Cello World Limited (CELLO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Cello World Limited Q1 FY '27 Earnings Conference Call hosted by ICICI Securities. Before we begin, a brief disclaimer. 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 the date of this call. These statements are not the guarantees of future performance, and it may involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Manan Goyal. Thank you, and over to you, sir.

Good morning, everyone. On behalf of ICICI Securities, we welcome you all to Q1 FY '27 Results Conference Call of Cello World Limited. Today, we have with us senior management represented by Mr. Gaurav Rathod, Joint Managing Director; and Mr. Atul Parolia, CFO. Now, I hand over the call to the management for their initial comments on the quarterly performance. Then, we will open the floor for Q&A session. Thank you, and over to you, sir.

Thank you. Good morning, everyone, and a very warm welcome to our earnings conference call. Joining me today is our CFO, Mr. Atul Parolia; and our Investor Relations Adviser, SGA. Our financial results and investor presentation have been uploaded to the stock exchanges and are also available on our website. I hope you had an opportunity to review them. During quarter 1 of financial year '27, we reported revenues of INR 527 crores while maintaining healthy profitability. EBITDA and PAT margin stood at 22.9% (sic) [ 22.2% ] and 13.9%, respectively. In our previous earnings call, we indicated that we would see a soft patch. In response to the rising input cost environment, we implemented price increases across most of our product categories. These price revisions enabled us to fetch better gross margins in a weak demand environment. The Writing Instruments division delivered a healthy performance during the quarter, registering 52% year-on-year growth driven by a healthy contribution from the Cello brand. The Consumerware business, which is our largest product category, delivered a muted performance during the quarter due to multiple factors. Consumer demand continued to remain subdued as discretionary spending was impacted by inflationary pressures and the prevailing macroeconomic uncertainties. Steel bottle sales were not comparable with the corresponding period last year as we did not have the imported inventory to support demand this year. We have already commenced our in-house manufacturing of steel bottles at our Rajasthan facility. Currently, 8 manufacturing lines are operational, although they are yet to reach optimal utilization. We expect these lines to ramp up over the next few quarters, enabling us to gradually recover and cater to the demand in this category. Capacity utilization in our Glassware business remained at about 60%. Customer response to our product quality has been encouraging. However, the scale-up has been slower than anticipated, primarily due to continued dumping from China. We also saw weaker export demand for most of our products during this quarter. Revenue from our Moulded Furniture & Allied Products business stood at INR 80 crores, broadly reflecting the prevailing industry demand trends. We also witnessed strong momentum across e-commerce channels. E-channels now contribute around nearly 16.3% of our overall revenues while continuing to deliver healthy profitability. In this dynamic environment and broader macroeconomic uncertainties, our focus remains on the factors within our control. During financial year '27, we will continue to strengthen our operational efficiencies, rationalize our product portfolio, realign our distribution strategy, deepen market penetration and improve our working capital discipline. With a focus on maintaining strong balance sheet health and a robust operational structure, we remain confident of steadily improving our performance as demand conditions normalize and the benefits of our ongoing strategic initiatives begin to reflect in the business. With that, I would now like to hand over the call to our CFO, Mr. Atul Parolia, who will take you through the financial highlights. Thank you.

Thank you, Gaurav, and good morning to everyone. I will be sharing the financial details for the quarter gone by. Revenues for Q1 FY '27 stood at INR 526.7 crores. Our gross margin for the quarter stood at a healthy level of 52.4%, a sequential margin improvement. EBITDA for the quarter was INR 117.1 crores, translating into an EBITDA margin of 22.2%. Profit after tax stood at INR 73.4 crores with a PAT margin of 13.9%. In terms of revenue mix, Consumerware contributed 63.6% of the total revenue, followed by Writing Instruments 21.2%, while Moulded Furniture & Allied Products contributed remaining 15.2%. Channel-wise, General Trade contributed 71.1% of the total sales. The Online Channel increased its contribution to 16.3% from the 10.4% in Q1 FY '26, with profitability remaining in line with the General Trade channel. Export accounted for 7.3% of the sales, while Modern Trade contributed 5.3%. On the profitability count, Consumerware reported a gross margin of 55%. Writing Instruments delivered gross margin of 53.8%, and Moulded Furniture recorded a gross margin of 39.5%. With this, I would like to open the session for question and answers.

[Operator Instructions] The first question is from the line of Rakshit Desai from IIFL Capital.

