Cello World

Consumerware player

Established brand name and strong market position in the consumer products industry segment

Cello World is a prominent player in the consumerware market in India with presence in the consumer houseware, writing instruments and stationery, moulded furniture and allied products and consumer glassware categories. Although the company was incorporated only in 2018, its erstwhile promoter late Ghisulal Dhanraj Rathod, father of two of its promoters, Pradeep Ghisulal Rathod and Pankaj Ghisulal Rathod, was associated with Cello Plastic Industrial Works (CPIW) and the Cello brand since 1962. Promoters (through their family) have since diversified its product range and brand portfolio over the last six decades.

CPIW was a partnership firm formed in 1958. While in the past CPIW was engaged in the business of manufacturing and dealing of thermoware household articles and plastic materials or articles, it is currently not active in these businesses. CPIW is the exclusive owner of the Cello, Unomax, Kleeno, Puro trademarks and their respective logos. Since the trademarks for these key brands were owned by CPIW from prior to the incorporation of company, the trademarks continue to be held by CPIW. Over the years, Promoters, Pradeep Ghisulal Rathod and Pankaj Ghisulal Rathod and their father, Mr. Ghisulal Dhanraj Rathod formed various entities, which carried on business under the brand name of Cello. Cello Plast (partnership firm) was formed in 1991 to carry on the business of manufacturing insulatedware followed by opalware at Daman, Daman and Diu. In 1995, another partnership firm, Cello Plastotech was formed to carry on the business of manufacturing new ranges of consumerware at Daman, Daman and Diu. In 2005, Cello Industries (a partnership firm) was formed to carry on the business of manufacturing new ranges of insulated ware at Haridwar, Uttarakhand. These separate entities were initially formed under the Cello brand as each of these entities focussed on distinct businesses within the consumerware sector and enabled geographic expansion across the country. Pursuant to the group restructuring process undertaken in the Financial Year 2022 the business of Cello Plast was acquired by one of its subsidiaries, Cello Industries Private Limited and the business of Cello Plastotech was acquired by one of its subsidiaries, Cello Household Products Private Limited. Cello Industries was converted into a private limited company, viz. Cello Houseware Private Limited, and is now one of its subsidiaries.

The company offer its consumer products across three categories - consumer houseware, writing instruments and stationery, and moulded furniture and allied products. Its products under the consumer houseware product category are offered and sold under the Cello brand. The popular sub-brands under the Cello brand include Kleeno, Puro, Chef, H2O, Modustack, Maxfresh and Duro. Products under the writing instruments and stationery product category are offered and sold under the Unomax brand. The popular sub-brands under the Unomax brand include Ultron2X and Geltron. Products under the moulded furniture and allied products category are offered and sold under the Cello brand.

The company own and operate 13 manufacturing facilities across five locations in India, as of June 30, 2023, including eight facilities in Daman in the Union territory of Daman and Diu, two facilities in Haridwar, Uttarakhand, one facility in Baddi, Himachal Pradesh, one facility in Chennai, Tamil Nadu and one facility in Kolkata, West Bengal. It has an installed annual capacity of 57.77 million units of consumer houseware products per annum, 15,000 tonnes of opalware and glassware per annum, 705.00 million units of writing instruments and stationery products per annum and 12.80 million units of moulded furniture and allied products, as of June 30, 2023. It is currently establishing a glassware manufacturing facility in Rajasthan which is expected to have an installed annual capacity of 20,000 tonne of glassware per annum and house European-made machinery that enables high productivity and precision in design and finish. This glassware manufacturing facility in Rajasthan is also expected to house various machines, including fire polishing machines and servo gob feeder to be located close to raw material suppliers and provide a dry weather environment that is suitable for the manufacturing of glassware.

The company also trades in products such as steel and glassware products, by sourcing these products from contract manufacturers primarily located in China, and subsequently selling them to consumers.

Its manufacturing capabilities allow it to manufacture a diverse range of products in-house. Its revenue derived from its in-house manufacturing operations aggregated to 78.65%, 82.63%, 79.37%, 82.08% and 79.67% of total revenue from operations for FYs 2021, 2022 and 2023 and the three months ended June 30, 2022, and June 30, 2023, respectively. The remaining products (consisting mainly of steel and glassware products) are manufactured by third party contract manufacturers who manufacture these products with its branding pursuant to arrangements with them. The scale at which it manufactures products, combined with supply chain management, enables it to derive the benefits of economies of scale across various aspects of business model. Further, it maintains optimal inventory levels across its manufacturing facilities by implementing technology and utilising available market information. It also endeavours to maintain high quality standards and good manufacturing practices

The company has a strong pan-India distribution network. As of June 30, 2023, it offered 15,891 SKUs across its product categories.

