Cello World Limited (Subscribe)

Cello World Limited (CWL) is prominent player in the consumer ware market in India with presence in the (i) consumer houseware, (ii) writing instruments and stationery, and (iii) moulded furniture and allied products and (iv) consumer glassware categories.

CWL trades in houseware, insulated ware, electronic appliances and cleaning aids products. While majority of the products trade in are manufactured by its Subsidiaries, others are manufactured by third parties. Further, certain Subsidiaries sell products directly while others sell through the Company.

As of June 2023, the company own/lease and operate 13 manufacturing facilities across five locations in India, and it is currently establishing a glassware manufacturing facility in Rajasthan. It’s manufacturing capabilities allow them to manufacture a diverse range of products in-house.

The company’s manufacturing scale, paired with its supply chain management, allows them to reap the benefits of economies of scale across all elements of its business model. Furthermore, by applying technology and utilizing relevant market information, it maintains ideal inventory levels across its manufacturing locations. In addition, the organization strives to maintain high quality standards and good manufacturing processes.

The company has pan India distribution network. In Consumer Houseware product category, it has 717 distributors and approximately 58,716 retailers located across India. In Writing Instruments and Stationery product category it has 29 super-stockists, approximately 1,509 distributors and approximately 60,826 retailers located across India and in Moulded Furniture and Allied Products category it has 1,067 distributors and approximately 6,840 retailers located across India.

The company will not receive any proceeds from the Rs. 19,000 mn IPO proceeds and all the offer proceeds will be received by the Selling Shareholders, in proportion to the offered shares sold by the respective Selling Shareholders as part of the Offer.

Key Highlights

• The Indian consumer ware market size increased from Rs. 305 bn in FY20 to Rs. 348 bn in FY22, at a CAGR of 6.9 pct. As of Fiscal 2023, the Indian stationery market had an estimated size of Rs. 385 bn by value. In the branded consumerware market, the company occupied a market share of 8 pct for the Financial Year 2023. The company market share was 4.9 pct in the overall consumerware market for the same period. In the high growth rate market and high market size with attractive market share of the company can make it as a fastest growing company.
• The company’s products are made of different types of materials, such as plastic, steel, opal, glass, copper and melamine. The Company has the most diversified product portfolio among its peers, with products in the glassware, opalware, melamine and porcelain categories. As of June 30, 2023, it offered 15,891 SKUs across its product categories.
• CWL aim to expand its product portfolio in its consumer houseware product category, by focusing on introducing new range of products in the kitchenware, porcelain, appliances, cookware, glassware, writing instruments, and stationery spaces. As of FY23 the company has launched 380 products.
• The company intend to grow its manufacturing capabilities so that they can be able to quickly and effectively respond to increases in market demand for its products. The company is in process of setting up a glassware manufacturing facility in Rajasthan which would have 20,000 tonnes of glassware p.a. capacity. Further, it also recently expanded its opalware capacity to increase its installed annual capacity to 25,000 tonnes of opalware p.a., from 15,000 tonnes of opalware p.a, as of August 6, 2023.
• The company products also reach consumers through modern trade and export channels, e-commerce marketplaces and its own websites. As of FY23 General Trade contributes 80.5 pct of total sales, Export contributes 7.8 pct of total sales and online sales and modern trade contributes 7.91 pct and 3.71 pct of total sales.
• The company sales derived from its in-house manufacturing operations aggregated to 78.65 pct, 82.63 pct, 79.37 pct, 82.08 pct and 79.67 pct of its total sales from operations for the Financial Years 2021, 2022 and 2023, and the three months ended June 30, 2022, and June 30, 2023, respectively.
• Sales of the company has grown by 30.8 pct CAGR during the period FY21-23 while EBITDA and Profit increased by 27.4 pct CAGR and 31.2 pct CAGR over the same period. During FY23, company reported revenues of Rs. 13,591 mn which increased by 32.1 pct YoY while EBITDA rises by 25 pct YoY to Rs. 4,372 mn as EBITDA margin declined from 25.7 pct in FY22 to 24.34 pct in FY23. Profit in the FY23 stood at Rs. 2,851 mn, which increased by 29.8 pct YoY. During Q1FY24 company sales, EBITDA, Profit increased YoY by 9.03 pct, 26.4 pct and 25 pct respectively.

Key Risk

• The company does not own the trademark for its key brands, including “Cello”, “Unomax”, “Kleeno”, “Puro” and their respective logos. Further, the “Cello” brand name is also used by one of their competitors for its writing instruments business. Any adverse impact on the “Cello” brand name due to the actions of such competitor, which utilizes the brand name, may adversely affect the company reputation and business.
• The company are dependent on its distribution network in India and overseas to sell and distribute its products any disruption in distribution network could have an adverse effect on its business, results of operations, financial condition and cash flows.

Valuation

Cello world is a well-established brand name having a strong market position, a diversified product portfolio, and a track record of scaling up new businesses.  CWL has scaled up the branding attracting new customers, increasing market share in its respective product categories moving up the value chain for every segment. At the upper end of the price band, the issue is quoting at PE of 44x its FY24E earnings. The issue seems to be fully priced. However, long term investors can Subscribe to this issue.

Disclaimer: Financial Hospital Advisors LLP (Brand Name Fintoo) herein referred as Financial Hospital is registered with SEBI as an Investment Adviser under the SEBI (Investment Advisers) Regulations, 2013 with registration number INA000015756. No disciplinary action has been taken against Financial Hospital Advisors LLP or its associate entities by any regulatory authority.