Cello World Limited (CELLO.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Cello World Q1 FY '26 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. Before we move on to the conference, I would like to give a small disclaimer. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on the date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. I now hand the conference over to Mr. Aniruddha Joshi from ICICI Securities.

Yes. Thanks, Manu. On behalf of ICICI Securities, we welcome you all to Q1 FY '26 Results Conference Call of Cello World Limited. We have with us today, senior management represented by Mr. Gaurav Rathod, Joint Managing Director; and Mr. Atul Parolia, CFO. Now I hand over the call to Mr. Gaurav for his initial comments on the quarterly performance. Thanks, and over to you, or, sir.

Thank you, Anirudh. Good morning, everyone, and a very warm welcome to our company's earnings call. Joining me is our CFO, Mr. Atul Parolia; and our Investor Relations adviser, SGA. The relations presentations are available on the stock exchange and on our website. I hope you had a chance to look at it. We had a decent start for the year with a year-on-year revenue growth of 6%, reaching at INR 529 crores. The growth was primarily driven by our Consumerware segment, which grew by 12% year-on-year. Having said that, we are yet to experience a full consumer demand recovery across categories. The growth has also been hit by a slightly earlier onset of rains, particularly in May and -- which affected the hydration category. We saw a different sales in that particular month. For the quarter, we have achieved the highest ever gross profit margin at 54%, reflecting our manufacturing excellence, strong positioning as a premium brand in the market and enduring relationships with our distributors and channel partners. Our partnerships with e-commerce platforms are also gaining traction and sales from these channels are on the run. Nevertheless, general trade remains our leading contributor, both in terms of volume and profitability. Looking ahead, our strategy is to strengthen our omnichannel presence across general trade, online channels, modern trade, e-commerce and quick commerce to broaden our product reach across India and outpacing the industry slow consumer demand trends. Coming to category-wise performance. Our consumerware category delivered a year-on-year growth of 12%. Within the consumerware category, the glassware business delivered a solid growth of 50%, driving the overall growth of the segment. As I mentioned, the hydration category was a dip though it grew year-on-year, but could have been better. And due to the onset of overall earlier rains, it got affected. Other consumerware bar categories also delivered a decent growth of around 10%. Writing instruments continue to face challenges in terms of export demand slowdown, which got further impacted by a slowdown in our domestic sales. Hence, the segment revenue stood at INR 74 crores against INR 83 crores in quarter 1 last year. We are working on strengthening our writing instrument brand Unomax and to grow this segment in a more sustainable manner. Having said that, Unomax remains the highest margin product line in quarter 1 of financial year benefit. To overcome slower demand in this segment, we have already introduced a few products and continue to introduce new product lines like mechanical pencil, which was introduced in quarter 1 of financial year '26. Coming to the furniture business. The performance remains subdued with revenue of about INR 90 crores. The performance is in line with the industry trend. And as previously mentioned, we are working towards premiumization of product range here and expect slightly better growth trends in the coming quarters. We anticipate strong demand surge in the upcoming quarter, driven by the festive season and good traction in the last month, resulting in a better Q2 compared to quarter 1 of financial year '26. Cello World is well positioned to capitalize on this uplift with its premium and innovative product portfolio and deliver faster growth with healthy profitability and return ratios. I will now hand over to our CFO, Mr. Atul Parolia, for the financial highlights. Thank you.

Thank you, Gaurav, and good morning to everyone. I will be sharing the financial detail for the quarter that has gone by. In Q1 FY '26, our revenue grew by 6% year-on-year to INR 529 crores compared to INR 501 crores in Q1 FY '25. Gross profit for the quarter stood at INR 286 crores and gross profit margin at 54%. During the quarter, employee costs and other expenses increased primarily due to the new glassware facility in Falna. EBITDA margin for the quarter was 24%. Tax for the quarter came in INR 73 crores at a margin of 14%. Our revenue mix for the quarter combined 69% from the consumerware segment, 14% of the writing instrument and balance 17% plus from the 2 light product. Among these writing instruments delivered the highest gross profit margin at 59%, followed by consumerware at 56% and molded furniture and allied products, 41%. General trade stays the largest revenue contributor at 75.8%, followed by a growth -- growing share from the online segment at 10.4%, modern trade and export [indiscernible] 5.4% and 8.4%, respectively. With this, I would like to open the session for questions and answers.

[Operator Instructions] We have our first question from the line of Jay Doshi from Kotak Securities.

My first question is, could you call out the revenue contribution of Glassware business? And more importantly, what's the drag on profitability in this quarter, which will help us appreciate margins of rest of the business better?

Jay, can you hear me?

Yes, I can.

