Cello World Limited (CELLO) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Cello World Q4 FY '24 Earnings Conference Call hosted by ICICI Securities. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectation of the company as on date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference has been recorded. I now hand the conference over to Mr. Manoj Menon from ICICI Securities. Thank you, and over to you, Mr. Menon.

Hi, everyone. On behalf of ICICI Securities, it's an absolute pleasure and privilege as always, to hold the management of Cello World for the results conference call. Today, the management is represented by Mr. Pradeep Rathod, Chairman and Managing Director; Mr. Gaurav Rathod, Joint Managing Director; and Mr. Atul Parolia, CFO. Now over to management for the opening remarks, post which we'll open the floor for Q&A. Thank you, and over to you, sir.

Good morning, everyone, and a very warm welcome to our company's earnings call. Joining me is our CFO, Mr. Atul Parolia and our Investor Relations Advisor, SGA. The results and presentations are available on the stock exchange and our website. I hope you had a chance to review them. This past year has been exceptional characterized by our successful IPO to strong performance across all segments. Despite very sluggish demand in the consumer segment, we achieved 11% [ offline ] growth and accelerated profitability. In quarter 4, we saw 5 years a 5% year-on-year rise in revenue and a remarkable 20% year-on-year growth in EBITDA. Driven by the promising demand in high driven back-to-school and furniture segments, the establishment of -- help the establishment of our new Rajasthan facility will further strengthen the Glassware business, setting the deal for our growth over the next 2-years. Looking forward to FY '25, we anticipate a growth of around 15% to 17%, fueled by all segments and a new plant. We expect EBITDA margin to remain steady at 24% to 26%. At Cello, our focus remains on surpassing industry growth and enhancing our position in consumer market. We are confident in the growth potential of our diverse portfolio. which aligns well [Technical Difficulty] Hello? Hello?

Yes, sir. Please continue.

Which aligns well the with our -- with the trend f premium migration of the product portfolio. Now I'll hand over to the CFO, Mr. Atul Parolia, the financial highlights. Thank you very much.

Thank you, Pradeepji, and good morning to everyone. In Q4 FY '24, we achieved a revenue of INR 512 crores and EBITDA of INR 140 crores with a healthy EBITDA margin of 27.3%. Looking at our full year financial performance, we generated a total revenue of INR 2,000 crores with over 66% coming from Consumerware, 17% on Writing Instruments and the remaining 17% from the Moulded Furniture & Allied Products. We witnessed a 2.5% improvement in overall margin compared to financial year '23, driven by volume growth and product mix optimization. Despite the decline in product pricing due to raw material cost. In terms of our channel mix, General Trade contributed 77% of our sales, while Export and Online sales contributed approximately 10% and 8%, respectively, with Modern retail contributing the revenue 5%. Our Gross Profit stood at INR 1,052 crores with a margin of 52.6%. Consumerware gross profit margin was 53.5%, Writing Instrument margin was 58.8% and Moulded Furniture margin was 42.7%. EBITDA reached to INR 535 crores with a margin of 26.7%, reflecting healthy performance across all verticals. Profit after tax grew by 24% to INR 333 crores with a margin of 16.6%. We maintained a healthy operating cash flow of INR 231 crores. This is the opening session for question answers.

[Operator Instructions] The first question is from the line of Ankur from HDFC Life.

I have a couple of questions. One, if you could just talk about some of your key categories, right? So bottles, lunch boxes, writing instruments, how -- just trying to understand, even opalware, how have they done in FY '24, how are you seeing trends right now? How is overall demand? So one was, of course, how is '24 been? And more importantly, how are you seeing demand right now in '25 as well. Yes.

Yes. So, opalware, we did a sale of around INR 342 crores, which includes a little bit of glass. In margins, pretty robust increase by almost 2% over the FY '23. Writing instruments, again, has grown at a very healthy pace, the writing instruments -- so we are already and giving you a separate, this will appear [indiscernible]. Perhaps the sales was around INR 333 crores. And you see the EBITDA margin of -- EBITDA margin, Stationary is at around 29.3%, which earlier was 25.8%. So all the verticals, including furniture, the margins have gone up because the raw material was quite favorable last year. It is still not at the top. So we still expect the margins to stay at this level. Demand has picked up very well in March around -- March and April early, but I think so because of the ongoing election, a little muted for some time. But I think there should be a robust demand because we are expecting a very good monsoon, what we have [ redeemed ] this time and the robust demand started this year. [indiscernible] is still not at the top level, what we expect. But I think the 15% to 17% revenue growth, what we have projected in most of the segments but furniture segment, definitely would depend upon the price. So if you see last year also, out of the 11% growth, furniture was the least in contributing in sales because the raw material was at the favorable price, so we were almost starting 12% to 14% to the market. So that's why the value -- volume was a little higher, but revenue did not reflect to that level. So even that furniture, given the price, in fact, the volume growth in last year also in most of the segments would be around 15%. So we are projecting 15% to 17%. The glassware unit we are waiting, once it starts now in [ funnel ], that could give us maybe an additional growth of around 3% this year. So our target is 15% to 17%, but we could try and achieve around 20% growth.

