PL Capital has adjusted its outlook on Cello World, citing a reduction in the company’s earnings expectations for FY26 and FY27. The brokerage has slashed its target price to Rs 678 from Rs 746, maintaining a ‘BUY’ rating.
This adjustment comes as Cello World faces mounting fixed costs and persistent margin pressures across various segments.
Cello World’s consumerware segment, which accounts for 69.1% of its total revenue, reported modest growth. This was attributed to the early onset of rains, which negatively impacted the hydration category. In contrast, the glassware segment saw significant growth of 50%. However, the writing instruments segment experienced weak demand in both export and domestic markets.
Looking ahead, Cello World anticipates improvement in its writing instruments segment in FY26. The company expects this to be driven by new product launches, increased advertising expenditure, and a robust order pipeline from the Middle East, Russia, and Latvia. Additionally, domestic market expansion efforts are underway.
Financially, Cello World reported a 5.7% year-on-year revenue increase to Rs 5.3 billion, although this fell short of the projected Rs 5.5 billion. The consumerware segment saw an 11.7% YoY increase, while writing instruments declined by 11.4% due to export reductions. Despite these challenges, the company’s gross margins expanded by 20 basis points YoY to 54.0%.
Cello’s EBITDA margins declined by 520 basis points, impacted by escalating energy and employee costs, along with higher expenses related to its new glassware facility in Rajasthan. The company also noted increased sales promotion costs to counter aggressive competitor pricing, which delayed its regular April price hikes.
In terms of capacity utilisation, Cello World has reported its glassware plant at 65% utilization, with plans to boost this to 85% by FY26. The opalware segment currently operates at 80-85% utilisation. The company has also outlined a capex plan of approximately Rs 1 billion for FY26, which includes Rs 0.5 billion for steel flask production and Rs 0.5-0.6 billion for maintenance.
The company remains optimistic about the latter half of FY26, anticipating improved demand driven by export recovery, seasonal festive demand, and increased capacity utilisation. PL Capital estimates a revenue/EBITDA/PAT compound annual growth rate (CAGR) of 11.8%/13.3%/16.8% for FY25-27.
Additionally, the anticipated merger with Wim Plast is expected to conclude by the third quarter of FY26, pending a few SEBI approvals. This merger is seen as a potential catalyst for future growth, as it may offer operational synergies and improved market positioning.
Despite the challenges, Cello World continues to make strides in expanding its market reach and improving its production efficiencies. The company’s strategic initiatives, coupled with a favourable demand outlook, could bolster its performance in the coming years.
Overall, while the current landscape presents several hurdles, Cello World’s proactive measures and strategic expansion plans may offer a pathway to renewed growth and stability.