Cello World IPO opens today: 10 things to know before you buy it

Cello World IPO opens today

Consumer products maker Cello World will be the third company to float a public issue in October 2023, after IRM Energy and Blue Jet Healthcare.

Here are 10 key things to know before subscribing to the issue:

1) IPO Dates

The offer opens for subscription on October 30. Bidding will close on November 1.

2) Price Band

The price band for the issue has been fixed at Rs 617-648 per share.

3) IPO Size

The Mumbai-based company intends to raise Rs 1,900 crore from the maiden public issue that comprises only an offer-for-sale by the Rathod family. The offer does not have fresh issue component, hence all the money, excluding issue expenses, will go to selling shareholders i.e. promoters.

The offer included a reservation of up to Rs 10 crore worth of shares for the company's employees, who will get these shares at a discount of Rs 61 per share to the final issue price.

Cello World has mopped up Rs 567 crore from anchor investors on October 27, including marquee names like Morgan Stanley, Goldman Sachs, Florida Retirement System, Nomura, HSBC, Aditya Birla Sun Life Trustee, HDFC Mutual Fund, ICICI Prudential Mutual Fund, Tata Mutual Fund, ICICI Prudential Life Insurance, HDFC Life Insurance Company, and SBI Life Insurance Company.

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4) Objectives of Issue

The main objectives of the offer are to achieve the benefits of listing the equity shares on the stock exchanges; and carry out the Rs 1,900-crore OFS.

Further, the company expects that the proposed listing of its equity shares will enhance its visibility and brand image.

5) Lot Size

Investors can bid for a minimum of 23 equity shares and in multiples of 23 shares thereafter. With this, the minimum investment by retail investors in the offer would be Rs 14,904 (for 23 shares) and the maximum at Rs 1,93,752 (299 shares) as they can not exceed the investment limit of up to Rs 2 lakh in the IPO.

The firm has reserved half of the issue size for qualified institutional buyers and 15 percent for high-networth individuals. The remaining 35 percent is reserved for retail investors.

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6) Company Profile

Incorporated in 2018, Cello World claimed to be the prominent player in the consumerware market in India with presence in the consumer houseware, writing instruments and stationery, and moulded furniture and allied products and consumer glassware categories.

The firm, which offered 15,891 stock-keeping units (SKUs) across its product categories as of June 2023, operates 13 manufacturing facilities across five locations and is setting up a glassware manufacturing facility in Rajasthan.

Around 80 percent of its revenue comes from the in-house manufacturing operations, and the remaining (mainly steel and glassware products) are made by third-party contract manufacturers.

7) Financial performance

Its financial performance has been healthy barring deterioration in the EBITDA margin. The net profit in the year ended March FY23 was up 30.5 percent on-year at Rs 266.1 crore, with revenue rising 32.2 percent to Rs 1,796.7 crore, while both grew at a CAGR of 30 percent during FY21-FY23.

During the same period, its earnings before interest, tax, depreciation and amortisation (EBITDA) jumped 26 percent from the previous year to Rs 420.54 crore. The margin, however, was down 110 basis points (bps) at 23.4 percent. One basis point is one-hundredth of a percentage point.

In the first quarter of FY24, the company’s net profit grew by 25.2 percent on-year to Rs 77.4 crore and revenue by 9 percent to Rs 471.8 crore. EBITDA increased by 23 percent to Rs 119.2 crore with a margin expansion of 290 bps at 25.3 percent compared to previous year.

But, there was volatility in the return on capital employed (ROCE), which was at 44.48 percent in FY23, against 40.92 percent in FY22, and 58.73 percent in FY21, while in the June FY24 quarter, it was at 8.06 percent against 11.28 percent in same period last fiscal.

8) Promoters

Promoters of the company, Pradeep Ghisulal Rathod is the Chairman and Managing Director, while Pankaj Ghisulal Rathod and Gaurav Pradeep Rathod are Joint Managing Directors on the board.

Promoter Rathod family holds 91.88 percent shareholding in the company, and the rest of stake is held by public including India Advantage Fund S5 I & S4 I, and Tata Capital Growth Fund II.

9) Risk Factors

a) Fluctuations in raw material prices, especially plastic granules and plastic polymer prices, and disruptions in their availability may hurt its business, results of operations, financial condition and cash flows.

b) The company does not own the trademark for its key brands, including "Cello", "Unomax", "Kleeno", "Puro", and their respective logos. If they cannot renew the relevant agreements that grant them the license to use these trademarks and logos, its business, results of operations, financial condition and cash flows may be adversely affected. Further, one of its competitors also uses the "Cello" brand name for its writing instruments business. Hence, any adverse impact on the "Cello" brand name due to the actions of competitors who utilize it may adversely affect their reputation and business.

c) The business is subject to seasonality, which may contribute to fluctuations in its results of operations and financial condition.

d) If the company is unable to maintain the existing level of capacity utilisation rate at manufacturing facilities, its margins and profitability may be adversely affected. Further, a slowdown or shutdown in the manufacturing operations could have an adverse effect on business, results of operations, financial condition and cash flows.

e) The company faces significant competition which may lead to a reduction in its market share.

10) Listing Date and Grey Market Premium

Cello World will finalise the basis of allotment of shares by November 6 and credit shares in the demat accounts of eligible investors by November 8.

The stock will list on the BSE and the NSE on November 9, as per IPO schedule.

Its IPO shares were available at around 15 percent premium over the upper price band, in the grey market, analysts on anonymity said. The grey market is an unofficial platform for trading in IPO shares till the listing.

Kotak Mahindra Capital Company, ICICI Securities, IIFL Securities, JM Financial, and Motilal Oswal Investment Advisors are the merchant bankers to the issue. Link Intime India is the registrar.

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