Cello World Stock Research Report

Scathed due to macros; execution on track. We remain optimistic…..

While Cello’s Q2FY25 was below our and consensus expectations, we highlight positives (1) Glassware unit at Falna, Rajasthan has commenced now. As Glassware business generates higher margins, we model margin accretion as the production stabilizes by Mar’25. (2) Cello has also announced merger of Wimplast which will likely allow it to unlock synergies and utilize the excess production capacities of Wimplast to drive the growth of Consumerware business. (3) While the revenue growth was muted in Q2FY25, Consumerware is performing well and Writing Instruments is facing transitory challenges in Exports. As these issues may get resolved in H2FY25, we model decent growth (>15%) for Writing instruments in FY26. While we remain positive on medium-long term growth prospects of Cello, deflation in crude oil prices and muted consumer sentiments may continue to weigh on near-term performance. We cut FY25 26 earnings estimates by ~12%. Retain BUY.

Q2FY25 results

Cello reported revenue and PAT growth of 0.2% and 1.6%, respectively YoY. However, EBITDA declined 1.4% YoY. With correction in crude oil prices, there is reduction in net realizations too and it impacted revenue growth too. Muted consumer sentiment also led to lower demand YoY. The demand is expected to recover in festive season in Q3FY25.

Segment-wise performance

Consumerware revenues were up 4.9% YoY but Writing Instruments and Moulded furniture revenues declined 16.5% and 1.6%, respectively YoY. Gross margin of all the three segments declined YoY due to reduction in crude oil prices. Writing instruments segment was impacted due to delays in exports to Russia due to the sanctions.

Commencement of new unit at Falna, Rajasthan

Cello commenced glassware facility at Rajasthan and trial production has commenced. The annual capacity is 20,000 MT. We believe the glassware facility has better margins and in-house manufacturing will allow Cello to also gain market shares. It will also be able to introduce multiple differentiated as well as premium products. The production is expected to stabilize at Falna from Mar’25.

Acquisition of Wimplast

Cello has announced merger of Wimplast at ratio of 86 shares of cello for 100 shares of Wimplast. As the input prices, manufacturing process and sales channels are largely similar, there is strong potential for synergy benefits post-acquisition of Wimplast. Also, the facilities of Wimplast can be leveraged to drive growth of Cello’s consumer segment.

Valuation

We model Cello to report revenue and PAT CAGR of 7.8% and 15.1%, respectively over FY24-26.We cut FY25-26 earnings by 11%-12% to factor in consumer slowdown, issues in exports of writing instruments and deflation in input prices. We value the stock on a DCF basis at INR 940 (47x FY26E, Earlier TP: INR 1,050).

Key risks: Higher input prices and steep increase in competitive pressures