The public issue of consumer products maker Cello World opened for subscription on October 30 with mostly favourable brokerage recommendations. Bidding for the Rs 1,900-crore all-OFS issue will conclude on November 1. Given the company's diversified product portfolio (with nearly 16,000 SKUs), wide distribution reach, established brands, and dominant position in the domestic consumerware market, several analysts have recommended investors to 'subscribe' the public issue.
The Cello World IPO price band has been fixed at Rs 617-648 per share. It does not have a fresh issue component, and hence, all the money, excluding issue expenses, will go to selling shareholders i.e. promoters. The offer includes a reservation of up to Rs 10 crore worth of shares for the employees, who will get these shares at a discount of Rs 61 apiece to the final issue price. As of 12:42pm, the issue was subscribed 11 percent.
Also Read | Cello World IPO opens today: 10 things to know before you buy it
Financials
Cello World's financial performance has been healthy barring deterioration in the EBITDA margin.
| FY23 | FY22 | FY21 | |
| PAT (Rs Cr) | 285 | 220 | 166 |
| Revenue (Rs Cr) | Rs 1,797 | 1,359 | 1,049 |
| EBITDA (RS Cr) | 437 | 350 | 287 |
| EBITDA Margin | 24.3% | 25.7% | 27.3% |
| RoE | 39.9% | 45.9% | 52.2% |
| RoCE | 44.5 | 40.9% | 58.7% |
Let’s have a look at analysts’ recommendations.
Reliance Securities: Subscribe | Growth potential in large market
Cello World has demonstrated its manufacturing and production capabilities with continuous innovation of products in various categories across age groups, categories of consumer houseware growing the wallet share and consumer base over the years. It has also scaled up the branding attracting new customers, increasing market share in its respective product categories and moving up the value chain for every segment.
"We believe Cello World would be a prominent player in its respective business verticals. With a large addressable market growth of an average 16 percent, strong financials, debt-free company offers a growth play in the long term. Therefore we recommend a 'subscribe' to the issue," said analysts at Reliance Securities.
Choice Broking: Subscribe with caution | Valuation a concern
On the back of a diversified product portfolio, wide distribution reach and established brands, the company has maintained a dominant position in the domestic consumer-ware market. Its expansion in glassware products, would further strengthen its position in the market. There are growth tailwinds for the sector and CWL is well placed to benefit from the same.
"At a higher price band, CWL is demanding a TTM P/E multiple of 48.8x (to its TTM earning per share of Rs 13.3), which is at a significant premium to the peer average of 38.6x. Thus the issue is overvalued," said analysts at Choice Broking as they assigned a “Subscribe with Caution” rating to the issue.
Follow our market blog to catch all the live action
BP Equities: Subscribe | Raw material savings good for margins
Cello's utilisation of various raw materials across its wide product range helps safeguard profit margins when facing fluctuations in raw material prices. By leveraging a mix of materials based on market dynamics, the company has adapted and prioritized those with more stable or favourable pricing, effectively managing costs and preserving margins. Moreover, Cello benefits from a distribution advantage due to its large off-take per retailer.
Cello World had the highest ROCE among its peers in FY23, at 44.5 percent. "The issue is valued at a P/E of 44.4x on the upper price band based on FY23 earnings, which is fairly valued compared to the average industry P/E of 45.5x. We, therefore, recommend a 'subscribe' for the benefit of listing gains for the issue," said BP Equities in its IPO note.
Swastika Investmart: Subscribe | Intense competition but expansion plan on track
Cello World has a pan-India presence with a strong distribution network. The financial performance of the company has also been consistent, and it has further plans for expansion as well. However, there are some concerns as well, like that it does not own trademarks for its key brands. Second, it faces significant competition from other players in the industry. Additionally, the issue is a complete offer for sale.
"In terms of valuation, the IPO is priced at a P/E of 47.47x, which seems fully priced. Thus, we will suggest a subscribe rating to high-risk investors with a long-term view," the brokerage said in its note.
Sushil Finance: Subscribe | Strong market position
Cello World is a well-established brand name that has a strong market position, a diversified product portfolio, and a track record of scaling up new businesses. These strengths are supported by a pan-India distribution network and strong historical financial results. "Looking at all the factors, risks and opportunities the investors may apply for the issue with a medium to long-term view," it said in a note.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Also Read | ESAF Small Finance Bank IPO to open on November 3, plans to raise Rs 463 crore
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