This is Percy Panthaki here. Just wanted to understand on the Glassware unit. At the time of making the CapEx, was the expectation that the China dumping is going to be a short-lived kind of a phenomenon?

So Percy, I think while we had made this investment, the conditions were a little different. The dumping was not as much. But in any case, the ramp-up has been good. The revenues have constantly been increasing of the Glassware plant. And at another 10%, 15% utilization, we will reach a healthy profitability. So I think we still stand by this, the whole idea of putting up the plant and the CapEx, and we should see the fruits pretty soon.

And how much was the sales in the current quarter from the new plant?

It has increased substantially. It is in the tune of about 30%, 35% increase over the last quarter.

Over Q4?

Over Q1 of last year.

Okay. Okay. And what would be our capacity utilization at this point of time?

Capacity utilization still stands at 60% only because we've been using older stock as well, right? So we had a lot of stock that we had built up as well. So we have been eating up that stock, and that is why the capacity remains at 60%.

And when can we expect -- I mean, sorry, what can we expect in terms of sales from this unit for the full year FY '27?

Sales should be a healthy growth. As I said, we are already -- we have already seen 35 -- 30%, 35% growth in the first quarter. So I think that should be the number hopefully for the entire year.

Would we be touching about INR 150 crores or no?

A lot more than that. That was last year. So similar -- it will be quite a lot more than that.

Okay. Understood. Secondly, on the rest of the Consumerware division other than the Glassware, I mean, how has the growth been? What does the festive season look like? Is there going to be any kind of sort of phasing between Q2 and Q3 on a Y-o-Y basis, if you can give some idea?

Sure. As I mentioned that on the Consumer side, the major problem has been the steel products because we have had stock-out situations. And while we have been producing at our new plant, it takes time for the plant to start producing all kinds of items. So while -- when we were actually at our peak, when we were still importing, that time, we had about 150 SKUs. Today, we are playing with 20. And this will increase to about 50, 55 over a period of the next couple of quarters. So I think that's how the ramp-up is happening, where we are left with very limited SKUs. The SKU is a bigger issue. But at the end of the day, that's the only way things are going to move as we have access to no other product line.

Okay. And lastly, can you comment on news items regarding a promoter stake sale? What is the thought process behind that? What are the timelines? What is the extent of sort of shareholding that you would like to sell, et cetera?

See, already as we've -- I'm Atul here. As already we have explained in the NSE and BSE that we have nothing at present. And we...

Sorry, I couldn't hear you.

There has been -- sorry, there has been a clarification that has already been put out. I think that you can refer to that. And currently, there is no other comment on this that we would like to make.

[Operator Instructions] The next question is from the line of Praveen Sahay from PL Capital.

My first question is related to the consumer Opalware business. So how has been the Opalware business? How has been the growth? How much the contribution has been?

So it's been a tough quarter overall for the Consumerware category. So of course, there has not been much of a growth in the Opalware category for this quarter. But it is one of the worst quarters anyway for Opalware because the first quarter is the slowest. Opalware really picks up from the second and third quarter. So I think it looks like a good festive season ahead, but it's been -- the growth has been muted for this quarter at least for Opalware.

Okay. And overall, in the Consumer business, how much of the price hikes have you taken? And is that enough for the inflation in the commodity?

Right. So I think the price increases have been different across product lines, so starting from 7% to almost 20%. So the price hikes have been quite significant. And that is one of the reasons also why volumes have dropped in this particular quarter because it takes a little time for these price increases to take effect. But we have seen crazy increases in input cost, and we had no other choice, but to increase our prices.

But these prices are absorbed in the market?

Yes. Now, it has been absorbed because it -- over time -- and that is why you see a little dip in demand a little bit because of the price hike. But now, I believe it has been absorbed in the market.

Right. Secondly, on the in-house manufacturing of steel bottles, already you highlighted it will take a time for a ramp-up. So by when you are expecting whatever the sales which got impacted because of nonavailability of the imported product get compensated with your in-house manufacturing?

So I think we are ramping up. As I said, we are at only about 20, 25 products currently, and we used to play in around 150-odd SKUs. So I think we will, of course, reach 50, 55 SKUs, which were contributing our major sales. And it will take another couple of quarters to really see the full impact of gaining the entire scale back of what we had lost due to the nonavailability.

