Buy Cello World; target of Rs 1060: ICICI Securities

ICICI Securities research report on Cello World

The BIS order (link, link) regarding compulsory use of standard marks is likely to be implemented in Jun’24. We reckon it may lead to accelerated sector formalisation and create competitive advantageas for larger and compliant players. While it may impact near-term earnings by ~5%, we believe the DCF-benefit of potential market share gains will likely offset the impact. Incumbents currently import the potable water bottles (copper, stainless steel and aluminium) and may need to set up their own manufacturing units in India. However, we believe industry may: 1) up-stock inventory in near term; and 2) also focus on selling melamine and glass bottles more. We believe that smaller and unorganised players (~30% of industry) may see a greater impact. We note similar regulations were implemented in air conditioners and fans too – larger players likely gained market share. Cello (BUY) remains a top pick.

Outlook

We model revenue and PAT CAGR of 18.5% and 23%, respectively over FY24-26E. We also model RoCE to be >30% over FY24-26E. We maintain BUY rating with DCF-based revised target price of INR 1,060 (implied P/E of 45x FY26E; earlier TP: INR 1,050).

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Cello World - 19042024 - isc