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

Ladies and gentlemen, good day, and welcome to Cello World Limited Q2 FY '26 Earnings Call hosted by Monarch Networth Capital Limited. [Operator Instructions] Please note that this conference is being recorded. Before we begin, please note that this conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not a guarantee of future performance and involve risks and uncertainties that are difficult to predict. I now hand the conference over to Mr. Rahul Dani. Thank you, and over to you, sir.

Yes. Thank you, Saisha. Good morning, everyone. On behalf of Monarch Networth Capital, we are pleased to welcome the management of Cello for the Q2 FY '26 earnings call. We have with us today Mr. Gaurav Rathod, Joint Managing Director; and Mr. Atul Parolia, CFO; and we also have SGA, IR advisers. And now I hand the call to Mr. Gaurav for his initial comments, and then we'll move to Q&A. Thank you, and over to you, sir.

Thank you, Rahul. 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 results and presentations are available on the stock exchange and on our website. I hope you had a chance to look at the same. During Q2 financial year 2016, we recorded a healthy 20% time growth to reach revenues of INR 587 crores. With this, we crossed the INR 1,000 crore revenue mark on a half yearly basis for the first time and achieved revenues of INR 1,165 crores. We saw healthy uptake across key categories ahead of festive season. The GST rate has been reduced from 12% to 5% for approximately 10% of our product portfolio. primarily within the hydration category. GST rates for all of the other products remain unchanged. Before we delve into our category-wise performance, we are very excited to update you about our agreement with respect to Telo brand for I think instruments and stationary. We are very excited to bring this back into our company soon. Many years back, we had divested this brand to a global company. Recently, they exited this business in India and the promoter group of low or limited found an opportunity to get the brand back into our fold. CPIW member of the Promoter Group of Cello World Limited, the umbrella entity holding the Cello brand in other classes as well will acquire the trademark for stationary and writing instruments. That is Cellos' brand from the big group. One of the subsidies of Cello World Limited entered into an agreement to lease the trademark for Cello brand for stationary and lighting instruments from CPIW. Upon execution of this agreement with CPIW, Cello World Limited will operate stationary and writing instruments portfolio among 2 brands, namely Cello and Unomax. The Cello brand continues to enjoy a strong consumer recall and trust in the writing instruments segment, and our focus will be on enhancing operational efficiency, optimizing costs, leveraging our established manufacturing and distribution infrastructure to unlock the full potential of the business. Now coming to category-based performance. During our quarter, our consumer base segment maintained a healthy earning of growth of 23%, supported by good festive demand. The festive season particularly benefited the consumer wear segment the most, driving strong sales across our key product lines. Year-to-date, our glasses plant had a utilization close to 55%, whereas we saw about 60% utilization levels in Q2 of this financial year. I'm pleased to share that our glass pace plant has achieved breakeven during this current quarter. Despite active dumping pressure from Chinese suppliers, we have successfully scaled up production and gain market share. Our focus now is on continuing expanding our market share in the coming quarters. Currently, we have around 110 SKUs in this vertical, and we plan to expand the portfolio to about 150 SKUs going forward. We are also undertaking solar-based cost optimization initiatives at the plant, which will further enhance operational efficiency and reduce energy costs. Strategically, our focus remains on import substitution in categories such as tumblers and storage. We have witnessed strong consumer acceptance in these segments with our products now being priced at par with imported alternatives, underscoring the quality and competitiveness of our offerings. Our steel category experienced a decline during the current quarter due to supply constraints. We had to source steel wares from other OEM manufacturers at a slightly higher cost, which affected profit margins during this quarter. Our steel plant will commence production from December of 2025. Once operational, it will significantly strengthen our supply chain. We expect this expansion to enhance our cost competitiveness, support margin improvement and contribute to the overall growth of our steel business in the coming years. With a top line of INR 81 crores, the writing instrument segment recorded a year-on-year growth of 16%. This growth is supported by encouraging signs of revival driven by new product launches in mechanical fences, our stationary and internationally licensed kids products. With the addition of the Cello brand and this portfolio, we are highly optimistic about the growth prospects of this business. Upon completion of the transaction, the company will issue a separate communication outlining the subsequent course of action, strategic initiatives and other relevant details. The furniture business also had a decent quarter with an 8% year-on-year growth in revenue, which reached 384 crores. The growth is primarily driven by product addition into this category. These efficiencies are all segments were also reflected in the working capital position. The inventory is on a reducing trend with channel stock easing out. [ Ecom ] and [ Quick com] both saw a media shift in terms of channel mix, which is also helping us in this respect. Overall, we remain on track to achieve double-digit revenue growth for the year. with EBITDA margins around 22% to 23%, underpinned by strong execution, disciplined cost control and the benefits of our capacity expansion. With the ramp-up of our large tire plant and the steel plant, we look ahead to a stronger financial year '27. I will now hand over to our CFO, Mr. Atul Parolia, for the financial highlights. Thank you very much.

