Cello World targets recovery as steel bottle ramp-up and stationery growth support margins

Investment View

Motilal Oswal Financial Services Ltd. (MOFSL) retains a Buy rating on Cello World Ltd. with a target price of Rs 480, compared with the report CMP of Rs 344. The broker expects recent operational headwinds to peak out and business performance to improve from Q2 FY27.

Diversified Business and Distribution Strength

Cello World has a diversified consumer-products portfolio spanning Consumerware, Writing Instruments and Stationery, and Moulded Furniture. Its distribution network includes more than 5,000 distributors, while its presence in e-commerce and quick-commerce channels continues to expand.

E-commerce and quick-commerce accounted for 17% of FY26 revenue. MOFSL expects these channels to support the company's reach, brand visibility and growth.

FY26 Operating and Financial Performance

FY26 performance was constrained by subdued demand, a slower-than-expected ramp-up of the Glassware facility, operational disruptions and stockouts of insulated steel products following the implementation of BIS norms. Consolidated revenue increased 8.8% year-on-year to Rs 23,237 million.

Profitability weakened materially during FY26. The US-Iran war increased raw-material costs by about 12%, while plastic granules and polymers, which account for approximately 52-53% of COGS, saw substantial price increases. Higher stainless-steel, chemical, power and fuel costs also pressured margins.

COGS increased to 50.2% of sales from 48.3% in FY25, while EBITDA margin declined by more than 360 basis points to 20.3% from 23.9%. The new Glassware plant was operating at around 60% utilisation and near break-even. A shift in steelware sourcing from China to domestic OEMs also weighed on margins. Adjusted PAT declined 7.6% to Rs 3,371 million in FY26.

FY27 Recovery Drivers

During the Q4 FY26 earnings call, management stated that pressure could persist in Q1 FY27. It nevertheless guided for FY27 revenue growth of 10-12% and EBITDA-margin expansion of 200-250 basis points from the FY26 base, implying an EBITDA margin of 22.3-22.8%.

MOFSL identifies the following key drivers for growth and margin recovery:

• Phased commissioning and ramp-up of the new steel-bottle plant.
• Higher utilisation of the Glassware facility.
• Premiumisation across the portfolio.
• Scale-up of the CELLO stationery and PEN brand acquired in December 2025.

Steel-Bottle Capacity Expansion

Two steel-bottle lines were operational by Q4 FY26, while four additional lines were scheduled for Q1 FY27. The expansion requires approximately Rs 750 million and the planned capacity can generate Rs 3,000 million of revenue at peak utilisation.

Writing Instruments and Stationery

Management targets Writing Instruments and Stationery revenue of Rs 5,000 million in FY27, compared with MOFSL's estimate of Rs 4,100 million. Growth is expected to be supported by premium pens priced at Rs 12, Rs 15 and Rs 20, as well as exports.

MOFSL Financial Estimates

MOFSL forecasts revenue, EBITDA and adjusted PAT CAGRs of 10%, 19% and 16%, respectively, over FY26-FY28E. Its estimates are as follows:

The broker's FY27 EBITDA-margin estimate of 20.7% is below management guidance because demand recovery and raw-material costs remain key monitorables. MOFSL expects the margin to improve to 23.5% in FY28.

Valuation and Target Price

At the report CMP of Rs 344, MOFSL calculates valuation at 22 times FY27E EPS of Rs 16.5 and 18 times FY28E EPS of Rs 20.5. The broker values Cello World at 23 times FY28E EPS, equal to the average multiple of the past four years, to derive a target price of Rs 480.

Key Risks

• Sustained weakness in consumer demand.
• Continued Chinese dumping in glassware.
• Slower-than-expected capacity ramp-up.
• Renewed geopolitical escalation resulting in higher and volatile raw-material prices.