Okay. And if you could also touch upon lunch boxes and bottles, the consumer wear category? How have they done in '24?

Yes, consumerware, back-to-school has now just started and that's doing very well. The second element, what we are doing-- all the quarter because the heat is also very high and bottle category is really doing very well. Both even in glass, also the bottle categories are doing much better because of the individual bottle system, which has started in the last 4 years, pre-COVID probably over time is [indiscernible] revenue.

And just one last one on this is this was BIS, which has come up on steel bottles, right, which essentially means that players, including yourself, would have to make these bottles in India versus imports any -- what are plans for us without [indiscernible].

BIS is now extended till 4th June and I think so it will get further extended on the import. Even on local, you have to take the BIS by September. And the manufacturing of this, these are particularly vaccum bottles. On insulated bottles, we are making within -- 100% in our own factory. But vaccum bottles are 90% imported not only for Cello but [ everyone else ]. So I think so there will be a window for a little larger period needed with people to set up the units and all. We have already taken -- we have tendered for our insulative bottles, what we manufacturer bottles and all. We have already got the certificate for all of the company. And all the other products like lunch carriers where the steel and plastic together are insulated, we have already taken the BIS certificate for that where we are given out. I think is the first talking to this BIS certificate on this.

Okay. So are we looking to incur additional CapEx also to start manufacturing the vacuum models? Is that also there in the plan?

Yes. So it would not because the CapEx is not very high. It's a little oriented to because if we take 5 to 10 lines also, it is -- the CapEx is around INR 30 crores., INR 30 crores to INR 35 crores. So that's why it is yearly CapEx when we had drawn would be on the line of that. So it's not a major effect so that's why we have not highlighted yet because we were betting on last year itself to go in for manufacturing. We did not want to manufacture fully because the price what we get from there, the quality and the SKUs, number of SKUs what we get from China because they are manufacturing for the world, they have a lot of SKUs, they have a whole city or a whole district who manufacture this vacum glass. So there is a little hiccups and know how it will go with the trend over the next 1 year. There could be a little tough for some time. But I think so that will settle. We are very, very sure because last time also on the [indiscernible] customer, and now because of the election, election is happening, so of course, the result, I think so we have approached and we have all the reasons be -- the whole of the industry has risen. So we expect that it would be an increase. And in fact, if I don't see approval also happen on the companies because BIS doesn't stop any import. BIS release these status and the company in which from where you're getting the material has to be registered in the BIS, and they have to follow the laws and the quality specifications. So it will not happen, but this cannot be denied forever. It can be delayed. It mean all categories like [ iron ] and whenever the [indiscernible] mix gets an BIS certificate, you always give the certifications to the company which is manufacturing elsewhere and even in India.

Okay, fair. And just one last one, if I may squeeze is on this proposal to raise money via QIP. Just trying to understand if you can just give us more color what is the purpose of this QIP?Where will you be using this money for?

So see, one, there is a loan which is there which is there, so when we converted our companies into private limited. Other things that the bigger CapEx what we see an opportunity in glass. Once we are just waiting to fire this [ furry ], will glass is -- the trend of glass is picking up very fast. So that is a CapEx-oriented business. So we want to be ready for any opportunity on that. So there wouldn't be too much of money, which be likely in the [ INR 300 crores ] so there are opportunities [indiscernible] companies when we had come with the issuer loan. So we have an opportunity of buying back the consumer company which is very good in our segment itself, and it will add a lot of vaccum on top product line. So these opportunities we want to range and which are getting converted very fast to see over the next 1 or 2 quarters.

The next question is from the line of Sumant Kumar from Motilal Oswal.

Can you talk about the export contribution of writing instrument business? And how the export is growing currently in FY '24 and going ahead?