Its products are made of different types of materials, such as plastic, steel, opal, glass, copper and melamine.

The Offer and the Objects

The offer comprises offer for sale of up to 29320988 equity shares at the upper price band of Rs 648 and 30794165 equity shares at the lower price band of Rs 617 aggregating Rs 1900 crore. The offer also includes a reservation for a subscription by eligible employees and a discount of Rs 61 per equity share is being offered to eligible employees bidding in the employee reservation portion. The company will not receive any proceeds from the Offer. All the offer proceeds (net of any offer related expenses to be borne by the selling shareholders) will be received by the respective selling shareholders, in proportion to the equity shares offered by them in the offer for sale.

The promoters of the company are Pradeep Ghisulal Rathod, Chairman and Managing Director, and Pankaj Ghisulal Rathod and Gaurav Pradeep Rathod, Joint Managing Directors.

Promoter group selling shareholder Pradeep Ghisulal Rathod post-issue shareholding shall decrease to 10.7% from 12.9% pre issue shareholding, Gaurav Pradeep Rathod post-issue shareholding shall decrease to 11.2% from 16.5% pre issue shareholding, Gaurav Pradeep Rathod post-issue shareholding shall decrease to 22.4% from 25.7% pre issue shareholding, Sangeeta Pradeep Rathod post-issue shareholding shall decrease to 5.9% from 7.4% pre issue shareholding, Babita Pankaj Rathod post-issue shareholding shall decrease to 1.1% from 1.8% pre-issue shareholding and Ruchi Gaurav Rathod post-issue shareholding shall decrease to 2.9% from 3.7% pre issue shareholding.

Strengths

The company is a prominent player in the consumerware market in India with products in the consumer houseware, writing instruments and stationery, and moulded furniture and allied products categories.

The company’s strong market position in the consumer products industry segment isdue to vast experience, continuous product development and consumer understanding.

Brand Cello was awarded as one of the most trusted brands of India in 2021 by Commerzify.

The six decades of experience of promoters (through their family) in the consumer products industry has enabled it to better understand the preferences and needs of consumers in India, diversify its product portfolio and grow its multi-channel distribution network. This has enabled it to curate an extensive product portfolio that caters to a diverse range of consumer requirements and offers a broad range of contemporary products across different ranges, types of material and price points.

The company has a track record of scaling up new businesses and product categories.

The company has the most diversified product portfolio among its peers, with products in the glassware, opalware, melamine and porcelain categories.

Pursuant to the establishment of the glassware manufacturing facility in Rajasthan, it is expected to become the only domestic consumer products company which has presence across all material types to have an in-house glassware manufacturing unit in India

The company manufacturing capabilities allow it to manufacture a diverse range of products in-house, which in turn enables it to scale up production quickly to meet increased demand, reduce time taken to launch new products in the market, maintain quality control of its products, maintain better control over its supply chain and mitigate risk of supply chain disruption.

The company has implemented an enterprise resource planning system, which is a systems application and product software, to, among others, help it in tracking consumer demands and maintaining optimum inventory levels for its consumer houseware and moulded furniture and allied products product categories. It is also in the process of implementing the same for its writing instruments and stationery product category. Additionally, it plans inventory levels by utilising available market information, including existing inventory levels, delivery timelines and expected order pipelines, and its six decades of experience in anticipating and forecasting consumer demand in the consumer products industry. An optimal level of inventory is important to its business as it allows us to respond to consumer demand effectively.

The company intend to utilise its innovation capabilities to expand its existing product portfolio and develop new range of products across product categories. Particularly, it aims to expand product portfolio in consumer houseware product category, by focusing on introducing new range of products in the kitchenware, porcelain, appliances, cookware, glassware, writing instruments, and stationery spaces.

The company intend to grow its manufacturing capabilities so that it can quickly and effectively respond to increases in market demand for its products to continue to grow business. It is in the process of setting up a glassware manufacturing facility in Rajasthan, which is expected to have an installed annual capacity of 20,000 tonnes of glassware per annum. Further, it has also recently expanded its opalware capacity in its manufacturing facility in Daman to increase installed annual capacity to 25,000 tonnes of opalware per annum from 15,000 tonnes of opalware per annum, as of August 6, 2023.

Weaknesses

The company face significant competition.Some are larger and have substantially greater resources than the company, including the ability to spend more on advertising and marketing and offer substantial discounts. It also faces competition from non-branded local retailers and traders that may have more flexibility in responding to changing business and economic conditions than the company.

