Cello World Q1 FY27 earnings call

Cello World reported revenues of ₹527 crores in Q1 FY27, maintaining healthy profitability despite a soft demand environment. The company achieved an EBITDA margin of 22.2% and a PAT margin of 13.9%. Gross margins saw a sequential improvement, reaching 52.4% for the quarter, primarily due to implemented price increases across product categories to offset rising input costs.

The Writing Instrument division was a strong performer, registering 52% year-on-year growth and contributing 21.2% to total revenue with a gross margin of 53.8%. The Consumer Ware business, the largest category, delivered a muted performance, contributing 63.6% of revenue with a 55% gross margin. Molded Furniture and Allied Products contributed 15.2% of revenue with a gross margin of 39.5%, with management aiming to maintain current revenue and profitability in this segment.

The Consumer Ware segment faced challenges from subdued consumer demand, inflationary pressures, and macroeconomic uncertainties. Steel bottle sales were significantly impacted by stock-out situations and the absence of imported inventory, leading to a substantial degrowth. In response, the company has commenced in-house manufacturing of steel bottles with 8 operational lines, aiming to ramp up production and expand SKUs from 20-25 to 50-55 over the next couple of quarters.

The Glassware business operated at approximately 60% capacity utilization. While customer response to product quality has been encouraging, scale-up has been slower than anticipated, mainly due to continued dumping from China. Management expects to achieve healthy profitability when utilization increases by another 10-15%, and projects peak revenue for the Glassware plant to be around ₹250-275 crores.

General trade remained the largest channel, contributing 71.1% of total sales. The online channel demonstrated significant growth, increasing its contribution to 16.3% of overall revenues in Q1 FY27, up from 10.4% in Q1 FY26, while maintaining profitability in line with general trade. Export accounted for 7.3% and modern trade for 5.3% of sales.

The company's CAPEX plans for FY27 are primarily for maintenance, with potential small additions of steel segment lines. Management stated a clear strategy to preserve cash for inorganic growth opportunities, indicating that while nothing is currently on the table, they are actively looking for suitable acquisitions rather than pursuing buybacks.

The merger process with Wim Plast is not yet fully completed, with share allotment pending due to technical glitches. Management expects to finalize this process within the next few weeks, addressing shareholder queries regarding the credit of shares.