Thank you, Gaurav, and good morning to everyone. I will be sharing the financial detail for the quarter gone by. In Q2 FY '26, we achieved a revenue of INR 57.4 crores, that is 20% year-on-year growth. EBITDA stood at INR 141.3 crores with a healthy EBITDA margin of 24%. Our PAT stood at INR 85.7 crores with a margin of 14.6%. Speaking of the revenue, over 71.9% of revenue came from the consumer from the estimate remaining 14.3% from [indiscernible] products. Sales contribution of both the denoted and exports are on the downturn at 73.3% and 6.7%, respectively. Contribution online sales was about 11.6% and modulate at 8.4%. In terms of segment wins margin, Writing Instrument led by a 55% gross profit margin followed by Consumerware at 50.2% and Furniture at 40.9%. Now coming to H1 '26, revenue was in INR 1,116.5 crores with a year-on-year growth of 30%. EBITDA stood at INR 267.6 with a margin of 24%. [indiscernible] was at INR 158. 7 crores per day margin 1.2%. Our cash flow from operations stood at INR 261.7 crores. On the balance sheet side, we continue to maintain a healthy net cash. With this, I would like to open the session for questions answers.

[Operator Instructions] The first question is from the line of Anirudh Joshi from ICICI Securities.

And congrats to the entire team for acquisition of Cello Pens brand. So just certain clarifications here. [ Autum ] Group has also purchased the business from BICS as per the BAC announcements. So if you can elaborate a bit more on the transaction of the deal, how it will be done, whether the brand only will be purchased by [indiscernible] the rest of the business by [indiscernible]? Or how is it working out? If you can throw more clarity on this? Secondly, what will be the revenue addition, like the software assets, for example, distributors, retailers, all other designs in a way, all other corporates, et cetera. Everything is purchased by Cello or anything is gone to Autumn? If you can clarify a bit more on that. And eventually, how do we build the acquisition in terms of numbers? Like where do you see the acquisition panning out in, let's say, FY '27 months will be required for the transaction completion. So how do we see the revenues building up for pens business in FY '27? And then last question, what will be strategy on Unomax brand because anyway, we have an established brand in pens?

Thank you, Anirudh. So basically, for us, we are basically entering into an agreement with] [BIC ] for the pen brand itself. So it is basically the trademark, copyrights and the brand itself will be acquired by CPIW, which will be then leased to Cello World in a separate subsidiary. On all the other numbers, I think it is a little premature for you to and think because once we close everything, we will issue a note on what will be the revenue potential, what is the kind of tax that will be required and overall, that's how we will be issuing a separate note on this a little later. I think on the third piece, we will be running both the brands simultaneously, Unomax and Cello. And even today, they continue to exist, though, we were not managing the brand they continue to exist in the market. And I think both have established themselves. Of course, Cello has a much higher brand equity. We'll, of course, do justice to both by having separate teams working on this, although there will be shared infrastructure and other efficiencies that are to be gained from this transaction. So of course, we will be issuing a separate note out clarifying everything. For now, it is a little premature for me to comment on that.

Okay. Surely. Any -- just one question still helping on that. But any royalty to be paid to BIC Cello for the brand or to even Autumn Group, anything on that or nothing as such, that question. And lastly, with the glass plant now stabilizing, should we see that probably the initial costs are over and we should build in a steady margin expansion, starting with FY '27? That's it from my side.

So basically, in terms of the brand, CPIW, which is the entity that holds the Cello brand as well. We'll be acquiring it. So it's -- there is no royalty for that and it will be leasing it out to Cello World at no additional cost as with other no royalties as well. So there will be no royalty in this case to Cello World at that Secondly, in terms of the glass utilization levels, as I mentioned that it has come to about 60%. We will be most likely maintaining it as we grow our sales over these 2 quarters. this utilization levels will grow slightly, but not by much because I think currently now we reached a good utilization levels. And now as our revenue will increase, then the utilization will keep increasing. But for now, the good part is that they are no longer losing money. It is now broken even. So now it will start generating some amount of profit, though not very significant for at least the next couple of quarters, but it has started generating a very nominal profit for now.

[Operator Instructions] The next question is from the line of Rahul Dani from Monarch Networth Capital Limited.

Congratulations on a good set of numbers. A couple of questions from my end. Just wanted to get some sense as to what kind of utilization has led for the Opalware division right now. And incrementally, would we be kind of looking to increase capacity here?