Okay. Okay. And lastly, on the Moulded Furniture from the last 3 quarters, we are seeing a decline in the number. So what's exactly the reason for that? And when you are seeing this outlook to improve?

See, I think Moulded furniture, we have always said that we don't expect much of a growth in this particular segment, as it is a heavily crowded segment. So for us, your -- just preservation of current revenue and good profitability is the key. We do not see any great future growth in this particular category. But we would like to maintain our revenues and maintain our profitability in this segment. So this segment is not going to be a revenue driver for us even in the future, as I've always said.

Yes. So is that a declining mode continue in the entire year?

No, not declining. It comes back. It's -- Moulded Furniture, if you see across years, it's always been a similar number. It kind of goes down in one quarter, but picks up the next quarter. So because there are a lot of other institutional sales also that comes in. So it depends on the timing of that as well. So it's not that it's going to be a declining trend. I think we should try to -- or we will be kind of maintaining the top line.

The next question is from the line of Anu Parakh from Anand Rathi.

Sir, my first question is on the Writing Instruments segment. Our gross margin has contracted after the Cello acquisition. So what would be the steady state of margins we can assume going forward?

So I think you are right that it has kind of gone down a little bit, but that's because we are realigning our complete product range in the Cello portfolio because when we bought it, there were a lot of items that were not making money for the company. So I think we have rationalized those products. We are introducing newer products in place of that. So it is kind of transitionary, this effect. We should see similar numbers to the Unomax brand that we have been operating in -- by at least in the next couple of quarters, you should see similar numbers for both brands.

Sir, on the Glassware and the Opalware, how much -- if you can just compare the year-on-year growth or degrowth in revenue in Q1 of FY '27? And was the gas issue has affected? Or does the issue still persist?

So in terms of numbers on the opal glass side, it's been a marginal growth. It's not degrown. And the gas issue, the availability of gas is now there, but it is, of course, at a very high price, which is about almost 80% higher than the price that we were getting in March. So, of course, there is an impact on margins due to that as well because a lot of it could not be passed on during the quarter. But we have taken price increases, and that has kind of helped negate some of the input cost increases. But the gas price increases have been extremely substantial.

So is the issue still there? And we are -- are we planning more price hikes?

More -- sorry? More price hikes? No. So I think -- I don't think we will be able to do any more price rises. I don't expect it to go above this level at this point of time. But I don't think we can do any more price increases because a lot of the products that were coming from China, the prices have not increased there. The input cost for them remains pretty much the same, while it has increased substantially for us. So I think -- but hopefully, it will not go up beyond this. It already, I believe, has reached its peak.

And sir, what was the sales contribution for SS bottles in Q1 FY '26 and -- versus Q1 FY '27?

So I think in quarter 1 of '27, it has kind of dropped substantially. And that is the main reason why you see a degrowth in the consumer segment because Q1 of '26, we had a lot of material. We were playing in about 100, 110 SKUs. And today, we are down to about 25. So I think it's a substantial degrowth in the steel segment, which has contributed to a degrowth in the Consumer segment overall.

Understood. And in terms of the CapEx plan for FY '27?

Yes. I think CapEx plan, there is nothing major coming in this year. It's only going to be maintenance kind of CapEx that we would be maintaining. Having said that, there could be an addition of a few lines in the Steel segment, which we will plan soon. So that is the only CapEx, but it will be very small.

So we have set up 8 lines and 2 more are pending?

We are planning a few more, yes.

Okay. And when can we expect, sir?

That will, of course, come by next year. So we will be placing orders soon for that and -- because we wanted to first ramp up the production on these lines. So while we are doing that, we are also planning for the future where we will have to add lines. So these should be commissioned early next year.

Okay. And sir, lastly, on how has been the demand in July? And what is the channel inventory level now? Like is it below the normal or normal or above normal level?

I think the channel inventory correction has happened in this quarter as primary from the company has dropped, but secondary has improved, though it was not a very good environment for demand. But still, there has been a slightly better secondary that has come in, so -- which is, I think, going to help us in this quarter.

[Operator Instructions] The next question is from the line of Karan Gupta from Asit C. Mehta Investment.

Yes. So a couple of questions. On the demand side that you're seeing, not very good environment, are you also facing some bit of competition from the domestic players in your Consumerware segment? And how...

In which segment, Karan?

