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* Cello World (CELLO) is the most diversified consumerware company and one of the top players in majority of its business segments. In this report, we have analyzed CELLO’s position against key players in its fastest-growing business segment, glassware.

* Since its foray into the consumer glassware segment in 2017, CELLO has quickly scaled up this business to generate revenue of INR2.8b vs. a total addressable market (TAM) of INR35b in FY23. The segment will be a key growth driver (26% CAGR over FY23-26) for the company amid evolving applications, capacity expansions in opalware and soda lime glassware, increase in SKUs, and import substitution.

* Under the consumer glassware segment, opalware/soda lime glassware dominate, with TAM of ~INR14b/INR15b. While La Opala dominates the opalware category, CELLO is also catching up with recent capacity expansions in Daman. Moreover, CELLO is the only large branded player that is expanding in soda lime glassware (higher TAM), while other players are expanding in borosilicate glassware (TAM of ~INR4B).

* Currently, La Opala dominates in terms of revenue growth (CAGR of 46% over FY21- 23) and margins (EBIT margin of 33% in FY23). CELLO is not far behind (36% revenue CAGR; 23% EBIT margins). With a ramp-up of its soda lime glass capacity and achieving economies of scale, CELLO will be able to narrow the gap going ahead.

* CELLO is currently trading at 34x FY26E EPS with RoE/RoCE of 32%/39% in FY26E. We believe that the company will be able to successfully scale up new businesses and expand SKUs and distribution reach in order to evolve as a leading brand in the respective segments. We reiterate our BUY rating with a TP of INR1,100 (premised on 45x FY26E EPS). 

Consumer glassware to be a key growth driver

* The consumerware segment accounted for 66% of revenue in FY23, split between consumer houseware (77%) and consumer glassware (23%).

* The segment saw a strong 33% revenue CAGR during FY21-23, driven by both sub-segments (glassware and houseware). The consumer glassware segment is likely to outpace the houseware segment with a ~26% CAGR over FY23-26, led by strong demand tailwinds and capacity expansions.

* Since entering the consumer glassware segment in 2017, CELLO has rapidly scaled up this business to ~INR2.8b. Currently, the majority of CELLO's consumer glassware revenue comes from opalware (84% in FY23) and the remaining from other glassware types (soda lime, borosilicate glassware, and porcelain).

* CELLO established a 15,000MT plant in Daman for opalware production, which has now been expanded to 25,000MT. It also imports and sells soda lime and borosilicate glassware in India to diversify its offerings.

* The consumer glassware segment comprises subcategories, like opalware, soda lime glass and borosilicate glass, distinguished by their raw materials and production methods. The market is fragmented with many unorganized players and is also heavily dependent on imports due to weak domestic demand (until now), operational challenges, and high capital intensity.

* In CY21, the Indian consumer glassware market imported products worth INR11b, of which glassware products constituted ~77%, followed by opalware (15%) and melamine (8%).

* With increasing demand, evolving product applications and import replacement opportunities, branded glassware companies, like CELLO, La Opala, and Borosil, are expanding their capacities in India.

* Currently, opalware dominates in terms of domestic capacity. However, the next major leg of expansion is happening in soda lime and borosilicate glassware.

* CELLO/Borosil recently commissioned a soda lime/borosilicate plant in Rajasthan (20,000MT/9,100MT) in Mar’24. La Opala plans to invest in greenfield borosilicate glassware plants.

* These expansions in glassware subcategories signify a strategic shift toward domestic manufacturing to meet growing demand and reduce dependence on imports (current glassware import in India is ~INR8.4b).

Glassware industry dynamics and CELLO’s place in it

* La Opala leads the opalware market with a 36% market share in FY23, driven by its early market entry, wide product range, and substantial capacity (36,000MT). In contrast, CELLO and Borosil operate under a single brand in the mass market segment.

* La Opala is expected to maintain its lead with its high gross margins and product diversity. CELLO is positioned to excel in the soda lime glassware market with its large manufacturing facility in India (only major player), while Borosil and La Opala focus on borosilicate glassware capacity for different applications.

* In FY23, the glassware market stood at ~INR35b — opalware (INR14b), glassware (INR19b), and porcelain (INR2b). The glassware market is split between soda lime glassware (~INR15b) and borosilicate glassware (INR4b).

* CELLO has entered soda lime glassware (larger TAM) by setting up capacity in Rajasthan (20,000MT). As the only large branded player in this fragmented market, CELLO is poised to capitalize on the growing preference for branded products. Additionally, the production cost of soda lime glassware is lower than that of borosilicate glassware, enhancing the economic feasibility of CELLO's expansion into this segment.

* CELLO is expected to see faster growth in soda lime glassware due to its larger TAM, which is projected to see a 15% CAGR over FY23-27 vs. borosilicate’s 10% CAGR.

* We believe CELLO is likely to achieve a breakeven earlier due to higher demand and lower manufacturing costs for soda lime glassware, although borosilicate glassware may yield higher margins in the long term due to premium pricing and niche applications.

Among the leading players across categories

* In terms of financial performance, CELLO, a diversified consumerware company, compares favorably to its closest peer, Hamilton Houseware (Milton).

* The company posted a higher revenue CAGR of ~31% over FY21-FY23 vs. Milton's 28%. Additionally, CELLO boasts superior EBITDA margins of ~23% in FY23 vs. Milton’s 16%. CELLO's success is attributed to its higher proportion of in-house manufacturing (~80%), leading to greater manufacturing efficiencies and diversification into higher-margin businesses like writing instruments and consumer glassware.

* Under the consumer glassware category, Borosil and La Opala are the closest peers. La Opala predominantly generates revenue from consumer glassware, while CELLO and Borosil have relatively smaller revenue share from this segment (15%/59% respectively). Lower share for Cello is due to its recent entry in 2017. However, CELLO has shown impressive growth, registering a 36% revenue CAGR over FY21-23.

* Opalware is a key revenue contributor for all key consumer glassware companies and CELLO is expected to sustain a healthy 15% revenue CAGR in the opalware segment over FY23-26.

* La Opala leads the consumer glassware segment with the highest EBIT margins (~33% in FY23), followed by CELLO (~23%) and Borosil (~8.5%). La Opala's strong margins are mainly driven by a focused product portfolio, diverse SKUs, and inhouse manufacturing, while CELLO's diversified portfolio moderates its margins (houseware is a relatively a low-margin segment). Borosil's lower margins are a result of its reliance on imports and third-party manufacturers for a significant portion of its revenue.

* CELLO aims to improve margins to 26% by FY26 by leveraging economies of scale and efficiencies from the ramp-up in its soda lime glass capacity.

Valuation and view

* CELLO has been one of the leading players across its product categories, boasting a strong brand reputation and distribution reach. With its strong manufacturing background and brand equity, CELLO has been able to quickly scale up new businesses and compete with market leaders.

* The consumer glassware segment will be a key growth segment for the company and we believe CELLO will be able to surpass the market leader in the segment on back of operationalization of its new glassware capacity.

* We estimate CELLO to deliver a CAGR of 18%/23%/25% in revenue/EBITDA/adj. PAT over FY23-26.

* CELLO is currently trading at 34x FY26E EPS with RoE/RoCE of 32%/39% in FY26E. We reiterate our BUY rating with a TP of INR1,100 (premised on 45x FY26E EPS).

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