Buy Cello World Ltd for the Target Rs.621 by PL Capital
Quick Pointers:
* Consumerware flat YoY (-0.5%) in Q3FY26, with GM maintained at 50.2%
* “Cello” brand consolidation to reflect from Q4FY26 in writing instruments
Consumerware revenue (69.4% of Q3FY26 revenue) reported a soft performance, primarily due to supply constraints in the steel category and lower glassware plant utilization at 55%. The company indicated that these issues are likely to persist for the next couple of quarters, with glassware plant utilization expected to improve to ~85% by the end of FY27. Writing Instruments grew 11.1% driven by demand revival and new launches, with Cello brand consolidation, expected writing segment to contribute Rs5bn+ to FY27 revenue. CELLO’s EBITDA margin contracted by 380bps YoY, impacted by underutilization (55% in Q3FY26) of its glassware plant, high cost of steelware products sourced from OEMs, and continued discounting on products.
Management indicated Glassware and Writing Instruments as key growth drivers, with glassware targeting ~85% utilization over the next year and offering strong long-term potential for efficiency improvement. The Wimplast merger is nearing completion and is expected to be finalized within ~2–3 months, likely by Q1FY27.
We estimate revenue/EBITDA/PAT CAGR of 12.7%/17.2%/19.6% for FY26-28E. We downward revise FY27/FY28 earning estimate by 16.9%/13.3% factoring supply constraints in the steel category and underutilization of glass plant continue for couple of quarters. We assign SOTP-based TP of Rs621 (earlier Rs732), implying PE of 30x FY27E. Maintain “BUY.”
Q3FY26 financial performance: Revenue remained flat at Rs5.5bn (PLe: Rs6.5bn). Consumerware revenue (69.4% of Q3FY26 revenue) remained flat at Rs3.8bn. Writing Instruments revenue (15.5% of Q3FY26 revenue) increased 11.1% YoY to Rs859mn. Moulded Furniture & Allied Products (15.0% of Q3FY26 revenue) declined by 10.5% to Rs833mn. Gross margin remained flat at 49.6% (in-line with our est). Gross margin of Consumerware remained flat at 50.2%, Moulded Furniture contracted by ~450bps to 39.6%, while that of Writing Instruments expanded by 170bps YoY to 56.5%. EBITDA declined by 17.0% YoY to Rs1.1bn (PLe: Rs1.4bn). PAT declined by 17.7% YoY to Rs 711mn (PLe: Rs965mn).
9MFY26 financial performance: Revenue increased by 7.9% YoY to Rs16.9bn. Consumerware revenue (70.2% of 9MFY26 revenue) increased by 11.0% YoY to Rs11.7bn. Writing Instruments revenue (14.4% of 9MFY26 revenue) increased 4.7% YoY to Rs2.4bn. Moulded Furniture & Allied Products (15.4% of 9MFY26 revenue) declined by 1.5% to Rs2.6bn. Gross margin remained flat at 51.0%. Gross margin of Consumerware/Writing Instruments remained flat at 52.1%/56.7% while Moulded Furniture gross margins got contracted by 450bps to 40.5%. EBITDA declined by 8.7% YoY to Rs3.4bn. PAT declined by 7.8% YoY to Rs2.3bn.
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