Cello World Ltd Q1 FY2025 Concall Summary

Key Takeaways

• Soft Q1, back-end-loaded year: Revenue grew just 6% YoY as elections, a heat wave and weak footfalls hit general trade; management still expects 15–17% full-year growth, implying a sharp ~19–20% run-rate for the remaining three quarters.
• Mix shift is protecting margins: Gross margin expanded 120 bps YoY as consumer ware and furniture grew faster than writing instruments, and lower raw material costs helped the consumer basket.
• New glassware capacity is a near-term catalyst: A new soda lime glass plant fires up after Diwali, expected to add INR75–80 cr of entirely new revenue this year.
• Writing instruments is the soft spot: Domestic pens degrew ~1–1.5% this quarter, but new stationary categories (markers, crayons, geometry boxes) launch in H2 and could broaden the revenue base.
• What to watch next quarter: Whether the demand recovery management sees in early signs actually converts into the steep growth ramp the full-year guide requires, and the exact commissioning date of the glassware plant.

Demand & Channel Dynamics

• Q1 was unusually weak: Elections and an extended heat wave kept consumers at home; management described footfalls as among the worst they have seen.
• General trade lost share: The general trade channel dropped from 80% to 74% of revenue this quarter, while secondary sales outperformed primary, helping ease channel inventory.
• Recovery signs are emerging: Management sees early improvement and does not expect the rest of the year to resemble Q1; channel inventory has already improved slightly versus March and more correction is expected in the next couple of months.
• E-commerce is a slow-build story: E-commerce is doing slightly better than expectations and could add 3–4% to its revenue mix over two to three years, reaching roughly 15% of revenue, but no big channel mix shift is expected soon.

Rathod: "The footfalls overall were pretty - it was one of the worst that we have seen."

Segment Performance

• Pen business still has room: Management believes the pen business is the largest category and has not covered all geographies; a couple of weaker markets and some channel partners still need to be aligned better.
• Consumer businesses are seasonally back-loaded: Consumer ware and glassware are expected to grow much faster in Q2 and Q3 because of the festive season, compensating for the soft Q1.

New Capacity & Product Launches

• Glassware plant timing is deliberate: The new soda lime glass plant's firing date was set for end-August, but management is intentionally delaying it because the 40–45 day glass production cycle would land output right in the middle of Diwali season.
• Revenue contribution is incremental: The glassware plant is expected to add INR75–80 cr more revenue than the previous year, entirely new revenue not present last year.
• Rajasthan plant progressing: The steel ware, thermo ware and plastic ware plant in Rajasthan is on track; machinery erection has started and commissioning is expected in 8–10 months.
• New stationary categories incoming: Markers, crayons and geometry boxes will be added, with revenue most likely in H2 FY25; the launch will be a mix of outsourcing and some manufacturing.
• No borosilicate glass manufacturing: Management is not entering borosilicate glass (lab and baking driven); they trade in these products but have no manufacturing plans.

Rathod: "We are slightly intentionally actually delaying it because it takes about 40 to 45 days for the glass to come out. And we would be right in the middle of the season of Diwali."

Margins & Input Costs

• Gross margin improved 120 bps YoY: The expansion came from product and revenue mix shifts, with consumer ware benefiting from lower raw material costs (170 bps improvement) and writing instruments expanding 80 bps YoY.
• Input prices have stabilized: Management does not see a major reduction in any raw material or packing material prices going forward; price and volume growth moved hand-in-hand this quarter because there was no input price reduction.
• Advertising spend stepped up: A back-to-school campaign increased ad expense from INR2.8 cr in Q1 FY24 to INR7.8 cr in Q1 FY25; similar campaigns will continue for the rest of the year.
• Margins in a competitive band: Management sees 1–2% margin fluctuation as possible in a competitive environment and might have to discount slightly but not significantly; they do not see that happening.

Product Portfolio & Premiumization

• Value addition is the margin strategy: Management is moving into slightly more premium product lines within the mass premium segment, improving design, aesthetics and finishes; this is how gross margins are being maintained or slightly improved.
• Consumer ware portfolio is being overhauled: About 300 products were added last year, with 80% carrying much improved finishes and aesthetics; over roughly two years, pretty much everything would shift to that kind of product line.
• Outlet count is stable at ~56,000: In the consumer-based business, the number of outlets is flattish; some shop owners have expanded their shops and improved their product portfolio.
• BIS preparation is underway: BIS has not been implemented very strictly yet and imports continue, but management is preparing by putting up machinery in Rajasthan as a first step.

Rathod: "BIS, though it has not been implemented very hardly at this point of time and still people continue to import the product, we actually do not have good clarity at this point of time."

Inorganic & Strategic Opportunities

• Acquisitions are on the radar: Some inorganic opportunities are on the table and the company will try to close them as soon as possible; the strategy is a mix of consolidation at good prices and looking at existing categories with synergies.
• WimPlast merger still alive: Management would like both entities to be merged and will proceed once decided by both boards.
• Adjacent categories are a longer-term watch: Management has enough on their plate for the next 18–24 months to perform and grow the categories they are now entering, but they are always on the lookout for adjacent categories.

Guidance & Commitments

Key Metrics