Cello World Limited IPO

About the company:

Cello World is a renowned Indian consumer product company, specializing in three key categories: writing instruments and stationery, molded furniture, and consumer housewares, as well as related products. With over six decades of experience in the consumer product industry, the company has developed a profound understanding of consumer preferences and choices. Cello World operates 13 manufacturing units located across five different regions in India. In line with its commitment to enhancing productivity and manufacturing capacity, the company is planning to establish a glass manufacturing unit in Rajasthan, equipped with European-made machinery. As of March 31, 2023, the company had 15,841 stock-keeping units (“SKU”) across all product ranges, and its national sales distribution team comprised 683 members. The company's core strengths lie in its robust market position, strong branding, diverse product offerings tailored to meet various customer demands, a history of successful business expansion across product categories, and an experienced management team with deep domain expertise. Cello's primary focus revolves around comprehensively identifying consumer needs and preferences through an extensive network of distributors. This commitment drives the company's continuous innovation efforts to ensure its products cater effectively to the evolving requirements and diverse preferences of its valued clientele.

The Objective of the Fresh Issue:

The company will not receive any of the offer proceeds as the entire issue is an offer for sale and hence it will be received by the respective selling shareholders.

Key Strengths and Opportunities:

- In order to enhance brand awareness and fortify its brand presence, the company employs a multifaceted approach encompassing in-shop displays, merchandising, print and social media advertising, retail and product branding. Its formidable standing in the consumer products industry is a testament to its extensive experience, unwavering commitment to product development, and profound understanding of consumer dynamics.

- The diversified product portfolio serves as a resilient cornerstone for the company's business model, facilitating sustained growth even in the face of adverse events, such as the COVID-19 pandemic. It intends to expand the product portfolio in the consumer houseware product category by focusing on introducing a new range of products including kitchenware, porcelain, appliances, cookware, glassware, writing instruments, and stationery spaces.

- Cello's expansive pan-India distribution network has played a pivotal role in the efficient launch of new product lines in the past. The company diligently maintains a balance between product availability and inventory levels, ensuring resource deployment efficiency.

- Through a consistent strategy of increasing sales, expanding the brand portfolio, diversifying product offerings, and fortifying its distribution network, the company has achieved continuous business growth. The operational efficiencies and supply chain network have resulted in better control of expenses and thereby resulted in an increase in profit after tax. Furthermore, the company maintains positive cash flows and carries a relatively low level of indebtedness.

- Currently, Cello relies on the import of glassware from third-party suppliers outside of India. To enhance its agility in meeting market demand, the company is actively in the process of establishing a glassware manufacturing facility in Rajasthan, thereby ensuring a swift and effective response to increasing demand for its products.

Risks:

- As of March 31, 2023, approximately 45 percent of the company's total expenses were attributed to the cost of raw materials consumed. Fluctuations in raw material prices, especially plastic granules and plastic polymer prices, and disruptions in their availability may have an adverse effect on the business, results of operations, financial condition, and cash flows of the company.

- Cello heavily relies on its distribution network, both within India and internationally, to effectively market and deliver its products to consumers. Failure to sustain and expand this distribution network could hinder the efficient reach of products to consumers, potentially resulting in a loss of market share for the company.
 
- The company procures certain products such as steel and glassware items from third-party contract manufacturers, primarily situated in China. This dependence on third-party contract manufacturers introduces inherent risks, the realization of which could negatively affect the company's business, financial condition, results of operations, and cash flows.

- The company does not hold the trademarks for its pivotal brands, including "Cello," "Unomax," "Kleeno," "Puro," and their respective logos. These trademarks are registered under the name of Cello Plastic Industrial Works ("CPIW"), an entity within the Promoter Group and a partnership firm owned and controlled by the Promoters. The inability to renew the pertinent agreements that grant the license for the use of these trademarks and logos could have an adverse impact on the company's business, financial condition, results of operations, and cash flows.

Financial Snapshot:

Conclusion:

The company comes at an earnings valuation of 49x based on its EPS as of March 31, 2023 and the upper price band. When compared to its listed peers, which include Borosil Ltd, Kokuyo Camlin Ltd, La Opala RG Ltd, Stove Kraft Ltd, TTK Prestige Ltd, and Linc Ltd, their PE ratios range from 33x to 58x as of October 19, 2023, with an industry average PE of 45x. This implies that Cello World Limited is fully priced. The company has displayed strong performance relative to the majority of its peers. Considering its robust financials, the company’s strengths, and future growth prospects, we recommend our investors to SUBSCRIBE to the Cello World Limited IPO.