Cello World: Moulding a diversified portfolio

19 Jan 2024 , 11:20 AM

Cello World (Cello) is a leading company in the Indian consumerware market with dominant positions in categories such as house-ware and opal ware. A strong brand, diverse product portfolio, extensive manufacturing footprint, pan India distribution, among others have aided Cello in establish a resilient business model with stable revenue growth/margin profile over the years. Steady performance in house-ware and scale up of new categories, coupled with a favourable commodity cycle would drive EPS Cagr of ~21% over FY23-26. Initiate coverage with a BUY rating and target price of Rs 1,000.

Exploiting the large growth opportunity: 

Cello has a well-diversified product portfolio comprising of ~16,000 SKUs across product categories. ~65% of its total revenue is contributed by consumer-ware (houseware, glassware and opal-ware). With ~40% of the market consisting of unorganized players, Cello with dominant market positions in multiple categories, is well poised to benefit from a steady shift towards organized brands. 

Good track record for new business: 

Cello has over the years demonstrated strong ability to scale new business and product categories. It launched glassware and opalware business in 2017 under the Cello brand and turnover in this segment is expected at Rs3,650mn in FY24. The company also launched writing instruments and stationery products in 2019 which is expected to generate a turnover of Rs3,330mn in FY24. Cello also has a well-established pan India distribution network which enables effective launch of new products for the company. 

Initiate coverage with a BUY: 

Cello has a superior margin profile vs. peers (~25%), which translates into a healthy ROIC of ~27%, despite higher working capital days. Steady performance in house-ware categories and scale up of new businesses such as opal ware, glass ware, appliances, writing instruments among others, coupled with favourable commodity cycle would drive EPS Cagr of ~21% over FY23-26. Analysts of IIFL Capital Services value Cello at 45x FY26 EPS to derive a target price of Rs1,000 and initiate coverage on the stock with a BUY rating.