margin pressure across all key segments. Consumerware gross margin declined to 55% vs 56.2% YoY, high-cost OEM sourcing in steelware and weaker product mix. Writing instruments gross margin declined to 53.9% vs 58.8% YoY, likely reflecting integration impact of the “Cello” brand and lower-margin product mix, while moulded furniture gross margin declined to 39.5% vs 40.9% YoY. OPM contracted by 181bps YoY to 18.8%, on account of lower gross margins and higher other expenses. EBITDA for the quarter declined by 9.9% YoY to Rs 990mn. PAT for the quarter stood at Rs 734mn, declined by 9% YoY.

Outlook:

We remain constructive on Cello World’s medium-term growth prospects, supported by the gradual ramp-up of its steel bottle facility, improving utilization in glassware, continued strength in writing instruments and increasing contribution from e-commerce. The key near-term trigger remains normalization of the consumerware business, where lower channel inventory, improved product availability and festive demand should aid recovery from Q2 onwards. However, execution at the newer capacities remains critical, particularly in steel bottles and glassware, while elevated input-cost volatility and subdued discretionary demand could keep growth and margins under pressure in the near term. We believe a sustained improvement in utilization levels, recovery in consumerware volumes and normalization of the Cello Pens portfolio will be important for a meaningful re-acceleration in earnings growth.

Valuation and Risk

We expect the company to deliver a Revenue/EBITDA/PAT CAGR of 8.8%/ 10.9%/ 9.4% over FY26-FY29E. We value the stock at 25x Q1FY29E EPS of Rs 18.8 and arrive at a target price of Rs 470. Key risks- delay in steel bottle localization and slower than expected ramp-up of domestic SKUs/ plant efficiency, weak consumer demand delaying volume recovery across consumerware, slower glassware utilization ramp-up.

Company website: https://celloworld.com/

*CMP is as per report published date

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Analyst:

• Rahul Dani - Research Analyst, Institutional Equities (NISM-201500034725)
• Vaidik Bafna- Research Associate, Institutional Equities (NISM-202100035711)

Cello World Ltd. - Frequently Asked Questions (FAQ)

Here are quick answers to common investor questions on the Cello World investment opportunity, including levels, outlook and risk factors.

How did Cello World perform in Q1FY27?

Cello World reported revenue of ₹5.27 billion, down 0.4% YoY. EBITDA declined 9.9% to ₹990 million, while PAT fell 9% to ₹734 million.

Why did Cello World's revenue growth remain weak?

Consumerware and moulded furniture faced subdued discretionary demand, inflationary pressure and product availability constraints during the transition from imported to in-house steel bottle manufacturing.

Which Cello World business performed strongly?

Writing instruments delivered 51.8% YoY revenue growth to ₹1.12 billion, primarily supported by the contribution from the recently acquired Cello Pens business.

What could drive Cello World's recovery?

Key potential drivers include normalization of channel inventory, improved steel bottle availability, expansion of domestic SKUs, higher glassware utilization, festive demand and continued e-commerce traction.

What is the target price for Cello World?

The supplied research report assigns a Buy rating and a target price of ₹470 versus the reported CMP of ₹360. This is an analyst estimate and does not guarantee future returns.

What are the key risks for Cello World?

Key risks include delays in steel bottle localization, slower domestic SKU or plant-efficiency ramp-up, weak consumer demand and slower-than-expected glassware utilization.

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