Cello World share price up over 10% in April so far; Motilal Oswal remains positive about the stock- 3 key reasons why

The stock was listed on exchanges on November 6, 2023. As of April 5, the stock is up 27 per cent against its issue price of ₹648 apiece.

Brokerage firm Motilal Oswal believes the stock can rise further by as much as 34 per cent. The brokerage firm has reiterated its buy call on the stock with a target price of ₹1,100, based on 45 times FY26E earnings per share (EPS).

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As per Motilal, Cello share price is currently trading at 34 times FY26E EPS with RoE (return on equity) and RoCE (return on capital employed) of 32 per cent and 39 per cent, respectively, in FY26E.

“Cello is the most diversified consumerware company and one of the top players in the majority of its business segments. It has been one of the leading players across its product categories, boasting a strong brand reputation and distribution reach. With its strong manufacturing background and brand equity, it has been able to quickly scale up new businesses and compete with market leaders,” Motilal said.

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The brokerage firm expects Cello to deliver a CAGR of 18 per cent, 23 per cent and 25 per cent in revenue, EBITDA and adjusted PAT, respectively, over FY23-26.

Here are the three key reasons why Motilal Oswal is positive about the stock:

1. Consumer glassware to be a key growth driver

Motilal Oswal pointed out that the consumerware segment saw a strong 33 per cent revenue CAGR during FY21-23, driven by glassware and houseware sub-segments.

According to the brokerage firm, the consumer glassware segment may outpace the houseware segment with a nearly 26 per cent CAGR over FY23-26 due to strong demand and capacity expansions.

“Since entering the consumer glassware segment in 2017, Cello has rapidly scaled up this business to nearly ₹280 crore. Currently, the majority of Cello’s consumer glassware revenue comes from opalware (84 per cent in FY23) and the remaining from other glassware types (soda lime, borosilicate glassware, and porcelain),” Motilal Oswal pointed out.

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2. Cello may excel in the soda lime glassware market

Motilal Oswal is positive about Cello’s position in the glassware industry and believes it may excel in the soda lime glassware market with its large manufacturing facility in India.

“Cello has entered soda lime glassware (larger TAM) by setting up capacity in Rajasthan (20,000MT). As the only large branded player in this fragmented market, Cello is poised to capitalise on the growing preference for branded products. Additionally, the production cost of soda lime glassware is lower than that of borosilicate glassware,” Motilal Oswal said.

The brokerage firm underscored Cello may see faster growth in soda lime glassware due to its larger TAM (total addressable market), which is expected to see a 15 per cent CAGR over FY23-27 versus borosilicate’s 10 per cent CAGR.

“We believe Cello is likely to achieve a breakeven earlier due to higher demand and lower manufacturing costs for soda lime glassware, although borosilicate glassware may yield higher margins in the long term due to premium pricing and niche applications,” Motilal said.

3. Cello among the leading players across categories

Motilal Oswal pointed out that Cello posted a higher revenue CAGR of nearly 31 per cent over FY21-FY23 versus Milton’s 28 per cent. Additionally, it posted EBITDA margins of nearly 23 per cent in FY23 versus Milton’s 16 per cent.

“Cello’s success is attributed to its higher proportion of in-house manufacturing (nearly 80 per cent), leading to greater manufacturing efficiencies and diversification into higher-margin businesses like writing instruments and consumer glassware,” said Motilal Oswal.

As per the brokerage firm, Cello aims to improve margins to 26 per cent by FY26 by ramping in its soda lime glass capacity.

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Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.

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Published: 16 Apr 2024, 11:42 AM IST