So in the Opalware, we're about close to about 85% utilization levels. And I think post this, we will now be a little certain spec trying to basically because currently putting up a new plant is basically adding a significant amount of capacity. So beware it's -- we need to add a significant capacity to make it viable. So I think for now, we will -- we try to first utilize 100%. That will be our first priority. And for that if the market is also aligned and we think that this category can grow at that pace. And of course, we are open to expanding this capacity going forward.

So what kind of growth would we have seen in the Opalware by division for the quarter, if you could just quantic a percentage?

So we do not give out separate contributions for each category. Maybe if there's a question on that, I can answer it offline later.

Would that be double-digit kind of growth the Opalware division?

Yes, yes.

Okay. Sure. And just wanted to get some sense on the molded furniture business. Just wanted to get some outlook here because margins have contracted quite a bit. So just how are we looking at this division in the future?

So molded division, as we have already maintained that it's going to be up and down kind of a path because we don't see too much growth potential in this business in terms of revenue. So the only thing is to keep premiumizing, adding outdoor furniture, which is a little premium and slowly increase that to increase our EBIT margins. We do not see very high revenue potential here. But having said that, we are always looking out here to add newer categories apart from more furniture and which we are still thinking on and eventually, there'll be something else that will also come up here. I think in future, there will be some expansion here into different for into different categories.

The next question is from the line of Praveen Sahay from Capital.

Many congratulations for a good set of numbers. The first question, sir, related to the -- your commentary, you had mentioned that the new capacity coming on stream across plastic were in the steel bottles, if you can give some color on that, how much is the potential increase in the capacity and the impact on them because of that?

Right. So in this quarter also, I think the major pain point was steel category because we saw yield contraction there because mainly due to the demand was there but the contraction was due to shortage -- supply shortages because as you all know that there is no more imports that are possible. And we have to rely on some of the manufacturers that have already started capacities in India. But even after that, they are not able to fulfill all the demand or all the SKUs. So I think with the expansion that we have done already in this category, we are starting it in next month. and that should basically stabilize in the next 4 to 5 months. And I think then that we fulfill. So this is more substitution of the imports rather than expansion of capacity that will happen. In terms of plastic houseware, we are starting a very small amount currently. We are just adding some amount of capacity with the steel we not very significant, but for the potential is to add more in that particular area, whereas glass also is at in Rajasthan. As revenues grow there, we will keep adding the capacity further.

Okay. And secondly, that you also highlighted related to the steel prices which has actually impacted your margin. So with the opening of or with the opening of this such kind of capacities, you are hopeful the margin to come back?

Yes. See, basically, currently, we are trading, right? And so trading margins, whatever the OEM suppliers also have, which manufacturing, we'll be able to bring it down a little bit. So I think that's where the margin growth will happen because currently, we've lost a little margin there because previously, when the imports were on everyone, the pricing was much better. in India, the pricing is higher for every manufacturer. So I think whatever the trading margins are that we'll be able to gain through manufacturing. I think that's why the margin profile should improve.

Okay. And also on the guns 12% to 15% of our growth with the 23% to 23.5% of a margin for this year. Where it is now?

So currently, in H1, we are at 13.5% for the first 6 months of growth, and we are at about 12.7%. And in terms of EBITDA margins, we are at about 24%, which is with the other income all -- if I remove that, we are about -- so I think going to be in the 22%, 23% range is without the other income portion of it, I think operational income is what I'm talking about. So I think we are on track to achieve this 12 to 15 and for the year is this kind of momentum continues, which we have seen in the last quarter. We should reach there pretty easily.

Got it, sir. So also on the brand acquisition, that's a BIC Cello Group brand. And so with these brand acquisition, do you see the what-if revenue in the BIC Cello, you can able to garner such numbers?

See, I think the BIC already has a certain amount of revenue that is there. And I think we understand this category very well and with the, Cello branding, Unomax is garnering these kind of margins with Cello having a stronger brand equity I think we can turn this around in the next -- of course, it will take some time. But in the next 1, 1.5 years, we should be looking at similar numbers like Unomax.

Okay. Do you have a capacity for the kind of revenue ?

Yes. So already, we had about 30%, 35% capacities that were empty in our Unomax facility. And these -- this is not very difficult to expand. It's more expansion of machines. If you have a little bit of face also in your facility by just expanding some machines and production lines. You are able to -- because these are all 7, 8x asset turn kind of product lines. So we are able to increase capacity pretty swiftly. So I think we will -- the idea would be to use our current infrastructure and as we grow, we will add infrastructure. So with that, we will come up with a separate note on what will be needed, at least for the next year or so. to achieve the growth or at least have the number that currently they are doing.

Right. And the major focus would be on the domestic market?

Yes. So of course, Cello has a much higher base when it comes to the domestic demand, more than Unomax also currently and traditionally, also, it has been a leader in this category. So I think by doing some tweaks, getting some good products and in the market, I think we will be able to gain a little bit of market share in this particular category.