Fluctuations in raw material prices, especially plastic granules and plastic polymer prices, and disruptions in their availability may have an adverse effect on business, results of operations, financial condition, and cash flows.

The company do not own the trademark for its key brands, including Cello, Unomax, Kleeno, Puro and their respective logos. Such trademarks are registered in the name of Cello Plastic Industrial Works (CPIW), a member of its promoter group and a partnership firm owned and controlled by promoters, Pradeep Ghisulal Rathod and Pankaj Ghisulal Rathod. Further, the Cello brand name is used by one of its competitors, BIC Clichy, for its writing instruments and stationery business. In 2009, Bic Clichy, to acquire the writing instruments business of the then Cello entities, which were promoted by the company promoters, among others, entered into shareholders agreements with these Cello entities. In 2017, BIC Clichy instituted litigation proceedings against Promoters, amongst others, before the Bombay High Court alleging violation of certain non-compete arrangements contained in a shareholders’ agreement dated January 21, 2009. The matter is pending before the High Court of Bombay. In the event of an adverse order, Promoters, amongst others, could potentially be liable to pay compensation. Any adverse impact on the Cello brand name due to the actions of BIC Clichy, which utilizes the brand name, and any subsequent adverse order relating to the litigation proceedings instituted by BIC Clichy may also adversely impact reputation and business.

The company is required to obtain and maintain certain statutory and regulatory permits and approvals under central, state, and local government rules in India, generally for carrying out business and for manufacturing plants. If it fails to obtain such approvals, licenses, registrations, and permissions, in a timely manner or at all, its business, results of operations, financial condition and cash flows may be adversely affected.

Non-compliance with and changes in, safety, environmental and labour laws, and other applicable regulations, may adversely affect operations. Further, an increase in labour costs may adversely affect business, results of operations, financial condition, and cash flows.

The company operate in highly unorganised product categories, and due to the popularity and recognition of brands, its brands and designs may be copied by other companies. If it is unable to adequately protect intellectual property rights, it may lose these rights, and its brand image, competitive position and business may be adversely affected.

The business may be adversely impacted by sale of counterfeit products and passing-off which may reduce sales and harm brands, adversely affecting results of operations, financial condition, and cash flows.

Valuation

For FY2023, consolidated sales were up by 32% to Rs 1796.7 crore. OPM fell110 bps to 23.4% which led to 26% increase in operating profit to Rs 420.54 crore. This increase was mainly on account of an overall increase in demand and sales of products across three product categories. Other income increased 5% to Rs 16.74 crore while interest cost fell 38% to Rs 1.76 crore and depreciation increased 6% to Rs 50.33 crore. PBT increased 29% to Rs 385.19crore. Tax expenses were 26% higher at Rs 100.13 crore. Net profit increased 30% to Rs 266.14 crore.

For Q1FY2024, consolidated sales were up by 9% to Rs 417.78 crore. OPM rose 290 bps to 25.3% which led to 23% increase in operating profit to Rs 119.2 crore. This increase was mainly on account of an overall increase in demand and sales of products across consumer houseware and writing instruments and stationery products product categories, partially offset by a decrease in sales in moulded furniture and allied products product categories. Other income increased 103% to Rs 8.1 crore while interest cost rose 54% to Rs 57lakh and depreciation increased 1% to Rs 11.82 crore. PBT increased 30% to Rs 114.92 crore. Tax expenses were 42% higher at Rs 32.08 crore. Net profit increased 25% to Rs 77.44 crore.

For TTM period ended June 2023, the consolidated net profit was Rs 281.74 crore on a sales of Rs 1835.87 crore. The TTM EPS was Rs 13.3 and the PE on upper price band of offer price works out to 49 times.

As of 11October 2023, its listed peers such as Borosil Limited trades at TTM P/E of 50.4, Kokuyo Camlin Limited trades at TTM P/E of 41.1, La Opala RG Limited trades at TTM P/E of 35.4, Stove Kraft Limited trades at TTM P/E of 47.4, TTK Prestige Limited trades at TTM P/E of 43.5, Linc Limited trades at TTM P/E of 28.8 and andHawkins Cookers Limitedtrades at TTM P/E of 39.6.

For FY2023, CelloEbitda margin and ROE stood at 24.3% and 23.2% respectively, compared to 13% and 8.5% for Borosil Limited, 7.6% and 6.2% for Kokuyo Camlin Limited,42.9% and 16.2% for La Opala RG Limited, 13.4% and 29.7% for Stove Kraft Limited, 14.6% and 13.9% for TTK Prestige Limited, 13.2% and 23.4% for Linc Limited and 13.9% and 38.7% for Hawkins Cookers Limited.