IPO Analysis: Cello World Ltd

IPO Rating: Apply for the long-term

About the Issue: 

Cello World Ltd holds a leading position in the Indian consumer goods market, boasting a strong presence across various segments, including consumer houseware, writing instruments, stationery, moulded furniture, allied products, and consumer glassware. The company is gearing up to launch its Initial Public Offering (IPO) for equity shares, each having a face value of Rs 5. The IPO price range is set between Rs 617 and Rs 648 per equity share, resulting in a total issue size of Rs 1,900 crore at the upper price band. 

The IPO is scheduled to commence on October 30, 2023, and will conclude on November 01, 2023. The anticipated listing on the exchange is set for November 09, 2023. The market lot size for the IPO is 23 shares, with the option to apply for multiples of this lot. Individual retail investors have the opportunity to apply for a maximum of 13 lots, equivalent to 299 shares or a total investment of Rs 1,93,752 assuming the upper price band. 

Objects of the Issue 

Considering that the issue is exclusively an offer for sale, it is crucial to emphasize that the company will not directly profit from the offer proceeds. Instead, all offer proceeds will flow to the selling shareholders, distributed in accordance with the number of offered shares they sell as part of the offer. 

Promoter holding 

Pradeep Ghisulal Rathod, Pankaj Ghisulal Rathod and Gaurav Pradeep Rathod are the promoters of the company. The promoters currently hold a pre-issue shareholding stake of 91.8 per cent in the company. 

Company Profile 

Cello World Ltd holds a leading position in the Indian consumer goods market, boasting a strong presence across various segments, including consumer houseware, writing instruments, stationery, moulded furniture, allied products, and consumer glassware. Founded in 1962, the company's vision has always been to become India's foremost household brand by offering innovative and aesthetically superior products that are accessible to a wide range of consumers. 

Spanning from drinkware, encompassing an extensive selection of water bottles, thermoses, tea sets, and coffee mugs, to dinnerware, featuring opalware and stainless-steel sets, the brand addresses multiple facets of dining and culinary experiences. It offers a diverse array of choices, ranging from glass and microwave-safe steel lunch boxes to plastic, opalware, and insulated lunch containers, as well as electric tiffins for on-the-go meal convenience. The cookware range is equally expansive, presenting a wide variety of pans, cookware sets, and gas stoves to meet a range of cooking requirements. 

Financials

Outlook and Valuation  

The company has demonstrated a consistent track record of achieving substantial growth in both its revenue and net profit. In the FY23, the company achieved a remarkable 32 per cent increase in its revenue, and its net profit also recorded a substantial growth of around 30 per cent as compared to the last year. 

In terms of risks, it's worth noting that the company does not have ownership of the trademarks associated with its crucial brands along with their respective logos. These trademarks are registered under the name of Cello Plastic Industrial Works. Additionally, the company relies entirely on third-party suppliers for the procurement of essential raw materials. Furthermore, the dependence on the distribution network and third-party contract manufacturers represents a source of concern for the company. Additionally, there is a risk associated with a 100 per cent offer for sale (OFS) scenario, as all proceeds will be directed exclusively to the selling shareholders. 

When we compute the PE ratio for the company by considering FY23 earnings to the post-IPO fully diluted paid-up equity capital, the resulting PE ratio stands at 44. As per its official documents, the company has referenced several listed peers, including Borosil Ltd, La Opala RG Ltd, Stove Kraft Ltd, and TTK Prestige Ltd, which are currently trading at PE ratios of 50, 40, 51, and 43, respectively. Therefore, it appears that the offering is fairly valued. 

Considering the company's strengths, such as its strong market presence, established brand, diverse product portfolio, successful track record of expansion, and consistent financial growth, an investor may consider allocating a moderate amount of funds for a long-term investment horizon.