Q3FY24 Review: Cello World: Festive season boosts top-line

13 Feb 2024 , 12:08 PM

Cello reported sales of Rs5.3bn (24% YoY growth, ~8% QoQ growth) led by ~31% YoY growth in consumerware segment aided by better sales traction witnessed on the back a long festive season in Q3FY24. The gross margin declined by ~190bps QoQ due to the inflation in input prices of raw materials. With steady performance in houseware and scale up of new businesses, coupled with distribution expansion and operating leverage, Cello is well placed to report a healthy double digit top-line as well as bottom-line growth. Analysts of IIFL Capital Services estimate an EPS Cagr of ~20% over FY23-26. On the back of raw material price inflation, they cut their EPS estimate for FY24/25/26 by ~2-3%. The stock trades at 47x/39x FY25/26 EPS and analysts of IIFL Capital Services maintain BUY TP ₹1000 (18% upside). 

A decent quarter:

Cello reported a sales growth of ~24% (~8% QoQ) with consumerware/writing instruments and stationery/moulded furniture and allied products reporting a YoY growth of ~31%/9%/4%. This quarter, the consumerware segment reported a volume growth of ~35-36% aided by a long festive season. The GM contracted by ~190bps QoQ on the back of inflation in the raw material prices. Ebitda grew by ~30% YoY (~10% QoQ) and the margin expanded by ~50bps on a QoQ basis aided by operating leverage. 

Large headroom for growth: 

Given the strong brand name and a well-established pan India distribution network, Cello is well placed to deliver a strong double digit top-line and bottom-line growth. The future growth drivers for the company will be steady growth in houseware and scale up of new businesses (opalware, glassware and writing instruments among others), distribution expansion in rural markets and operating leverage. Currently in consumerware, the rural markets contribute ~18-20% of the sales for the Cello, however with a gradual shift from unorganised to organised sector and distribution expansion, the company aims to increase the rural contribution in consumerware sales up to 35-40% in a span of 3-5 years. 

EPS downgrade for FY24-26 of ~2-3%: 

Analysts of IIFL Capital Services downgrade their Ebitda estimate for FY24/25/26 by ~3% and PAT for FY24/25/26 by ~2-3% to account for margin miss driven by input cost inflation. With a steady performance in houseware and scale up of new businesses, coupled with operating leverage will drive an EPS Cagr of ~19% over FY24-26. Analysts of IIFL Capital Services value the company at ~46x FY26 and maintain BUY, TP ₹1000.