So Jay, basically, in the Glassware segment, it's still in the negative. So there is a loss in the quarter for that particular segment, which has dragged the profitability a little bit, but which was expected. As I had mentioned that this year is we are building capacity, and we are at about 65% efficiencies at this point of time, which ideally, we would want it to be a [ further ] at 85%, which will happen over the course of the year, which will definitely reduce our cost of production. Having said that, basically, the drop has been primarily in this segment and the revenue growth has been there. So I think this will continue for this couple of quarters before which we break even for the year. So the idea is that we have to be breaking even by the end of the year in this particular segment, which we anticipate we will be able to do given reducing cost and rising revenue trends in this particular segment. But overall, yes, it will be a drag on profitability by a percentage point also for this entire year.

Sure. So Gaurav, what we are not able to sort of understand is that 150 basis points Y-o-Y decline in profitability was expected from glassware, but this quarter, it's dropped 525 basis points at EBITDA margin level. So is there additional pressure over and above the drag from glassware in the core business that we should be aware about?

Right, right. So I think there has been a lot of margin pressure well due to the demand pressure and the sales revenue pressures. So overall, demand has been slow, and that is why sales promotion activities has increased in terms of schemes and some discounts. So I think from that perspective, and we have not been able to raise prices. So our energy cost, if you see has gone up for the year because there was a rate change in Daman specifically, where the energy rate went up. The wages have gone up as well. But we are not able to increase prices from last year because of the environment. And I think that has also contributed to that margin decline. Also, coupled with -- because there is a de-growth in the Writing Instrument segment, the costs have still remained the same. Though revenue has gone down, the fixed costs have eaten up some bit of profitability there as well. So I think overall, as the revenue comes back on track, which should be growing a little faster than what we anticipated this quarter, this should mitigate, right? And of course, [indiscernible] biggest jump in because the product mix kind of changes a little bit. So we have better or higher premium gifting segment products that sell which sell with better profit margins. So I think that has been the reason for the drop. It increased costs, and we have not been able to pass that in the market. That is our major reason for this quarter.

Sure. And last one is on writing instruments. Now after a weak FY '25, we thought it will be back to growth this year, but it has again started with a 10% plus decline in 1Q. So could you give us some outlook for what should we expect for rest of the year? And basically, is this domestic pressure in domestic business or exports or both? Again, some color on outlook for exports as well as domestic for that segment. That's it from our side.

Sure. Yes. Thank you. So I think in the Writing Instrument segment, yes, it's been disappointing. We would like to be ideally growing this segment at about 10% year-on-year. But it has been challenging from the export side of things. We have had more of a challenge coupled with domestic demand also not growing much. If the industry also overall, if you look at only the pen segment, which we are majorly though we have introduced new products, but they still haven't gained that much traction. So I think from the pen front, it has been lackluster. But having said that, end of June, some parts of July have seen a decent traction. So we are still hopeful, though for the rest of the year, we'll see how it goes in terms of export demand specifically. And also, we are trying to gain more market share in the domestic side of things. It's not been easy. And it's not a -- we've started spending some money on advertisement here also because being slightly newer brand, it is -- at a certain level, it grew, but now we'll have to put in a lot more effort to grow this further, so which we are committed to do, and hopefully, we'll grow at least this year by a little bit.

We have our next question from the line of Praveen Sahay from Prabhudas Lilladher Capital.

The first question is related to your guidance, the last quarter, what we had given related to the growth of Consumerware business, which is a quite higher like 17%, 18%. So where it holds right now?

So I think this quarter, again, as I said, a few things did not work. For example, the hydration fees in, as I said, was not very good. Plus on the steel flat business, which we are going to start producing from November, December. That bid -- so we saw some stock-outs in those kind of product lines which also did not help, right? So I think overall, yes, from a company perspective, we still guide for about 12% to 15% overall, given that the glassware business is growing pretty well. Also, the consumerware side of things, we still see a decent traction. It's been dragged down by writing instruments and the furniture business. But the consumerware business still remains healthy and it remains on the growth path.

Okay. Okay. Second question is related again to the margin front. So whether -- this employee expenses increase or the other expenses, it's all because of your, the glass business where you ventured out.

No, employee is majorly due to the glass rises because we have had manufacturing we employed new people, so I think that is just because of that reason. Other expenses, as I said, sales promotion expense rate for the quarter has increased due to see pressures because it's been a tough quarter overall. So a lot more discount, a lot more schemes has been passed on. And ideally, we hear -- every year, we kind of raised prices in April. But unfortunately, we were unable to do that this year, given that there was very aggressive pricing by a lot of competition for this quarter to try to gain traction in sales. So I think from that perspective, is where we see a slightly dip in margin, which we will a little bit we would, of course, cover over the period of a year.

