Cello World — Q2 FY25 earnings call

Call held 13 Nov 2024

Management summary

Cello World reported a flattish second quarter, primarily impacted by export delays in the Writing Instruments segment caused by Russian sanctions and Red Sea logistics issues. Despite these headwinds, the company maintained strong EBITDA margins of 27% and successfully commissioned its new glassware facility, which is expected to drive significant import substitution. Management is pivoting towards domestic growth and inorganic opportunities while integrating WimPlast to streamline its corporate structure.

Highlights

  • Revenue for Q2 FY25 stood at ₹490 crores, remaining flattish YoY due to export headwinds.

  • EBITDA margin maintained at a healthy 27% with EBITDA of ₹132 crores.

  • PAT stood at ₹82 crores with a margin of 16.7%, representing a 2.1% YoY growth.

  • Consumerware business grew 5% YoY, while Writing Instruments and Molded Furniture segments saw degrowth.

  • Commissioned a state-of-the-art glassware facility in Rajasthan with 20,000 metric tons annual capacity.

  • Writing Instruments distribution reached ~140,000 outlets, with a target of 2 lakh+ in the next 8-9 months.

  • Initiated merger process with WimPlast to consolidate operations and leverage manufacturing synergies.

  • Revised full-year growth guidance from 15-17% to a lower 'good number' following a soft Q2.

Concerns

  • Geopolitical Sanctions (Russia)

Key financials

2 periods

Headline

  • Revenue
    ₹490 Cr
    YoY 0%
  • EBITDA Margin
    27%
  • PAT
    ₹82 Cr
    YoY +2.1%
  • Gross Margin
    52%

H1

  • Revenue
    ₹991 Cr
    YoY +3%

What they filed

Q1 FY27: revenue down 0.4%, net profit down 9.9% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue490 557 589 529 587 +20%554 −1%654 +11%527 −0%
EBITDA119 127 135 109 128 +8%106 −17%129 −4%99 −9%
Net profit87 92 96 81 91 +5%69 −25%90 −6%73 −10%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

SegmentRevenue ContributionGross Margin
Consumerware68%53.6%
Writing Instruments15%57%
Molded Furniture & Allied17%45.4%

Guidance & targets

Capacity

  • Glassware Annual Capacity Capacity · FY25 · High confidence 20,000 metric tons
    The installed annual capacity of this plant is estimated to be about 20,000 metric tons.

    — Gaurav Rathod, Joint Managing Director

Revenue

  • Glassware Revenue Potential Revenue · at full utilization · Medium confidence ₹230-250 crores
    About INR230 crores to INR250 crores we can achieve without value addition.

    — Gaurav Rathod, Joint Managing Director

  • Full Year Revenue Growth Revenue · FY25 · Low confidence Revised (unspecified)

    Previously 15-17% → Revised (unspecified)

    So I think we'll have to -- that guidance will change a little bit seeing the second quarter.

    — Gaurav Rathod, Joint Managing Director

Volume

  • Writing Instrument Growth Volume · next 2 to 3 years · Medium confidence 12-15%
    And we still have the same guidance of about 12% to 15% over the next 2 to 3 years.

    — Gaurav Rathod, Joint Managing Director

Market Share

  • Writing Instrument Distribution Reach Market Share · next 8 to 9 months · High confidence 2 lakh+ outlets

    From 120,000 outlets today

    We should be at about 2 lakh plus, and that's what we are aspiring to get to... in the next 8 to 9 months.

    — Gaurav Rathod, Joint Managing Director

Risks & concerns

  • Geopolitical Sanctions (Russia)

    high

    New Russian sanctions delayed container shipments, leading to lost sales in the Writing segment.

    Management acknowledged

  • Logistics Disruption (Red Sea)

    medium

    Shipments to the US are taking longer routes, causing delays and impacting export volumes.

    Management acknowledged

  • Demand Softness and Discounting

    medium

    Weak demand led to slight discounting in Consumerware to maintain market share.

    Analyst acknowledged

  • Raw Material Cost Volatility

    low

    Molded furniture margins were impacted by RM-led pricing adjustments.

    Management acknowledged

Areas of evasion (2)

  • Specific revenue numbers for the opalware sub-segment within Consumerware.
  • Exact revised percentage for FY25 growth guidance.

Q&A highlights

3 direct
Export Headwinds in Writing Instruments Direct
Those were lost sales that I don't think we can recover completely because in those fronts as well in those countries, that sale was lost.

Confirms that the Q2 weakness in exports is a permanent loss of revenue for the period, not just a deferral.

Asked by Praveen, Prabhudas Lilladher

Glassware Plant Ramp-up and Economics Direct
Minimum [production] would be about 70% to 80%, as I said it would be 40 tons. So 55 tons a day, then it would be 40 tons.

Provides the operational break-even/minimum threshold for the new capital-intensive glassware facility.

Asked by Percy, IIFL Securities

WimPlast Merger Rationale Direct
We do not see any point in running 2 separate listed entities as the business is not very different... we can share manufacturing facilities with our other plastic product lines.

Explains the strategic shift toward consolidation to improve compliance efficiency and manufacturing footprint.

Asked by Deepesh Sancheti, Manya Financial Services

2 min read 5 chapters

Detailed narrative

Export Headwinds Stifle Q2 Growth

Cello World's Q2 FY25 performance was significantly hampered by external logistical and geopolitical challenges. Management noted a 2-3 month delay in containers due to new Russian sanctions and the ongoing Red Sea crisis, which primarily impacted the Writing Instruments segment. These delays resulted in 'lost sales' that management admits cannot be fully recovered, leading to a flattish revenue performance of ₹490 crores for the quarter.

Glassware Facility: A Strategic Import Substitute

A major highlight of the call was the commissioning of the state-of-the-art glassware facility in Rajasthan. With an installed capacity of 20,000 metric tons and a capex of ₹250 crores, the plant is positioned to substitute imports from China, Thailand, and Turkey. Management expects this facility to generate ₹230-250 crores in revenue at full utilization, with commercial sales commencing in December 2024.

WimPlast Merger and Operational Synergy

The company has initiated the merger of WimPlast into Cello World, citing the lack of rationale for maintaining two separate listed entities with similar business lines. The merger is expected to reduce compliance costs and allow Cello to utilize WimPlast's diverse manufacturing locations for other plastic product lines. Cello World currently owns 55% of WimPlast and will acquire the remaining 45% through this process.

Distribution Expansion in Writing Instruments

Despite recent degrowth in the Writing segment, management remains bullish on domestic expansion. The company added 15,000 to 20,000 outlets in the first half of the year, bringing the total to approximately 140,000. They have set a hard target to reach over 200,000 outlets within the next 8 to 9 months, aiming for a 12-15% growth rate in this segment over the next 2-3 years.

Margin Resilience Amidst Discounting

Cello maintained a healthy EBITDA margin of 27% despite facing weak demand that necessitated some discounting in the Consumerware segment. Gross margins remained stable at 52% overall. Management indicated that while some discounting might persist for a couple of quarters to 'maintain turf,' they expect margins to improve as demand picks up during the festive and wedding seasons in H2.

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