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Headwinds likely to peak out; performance to improve from 2QFY27 onwards

Cello World Ltd. (CELLO) is India's leading consumer products company with a legacy of over six decades. The company has built a diversified portfolio spanning Consumerware, Writing Instruments & Stationery, and Moulded Furniture, supported by an extensive distribution network of over 5,000 distributors and a rapidly expanding presence across e-commerce and quick commerce channels.

* CELLO has been facing multiple headwinds since 3QFY26, including subdued demand, slower-than-expected ramp-up of its new Glassware plant, and stockouts of insulated steel products, which impacted overall FY26 performance. Consequently, operating margins remained under pressure due to weak revenue growth, the shift in steelware sourcing from China to domestic suppliers, and a sharp increase in input costs following the onset of the US-Iran war.

* Looking ahead, we expect business performance to improve from 2QFY27 onwards, driven by the commissioning and ramp-up of the new steel bottle plant, improving utilization at the Glassware facility, and continued strong momentum in the Writing Instruments & Stationery segment, This is expected to be further supported by the scale-up of the ‘CELLO stationery and PEN’ brand, which was acquired in Dec’25, and the premiumization of the core product portfolio. However, volatility in raw material prices arising from geopolitical developments could keep margins under pressure in the near term.

* We project revenue/EBITDA/PAT CAGR of 10%/19%/16%, respectively, over FY26-FY28E. We reiterate our BUY rating on the stock with a TP of INR480.

Weathering near-term challenges; recovery beyond 1QFY27

* CELLO has been navigating multiple headwinds over the past few quarters, driven by subdued demand, slower-than-expected ramp-up of its glassware facility due to aggressive dumping by Chinese players, and operational disruptions. Additionally, the implementation of BIS norms impacted the steelware segment, resulting in stockouts of insulated steel products. Consequently, the company reported revenue growth of 8.8% YoY in FY26. Within this, the Consumerware segment (69% of revenue) grew 10% YoY, while the Moulded Furniture segment (15% of revenue) declined 5% YoY. The Writing Instruments & Stationery segment (16% of revenue) emerged as the key growth driver, registering 20% YoY growth.

* Further, the US-Iran war triggered a sharp increase in raw material prices, leading to an overall input cost escalation of ~12%. As a result, COGS as a % of sales increased to 50.2% in FY26 from 48.3% in FY25. The impact was most pronounced in 4QFY26, where raw material costs as a % of sales grew to 53.3%, compared to 48.1% in 4QFY25 and 50.4% in 3QFY26

* Plastic granules and polymers are among the key raw materials, accounting for ~52–53% of total COGS and ~19-20% of sales. Prices of these inputs increased meaningfully from Nov-Dec'25 onwards. Other key raw materials used in the Consumerware segment such as stainless steel and chemicals (including isocyanate, polyol, soda ash, and others) also witnessed a sharp increase in prices. (PP prices inched up ~50%+ over Aug’25 to March’26; similarly, HDPE/LDPE prices expanded ~62%/63%, respectively). Additionally, higher fuel costs weighed on margins in the Glassware and Opalware businesses, where power and fuel account for ~18–20% of manufacturing costs. Consequently, gross margins across the Consumerware, Writing Instruments, and Moulded Furniture segments contracted from 52.6%/56.6%/44.1% in FY25 to 50.9%/53.6%/40.3% in FY26.

* Margins were further impacted by the slower ramp-up of the new glassware facility, which operated at around 60% utilization largely at the break-even level and the shift in steelware sourcing from China to domestic suppliers. Consequently, EBITDA margin contracted to 20.3% in FY26 from 23.9% in FY25.

* Management indicated during the 4QFY26 earnings conference call that business performance is expected to remain under pressure in 1QFY27 due to the continued impact of geopolitical tensions. However, for FY27, the company targets revenue growth of 10-12% and margin expansion of 200-250bp YoY.

Valuation and view

* CELLO is currently navigating a challenging operating environment, marked by subdued demand and elevated input costs, which have weighed on both revenue growth and profitability. We anticipate a gradual recovery from 2QFY27 onwards. An improvement in demand should drive higher utilization of the Glassware plant, supporting both revenue growth and profitability. Additionally, the recently launched Cello Stationery brand, which started contributing from 4QFY26, is expected to scale up meaningfully over the coming quarters.

* Near-term input cost volatility may persist amid an evolving geopolitical environment. However, improving capacity utilization and a higher contribution from premium products under the Cello brand are expected to support margin expansion over the medium term. Accordingly, we expect FY27 EBITDA margin at 20.7%, below management's guidance of 22.3–22.8%, as the trajectory of demand recovery and raw material costs remains a key monitorable.

* We forecast revenue/EBITDA/PAT CAGR of 10%/19%/16%, respectively, over FY26–FY28E. At the CMP, the stock trades at P/E of 22x/18x on our FY27E/FY28E EPS estimates of INR16.5/INR20.5, respectively. We continue to value the stock at P/E(x) of 23x (average of the last four years) on FY28E EPS, arriving at a TP of INR480. Accordingly, we reiterate our BUY rating on the stock.

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