Okay. Next question is related to the furniture business. Last 2 quarters, we are seeing the gross margin contraction is continuing. So where you will see the gross margin of a furniture business will settle?

So I think the gross margin has been because of the product mix, it keeps changing a little bit throughout the year. It depends on what product sells during the year. So I think it remains flat. There will be no expansion in the margin. But overall, as the product mix changes throughout the year, this will stabilize at a flat margin of last year. So I think going forward, in the furniture category, as we have already mentioned that we are in the premiumization part. So once those synergies also click in, though it grows slowly, it doesn't grow by 10%, 15%, the premium segment. It grows by a percentage point every year or a couple of percentage points that keeps adding to the gross margins as well. So I think it should be stable as per last year as well.

Okay. And do you see that your writing export business to improve in the next 9 months?

Yes, it is because I think July for us was decent, and we hope it should continue that the overall growth trend should continue. We have a good pipeline of orders and now things seem a little better also after the Middle East or has now is almost over. So the trade routes are now pretty open. There are no shipping delays, so I think that should definitely help the business.

And this majorly coming from where geographically?

Majorly, it's still Middle East, Russia, Latvia, a little bit from the U.S. will not be much hit by the tariffs, though because the orders are still in place, but and our exposure is limited.

Okay. Lastly, sir, CapEx for this financial year. What was it?

So CapEx for this financial year is medially going to be the steel flash, which is in the tune number, about INR 40 crores to INR 50 crores, which is the new CapEx, which is going to happen. And otherwise, it's just maintenance CapEx. So it will be around INR 50 crores, INR 60 crores. So about INR 100-odd crores for the year.

We have our next question from the line of Lakshmi Narayan from Tunga Investments.

Do you actually give the breakup of the consumerware into plaster, opalware and the hydration.

No, we actually report only consumerware figures. We do not do a breakup.

Got it. And in terms of your distribution, do you actually give the distribution mix for consumerware? Like I mean, how much is modern trade? How much is general trade?

Yes, we can definitely share those numbers with you. Currently, in front of me, I'm only having the numbers for the entire company. But -- so just to give you an idea, it is, of course, online in the consumerware segment is the highest because the stationery and the furniture business is almost very limited. So I guess if you look at the numbers, it will be like a couple of percentage points here and there. And exports majorly comes from our stationery business. So for a detailed breakup of course, we can share that with you anytime.

And how seasonal is your consumerware business? Is it high on and then low on Q4? Can you just give some thoughts on that?

Yes. So the consumerware as business typically picks up in Q2. So festive season for consumerware business is slightly larger. So it's about 1.5 -- 1.2x or 1.3x of a nominal month sales. So it definitely is slightly on the higher, which is Q2 [indiscernible].

And how has been your distribution expansion in consumerware?

So I think distribution have been present all over India. So we do have a pan-India presence. Overall, it is more deeper penetration is what we are looking at. And deeper penetration comes from opening new retail outlets or going -- or are people visiting more outlets, which, unfortunately, in India is not rising at this point of time. So the number of outlets for us is still remaining the same. But what we are seeing is more shelf space on those same markets is what we are gaining. And of course, the other channels of sale, which is online, quick commerce has seen good traction for us. So I think going forward, general trade, it will be up on a slower growth overall, compared to the other channels of growth, which is online and quick commerce and channels.

Got it. And how are you handling the channel conflict with respect to online in the consumerware?

So we typically have to differentiate the products on each platform because of the wide area of product lines that we have to about almost 17,000 SKUs. So we are able to play around with a little bit of product mix is different for different channels. And also the end product is slightly differentiated as much as possible. Of course, not 100%, but about 60%, 70% of our portfolio is a differentiated product itself. And now we have a strategy to kind of made for e-commerce. So I think now that has completely changed. In the past, we used to make for general trade and sell on e-commerce, but now it's made specifically for e-commerce. So I think that from a mindset change has also happened within the company.

We have our next question from the line of Percy Panthaki from IIFL Securities.

So last year, you had given some data about the new plant that INR 20 crores of sale has come from the new plant. Out of which, INR 10 crores was import substitution. So can you give the similar figures for this quarter, please?

So about -- we are around about INR 15 crores to INR 16 crores came again from our sales -- from our factory, and the rest was still traded items, which will further go down. So about 60% now is the factory product line and about 40% is the import product, which will keep -- the ratio will be changing, will keep going down.

Understood. And the new plant, what was the sales from the new plant this quarter, INR 15 crores, INR 16 crores?

Yes, yes, yes. So about INR 5 crores, INR 5.5 crores average sales.

So why is it lower than Q4, you had done INR 20 crores of sales from the new plant?

