Cello World has come under fresh scrutiny from Investec, which reiterated its Sell rating on the stock and slashed its target price to Rs 435 from Rs 515, citing intensifying competition, weak demand trends and pressure across key business segments.
The brokerage said earnings downgrades are likely to continue despite the company reporting fourth-quarter EBITDA which beat of estimates. According to Investec, the earnings beat may have been aided by higher inventory levels at channel partners, raising concerns over the sustainability of growth heading into FY27.
A key area of concern remains the company's opalware business, where competitive intensity has increased as fresh capacity enters the market. Investec noted that the category is becoming increasingly commoditised, limiting pricing power and potentially pressuring margins as supply outpaces demand.
The brokerage was also cautious on Cello World's glassware segment, which continues to face pressure from imports, particularly from China. Increased dumping and elevated inventory levels in the market have delayed the ramp-up of the company's glassware operations, according to the report.
Beyond category-specific challenges, Investec flagged working capital as another monitorable. The company has begun efforts to rationalise receivables, which currently remain well above industry norms. While management aims to improve cash conversion and reduce outstanding receivable days, the brokerage cautioned that the move could affect near-term sales growth and profitability by tightening credit availability for channel partners.
Reflecting these concerns, Investec reduced its valuation multiple for the stock to 24 times earnings from 30 times previously. The brokerage also cut its profit-after-tax estimates, which are now 26% and 13% below Bloomberg consensus forecasts for the relevant forecast periods.
While management has guided for 10-12% revenue growth and EBITDA margin improvement in FY27, Investec remains unconvinced. The brokerage said macroeconomic headwinds, muted demand conditions and rising competition across major product categories could make those targets difficult to achieve.
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