Cello World - Greeting The World With Cello; Motilal Oswal Initiates Coverage With A Buy Rating

Motilal Oswal Report

• Cello World Ltd. has a strong pan-India brand recall supported by its diverse product portfolio (~15,841 stock keeping units) and deep distribution network (3,300 plus distributors and 1,26,000 plus retailers), which help it expand its existing product categories and scale up new product categories quickly (launched glassware in 2017, and writing instruments in 2019).

• Cello’s expansion of its SKUs is facilitated by its robust manufacturing capability (~79% in-house manufacturing), with 13 plants spread across five locations. In response to the growing demand and to minimize reliance on glassware imports, Cello is building a new glassware plant of 20,000 million tonnes per annum at Falna, Rajasthan. Further, the company is expanding its opalware capacity by 10,000 mtpa at Daman, thereby enhancing the company's self-sufficiency in production.

• Cello, with a presence across diverse product categories, benefits from the growing total addressable market of each of its category. The overall TAM of Cello is expected to record a 13% compound annual growth rate over FY23-27 (to Rs 1,229b by FY27 from Rs 743 billion in FY23). Of this, the opalware and glassware segments (under consumer houseware) are likely to report the highest CAGR of 18% and 15%, respectively.

• We estimate Cello to grow faster than the industry. The company is expected to post a robust revenue/Ebitda/adjusted profit after tax CAGR of 18%/23%/25% over FY23-FY26. This will be driven by the expansion of both SKUs and distribution reach, coupled with strong growth in the glassware segment post-commissioning of the new plant in Rajasthan.

• Cello is currently trading at 35 times FY26E price/earning with an return on equity/return on capital employed of 32%/39% in FY26E. We initiate coverage on the stock with a 'Buy' rating and a target price of Rs 1,100 (premised on 45 times FY26E P/E).

Key downside risks:

• volatility in key raw material prices;

• dependence on third-party manufacturers; and

• intensified competition.

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