Buy Cello World Ltd For Target Rs.465 by Motilal Oswal Financial Services Ltd
Writing instruments emerge as the key driver
* Cello World (CELLO) reported a muted performance in 2QFY27, with EBITDA declining 5% in 2QFY27, impacted by elevated input costs, lower scale of operations at its steel bottle manufacturing unit due to operational inefficiencies, and subdued consumer demand. The company undertook price hikes across key categories and improved product mix to mitigate input cost pressures.
* CELLO is focused on ramping up steel bottle production through SKU expansion to 50-55 by Dec’26 and commissioning two additional lines. In glassware, the upgraded furnace is expected to restart by Dec’26, supporting higher utilization and better product mix, while Opalware utilization is targeted to reach ~85% (vs 80% currently) by FY27-end. In writing instruments, CELLO-led growth and product portfolio rationalization are expected to drive gradual margin expansion. Overall, management expects ~10% revenue growth in FY27
* We largely maintain our earnings estimates, with revenue/EBITDA/PAT CAGR of 10%/19%/16% over FY26-FY28. We continue to value the stock at 23x P/E on FY28E EPS, arriving at a TP of INR465. Accordingly, we reiterate our BUY rating on the stock.
Lower operating leverage results in margin contraction
* Consolidated revenue grew 8% YoY/20% QoQ to INR6.3b, in line with our estimate.
* Consumerware (66% revenue) declined 1% YoY to INR4.2b (est. INR4.3b). Segmental gross margins came in at 52% vs ~50% in 2QFY26. The company undertook price increases in the consumerware category to mitigate the impact of high input costs.
* Writing Instruments (22% revenue) registered robust growth of 68% YoY to INR1.4b (est. INR1.1b), largely driven by rising contribution of the Cello Pens business. Gross margin stood at ~52% vs 55%/54% in 2QFY26/1QFY27.
* Molded furniture & allied products (13% revenue) declined 6% YoY to INR789m (est. INR800m). Segmental gross margin stood at 38.5% vs 40.9%/39.5% in 2QFY26/1QFY27.
* EBITDA declined 5% YoY but grew 23% QoQ to INR1.3b, in line with our estimate. EBITDA margin stood at 19.2% vs 21.7%/18.8% in 2QFY26/1QFY27 (est. 18.5%).
* Adj. PAT declined 10% YoY to INR819m, in line with our estimate. In 1HFY27, revenue grew 4% YoY to INR11.6b, while EBITDA/PAT declined 7%/10% YoY to INR2.2b/INR1.6b.
* CFO grew 33% YoY to INR1.7b in 1HFY27. Gross debt declined to INR217m as of Sep’26 from INR346m as of Mar’26
Valuation and view
* CELLO’s 2QFY27 profitability remained under pressure from elevated input costs and operational inefficiencies at its steel bottle facility, while glassware margins were impacted by higher natural gas prices. We expect a gradual recovery, supported by the ramp-up of steel bottle production through wider SKU availability and improved efficiencies, and the restart of the upgraded glassware furnace by Dec’26.
* Further, CELLO’s margins are expected to expand through product portfolio rationalization, a shift toward higher-margin offerings and manufacturing cost optimization as the business scales up.
* We largely maintain our earnings estimates, with revenue/EBITDA/PAT CAGR of 10%/19%/16% over FY26-FY28. We continue to value the stock at 23x P/E on FY28E EPS, arriving at a TP of INR465. Accordingly, we reiterate our BUY rating on the stock.
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