ICICI Securities reaffirms Cello World as its top pick; Ups target price

ICICI Securities in its latest note reaffirmed Cello World Ltd as its top pick and raised its target price to Rs 1,060 per share, marking a 24 percent increase from the current market price.

This increase in target price is despite the Ministry of Commerce and Industry's order on July 14, 2023, mandating the standard mark for insulated flasks, bottles, and containers for domestic use under the Bureau of Indian Standards Regulations 2018, the implementation, initially set for six months, has been postponed to June 2024 according to ICICI Securities.

Currently, most major players, like Cello, import water bottles, as there are scarce manufacturing facilities for these products in India. If the deadline isn't extended and additional customs duty is imposed, incumbents may face extra costs for importing or may have to establish local manufacturing units.

ICICI Securities predicts accelerated sector formalization and competitive advantages for larger, compliant players due to the new regulations. Despite a potential near-term earnings impact of 5 percent, they expect gains in market share to offset it. Current importers of potable water bottles may need to establish manufacturing units in India. Short-term strategies may involve inventory stocking and increased focus on selling melamine and glass bottles. Smaller, unorganized players (30 percent of the industry) may face a greater impact. Similar regulations in air conditioners and fans led to larger players gaining market share, it said.

"We understand that micro and small enterprises are allowed exemption from the order for an additional three to six months, compared to larger players. Hence, we believe the larger players may source from these small or micro enterprises, or may resort to uploading larger volumes of inventory before the order kicks in. However, we believe, eventually these companies may need to set up their own manufacturing units. The incumbents may also focus more on selling glass or melamine bottles," the brokerage report said.

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