Consumerware segment. How has been the competition in that segment for steel bottles, maybe for glassware, opalware? And that is one thing. And the second one is on the Glassware, Opalware, what is the contribution of overall Consumerware in quarter 1? And how it has been in the quarter 1 FY '26? Yes. And you can also share the capacity utilization. I think, for glassware, you said 60% right now. So for the Opalware also you can share. So that's 2 questions. And then if you allow me, then I will have one more.

Sure. I think on the glassware, opalware, opalware is at 80%, 85% for this year, and glassware stands at about 60% utilization. And overall, consumerware side, there has always been competition. It's not that there has not been. And of course, when demand becomes worse, the competition intensity increases a little bit. But given that, that is transitionary, I think, as demand situation improves, and I believe the next couple of quarters should be good when secondary sales have been better than primary. So I feel that overall, there is a place for every competitor. Yes. So that's how Consumerware is stacked at this point of time.

Okay. And the percentage of sales, glassware, opalware in quarter 1 FY '26 and '27?

I think it is slightly increased from last year, as it has contributed a little more than the other segments, so partial -- marginal increase, I would say. So we announce our numbers separately.

Okay. Okay. And so for FY '27, '28, just broadly, the target is to ramp up Glassware, Opalware capacities or what -- I mean, for the FY '27, '28 target? And what's the marketing spend that you have done in quarter 1 FY '27?

So I think 2 major factors. I think Opalware, Glassware, we want to keep increasing our share of the market, which we are doing already. Glassware even more significantly than Opalware. Opalware, we are almost at complete capacity, not much capacity is left. Apart from that, steel is, of course, one thing that we want to ramp up because that's going to give us the maximum revenue increase plus profitability because while we have started production at lower efficiency levels, margins are lower. And as it increases, we should see better margins also in that particular category. So I think we are gunning for 2 definite things this year. One is, of course, Glassware ramp-up and steel plant ramp-up.

Okay. And Steelware capacity utilization -- yes, Steelware capacity utilization in quarter 1.

Steelware, there is no fixed utilization at this point of time because the efficiencies are not fully there. As the efficiencies ramp up, I think by -- in the next couple of quarters, we should be at peak efficiencies.

The next question is from the line of Achal Lohade from Nuvama Group.

This is Achal Lohade from Nuvama. Team, I have a couple of questions. First, if we look at the Kitchen Appliances company's results for the last 2 quarters, and particularly, last quarter, they are showing actually very, very strong growth, right? So while we are, to an extent, adjacency, we haven't really seen as much. So I'm just curious, is there a disconnect out here? Is there any specific product or region or competition aspect, which is kind of impacting the growth in general?

I think, see, there are -- Kitchen Appliances is not completely comparable to us because it's more of a planned buy -- there are cycles in that business. And it is kind of cyclical. If you see -- while it has improved, the entire industry has done well. So you will have to see it from an industry perspective for us as well because I think we are right in the middle. We are not luxury. We are not planned consumer durables. We are right in the middle somewhere. And I think when there is inflationary pressure, initially, we get squeezed. But I think later on, it starts doing better. So I think I would look at it from that perspective that the industry overall is a discretionary industry. It's not a planned buy or a consumer durable industry. And I think in the durable side, there is a cycle that is playing out, and that is why you see increased demand there. We do appliances as well. We saw fantastic Appliances quarter, appliances, cookware. While we are very, very tiny in that category, we saw a significant uptick. So I think it's more from the industry category perspective that things have happened in that side of product line.

Got it. In terms of the Electrical Appliances, any update on that? Are we expecting anything over the next couple of quarters or it is still some time away?

Sorry, electrical appliances?

Yes, in Kitchen Appliances, the Electrical Appliances, like the mixers and all that.

Okay. We are already doing that segment, though we do very niche products there. We -- that is what I was telling you about that we saw also a decent growth in that particular category. Though it's a small category for us, it's growing at a decent pace. And we are trying to be on the profitable side of things there. We don't want to get into very marquee products. So I think that is why we have taken our own niche in that particular product line.

Got it, sir. And any guidance on the overall growth and margins for FY '27 at company level?

I think it's a tough year. I don't want to have -- at this point, I would not like to guide for anything. I think we'll have to see how things improve in the next quarter. And I am very hopeful of things improving quickly. But I think I'll be in a better place to give you guidance in the next quarter rather than this quarter because of what things have transpired. I am -- of course, we are positive on the next quarter, but I think I'll be in a better position in a couple of months.