Cello World Ltd. IPO

Published by Sharekhan Education | October 30, 2023

By Amit Pathak | Sharekhan Education

Issue Size: ₹ 1,900 Crores

Price Range: ₹ 617-648

Opening Date: Monday, October 30, 2023

Closing Date: Wednesday, November 1, 2023

Company Overview: 

Cello World Ltd. is a prominent player in the Indian consumer ware market.  It has a presence in consumer houseware, writing instruments & stationery, molded furniture & allied products, and consumer glassware. They offer 15,891 Stock Keeping Units (SKUs) across these product categories.  The company operates 13 manufacturing facilities across five locations in India.

The company has established a strong brand identity through effective brand advertisements and marketing campaigns, including slogans such as “Cello – Companion for Life,” “Cello – Rishta Zindagi Bhar Ka,” “Hot Chahiye Toh Cello,” and “Don’t Just Write, Glide.”

Objects of the Issue: 

The entire IPO comprises an offer for sale, and the company will not receive any proceeds from it. The company anticipates that the listing of its equity shares will boost its visibility and brand image. The listing will also provide liquidity to its shareholders and a public market for its equity shares in India. Investors can apply for a minimum of 23 shares and in multiples thereof. Following the allotment, the shares will be listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

Competitive Strengths: 

Cello World Ltd. boasts a diverse range of products spanning various price points, enabling them to serve as a one-stop shop for consumers of all income levels. Their nationwide sales and distribution network facilitates the efficient launch of new product lines. The company’s manufacturing capabilities allow it to swiftly scale up production to meet increased demand, while its operational efficiencies and supply chain network help control expenses. The company’s promoters have over 80 years of combined experience in the consumer products industry and have a track record of successfully growing new businesses.

Business Strategy: 

The company plans to leverage its innovation capabilities to expand its existing product portfolio. It aims to broaden its distribution network and enhance its sales velocity by offering incentives to distributors and retailers. Cello World Ltd. intends to continue improving brand awareness and strengthening brand recall, especially for newer brands such as “Kleeno” and “Puro.” They also seek to enhance their manufacturing capabilities to respond effectively to market demand increases.

Key Concerns: 

A potential concern is that the company does not own the trademarks for its key brands, including “Cello,” “Unomax,” “Kleeno,” and “Puro,” and their respective logos. Failure to renew the relevant license agreements for these trademarks and logos could negatively impact the company’s business operations. Additionally, fluctuations in raw material prices, particularly plastic granules and plastic polymer prices, may adversely affect its financial condition and cash flows.

Financials: 

Cello World Ltd. has achieved robust financial performance. , with a revenue growth of 30.8% Compound Annual Growth Rate (CAGR) over the period of FY21-23. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) have increased by 23.4% CAGR over the same period, while Profit After Tax (PAT) has grown at a rate of 31.2% CAGR. However, the EBITDA margin has contracted from 27.3% to 24.3%, primarily due to fluctuations in raw material prices. As a result, Return on Equity (RoE) has decreased from 52.2% to 39.9%. At the upper end of the price band (₹617-648), the issue appears to be fairly valued, with a Price-to-Earnings (P/E) ratio of 47.4x based on FY23 earnings.

Source: IPO Red Herring Prospectus

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