Right, sir, right. And coming to your export business because this quarter, we had seen a good 12% of a growth you had given for a quarter in the export. So is that export, especially in the writing and segment has revived come back or such kind of momentum to continue?

I think export has actually come back to its previous levels where it was. It had declined a little bit. But having said that, I think we will continue at this level. It should -- it will not dip it for the year, it doesn't seem like unless the U.S. kind of -- because we have not been hit by the tariffs as yet. The orders have not slowed down. But we have a decent amount that we sell to the U.S. as well. So if nothing gets hurt there, I think we should continue to do these numbers.

All the best. I have some more questions but I'll come in the queue.

[Operator Instructions] The next question is from the line of Jay Doshi from Kotak.

Congratulations on acquiring back the Cello brand. My first question is on demand, sort of you've seen a good uptick in demand this quarter and partly probably attributable to early festive or strong festive. So how do you see the demand environment continuing post festive? And is there an improvement in the underlying sort of demand across your categories across markets? Or what we've seen in September quarter? Was it a function of early festive? Or is there improvement per se?

Jay, so basically, yes, there was an uptick for sure. Though this actually could have been slightly better if the GST announcement had not come in because we have not really benefited a whole lot from the GST side of things. But of course, from the sentiment we have, of course, benefited IC. But other than that, it seemed like this thing is back. as we have seen in the last -- because this has been by far the best quarter in terms of demand. It seems -- still we don't -- the festive demand we got a bit of October also early festive had a certain role to play. But even the most part of October was pretty good. The traction seems good. But we have to wait and watch how things will pan out in terms of the overall demand across categories, across geographies, we've seen a growth. That's definitely there. In the consumer were for sure. But what we need to see is the demand stay where it is. Of course, it has also helped that a lot of channel stock has been clear. So we are hopeful that this demand will continue to see growth or at least this demand will be steady for the next few quarters.

Sure. That's helpful. Second is on a sequential basis, the gross margins have come off sharply even in consumer wear segment and scale up of Glassware business, we thought that gross margins would be stable if not better. So what's driving that? And how should we think about the trends there?

So I think because we -- in the glassware side of things, the costs are still high, right? Because utilization levels are still low. And mutations are low also because of sales catching up. So as revenue is because we are not making money in the glassware business. So if Glassware to the overall margin, then you would have seen a 1.5% extra margin growth. So though it has contributed to revenue, it has not contributed to the overall margin profile. Second of all, I think the product mix also in our kind of categories just play a role. So sometimes 1% or 2% year end, that could be there in terms of what kind of products have been sold. And also, as we have in the last quarter also, I have mentioned that we have still not been able to raise prices as the costs have gone because every year for the costs are going to go up, and we were able to pass it on. This year, though, hopefully, from now onwards, if the demand still good, we will be able to see an improvement there in terms of lesser discounts that we would have to pass on. So I think this is a function of to do 3 things. It is not that it is going to be like it should improve only from here. Also, this steel where, as I said, also had something to do with it because the margins there have also contracted because of supply shortages because of OEM manufacturers that are selling to us at a slightly higher cost today. So with manufacturing coming in there, those efficiencies should also kick in and lead to slightly higher gross margins there. So I think all these factors, once they are back on track, we should see a good number there again coming back.

Sure. And the final one, I know you cannot disclose everything or details on shallow writing instruments yet. But first is, when do you expect to close this transaction following which you indicated that you'll come out with a detailed press release. So is it expected very soon in a week or 2? Or could it take more time?

So they're very close. I think this should close within this month itself. And we should ideally start seeing revenues in seller by January. So by the last quarter, we should see revenues in Cello World. So that is what we are currently looking at. Of course, there are some details to be closed for that we'll have a better idea of things.

Sure. And you did mention that in 1.5 years' time, Cello World should be at a similar level as Unomax. Were you referring to profitability? Or were you referring to top line? Cello World should ahead of it, right? Cello World is already clocking better top line than Unomax as of today?

No, it is actually not clocking currently because that also includes their exports which will be kind of dual exports. So they do exports in a big never. So that is why it also includes Export have significantly gone down, but of course, still doing better than Unomax. But I think what we are going to be more concerned about is to bring back revenues with profitable growth. So that is why we are still thinking about how we to be going about it. And that is why once we are fully aligned and fully know the numbers, we'll be in a better -- be in a better position to tell you what exactly we are looking at for the next year and post that also, what we are thinking of what numbers I achieve with the same kind of margin prospect as Unomax.

One final question. You started slow writing instruments has in 1995 and then exited in 2015. So it's practically a 30-year-old brand. And if I remember correctly, in 2015, that scale was INR 600 crore plus top line and 25% margin. Is that correct understanding?