Yes. But normally, the first quarter is always slightly weaker. It is always going to start from the second, third quarter is stronger demand trends. So it is -- the first quarter will always be a little subdued for the glassware category.

I understand that would be the case normally but like we are starting from almost scratch, so that should not be affected by seasonality, the ramp-up, because we are like significantly below the capacity of the plant, right?

No. what happens is basically what kind of product line sale is also important. So say, there was a surge on say bottle demand. The bottle do much better, which is a traded item for us. It's not a manufacturer item. So those kind of items will pick up. So the overall sales still grows, but some of the sales that -- the product mix that we are making has not grown in this quarter, which again -- which is the next few quarters that is growing. So overall, because we had started also you have to realize that we started in the last quarter. So it was a launch. So the product that has gone into the market. So now it is repeat demand also.

Understood. So how do we think about the total top line from this new plant for the full year basis?

So for the full year basis, we are anticipating about INR 110 crores to INR 120 crores of sales and which is at the current capacity levels that we are producing, we will have told us about 65% to 70% of our capacity, because, of course, our capacity expansion will happen over a period of time. All the efficiency gains will happen over a period of time. So by next year, we will produce about a lot more. But currently, what we will sell about 70% of it.

Understood. So the sale for this new plant at full capacity, that works out to how much? About INR 200 crores roughly?

INR 200 crores, it depends again on the product mix, but it anywhere starts from about INR 200 crores to INR 25 crores So when I say INR 250 crores is because of value addition. So we're saying in on it. We do some colored glasses and all of that. So that will add more in terms of the revenue.

So do we reach that INR 200 crore level FY '27 or it might be 1 more year for that?

I think '27. I think '27, we should definitely reset.

Got it. My second question is on the total company EBITDA margin. So earlier, you had said that they might dip by about 150 bps Y-o-Y on account of the glassware plant. But now you mentioned that there are some other costs also which are inflating. So how do we look at the company level EBITDA margin for this year?

I think for this year, you should look at an EBITDA margin of around 23-odd percent for the entire year. Could be better, but I think given the environment and given that there is too much aggression by a lot of players in the market, we are hoping to end this year at about 23% EBITDA.

Okay. So overall basis, 12% to 15% top line and 23% EBITDA margin?

Correct. Correct.

We have our next question from the line of Achal Lohade from Nuvama Institutional Equities.

First question I have is if you could give some sense about what is the revenue and the EBITDA level loss for the new plant?

So EBITDA level loss, we don't put it here. If you need that information, we'll share it to you a little later.

Right. And revenue, you said it's INR 15 crores, INR 16 crores from the new factory?

Correct. from the new facility.

Right. The second question I had, if we look at the gross margins, all the houses for the consumerware, right, it was 55% in 1Q, '25, it is 56.2%. So ideally, with the in-house manufacturing of the glassware, the margins should have expanded. So if you could give some better sense about, how do we see this margin, gross margin for the consumerware?

Sales it is the beginning of a facility. The costs are a little higher and also the efficiencies are lower at this particular point in time. So glassware is going to be -- as I said, it's going to be -- because once we started the plan, it's a 10-year story. So the idea is that we are first ramping up production, ramping up new products as well. So as and how we improve efficiencies, cut costs and increase revenue, you will start seeing those numbers kicking in terms of profitability.

Right. So I think, Gaurav, you're mentioning from an EBITDA perspective as the gross margin, is there a case of heavy discounting because we are still penetrating in the channel with our brand, our product and hence, the margin improvement is less than what we were earlier expecting at the gross profit level, which is realization and the raw material cost?

Absolutely. Absolutely. Because I think there has been margin pressure definitely for this quarter.

Got it. Another question I had, in terms of the demand scenario, you mentioned in passing remark that things have improved in the month of July. Have I understood right?

Yes. So we are seeing good traction in month of July for all categories. Basically, that's what I mentioned.

Across categories, right?

Across categories.

And in terms of the channel inventories, how are these channel inventories as we speak? Because I presume earlier we had a challenge with respect to higher inventories in the channel? And what is the situation now? Has it normalized? Or it still continues to remain high?

Yes. I think it's better than before. I wouldn't say it's the best because, again, we saw a great quarter last March for consumerware there specifically, but again, having slowed down demand this year, this quarter again in terms of the secondaries also, there would be a certain amount of inventory, but it's still much better than what it was last year. That's for sure. So it has been an improving trend because and we see that in our collections also. So our collections have been better for the quarter.

Right. And how do you see the competition? Because we see numerous brands actually also getting into our category. So does that mean that in terms of the margins, we have kind of peaked in terms of margins? And from here on, you will have -- either you will have to sacrifice margins or growth?