So exports in writing instrument has grown very well. Even in other categories, B2C to some level of export, which was in '23 was 8% to our revenue is now at 10%. So writing instrument being the biggest segment in our export, even Opalware, are doing good Consumerware also, whereas nonglass also has increased in this year. For the particular export potential will have -- an export actually primarily grew more, you can see in terms of rupee also because the local market was more muted than the export and in that also the General Trade was a little more lower. So we exported, grown at a level what we always thought, but it's not grown -- though, you might see that would go along with the overall growth -- but it is at the same level what we expected.

How much you said, the contribution of export in writing instruments?

Now the export contribution in the whole sale of our INR 2,000 crores is 10%. Last year, it was 8%.

Okay. And about the Kleeno, how Kleeno has grown? And how are we expanding this category also futher?

Yes. So we are expanding in Kleeno. But Kleeno grew, as all the consumer was not our clear for even Kleeno. So we grew at around 14% EPC in the category, particularly 14% to 15%.

And in FY '24, we have 11.3% growth, so what is the total overall volume growth in FY '24?

So normally, it is not measured, but whatever discounts we have platformed because of the material which was lower. On segment to segment, if I see, furniture is around 12% to 14%. So if I've grown at 3%, so the volume growth will be around 15% on furniture. On our other consumerware where we grew 12% plus 6% to 7%. So around 18% is the growth level on that segment. Writing instrument, the price was not too much of business 1% or 2 so we've grown around 17% in writing instrument. So it means around 19% to 20%.

So can we assume a 15%, 17% growth guidance you have, was given, there is a higher possibility, will some couple of percentage 3%, 4% kind of value growth will be there so we can surpass 20% kind of growth if 15% to 17%, we can assume volume growth this year FY '25.

That's what I said in the earlier question also that we are targeting 15% to 17%. But if the glass, once it start and gives a better sales immediately, we will see glass has to establish. Margin purpose is the glass always has to get establish. Glass is not a business we start today and we can do the glass -- the quality of glass establishes. Sometimes it can be a much more or less. So if extra charges what we are assuming, then we could grow at another 3% more. If the raw material prices go up as wee see, again correct the price upwards, then maybe it is -- value growth also could go up. But we are assuming 15% to 17% of bookish value of this and as well as pricing.

And sir, margin front, more than 25%, 25.2%, can we assume with the glass plant opening and ramping up, we have a further margin expansion in FY '25.

Yes, glass. Basically, has is a [ A ] margin product. That's what we had earlier also had said is the glass -- pool of our glass business as it grows further. The percentage of margin could go up over the years. This first year, it might not because the [indiscernible] the bigger level yet, definitely, it will be good. But from [ PVD ] level, it might not impact too much in percentage higher percentage but over the next 2 years, it will really enhance the profitability in certainty terms.

So any other business is going to drive margin in FY '25?

Sorry, I couldn't get it.

So any other business, any vertical is going to have a margin expansion on overall company level?

So margin expansion, I think we have very good margin level. So we are slowly trying to premiumize some of our product line in our consumer business. Like this year, we have launched special categories for back-to-school children, in water bottles and lunch boxes. Definitely margins are approximately on the water bottles and what we have margin is around 7% to 8% more. So we are slowly trying to premiumize in that category even if you see in further our lunch carrier capture all over the next 6 to 12 months, the range will be little different, which will be a little more premium product. So those -- we will not stop too much of a general product but the premiumization in this category is what we're looking for the last 1 year. This will make us completely different from the too many players which are there already in this field.

The next question is from the line of Percy from IIFL.

Just wanted to understand your ramp-up of the glassware. So I understand the CapEx you have done and the asset turnover, which is around [ 1.1%, 1.2% ], I think the potential sales from that CapEx is around INR 250 crores. So do we get that immediately in FY '25? Or does it take time and if it is the latter, if it is going to take time, how does it work? Because the plant has to work 24/7 continuously from day 1, so does it mean that some of the production goes waste? Or how does that happen? Can you just explain that part, please?

Yes. So it doesn't go waste, any glass plant in the world is like that. It's not with us, it's the first time. So we -- as I said, we see COVID, since the COVID time also, we could run it and we could sell the glass. And we were exhausted, so we put the second project. Whenever you add a furnace, you cannot [ hedge off ] in one year. That's why because of the high CapEx, the margins are higher. If you see the regional investment on a glassware business or plasticware, plastic general consumer product the turnover ratio is completely different. The margins are less over here, but the CapEx to revenue factors are much higher. So we get around 6 to 7x bigger revenue.

Right. So when do we...

Yes, we have this storage facility. And at times, the perk is very high. So in net, it will get 1.5 years for us to achieve the capacity of the furnace. If [ there will ] be in the next 6 months time, whatever I produce in day 1, I'll be able to sell it.

Understood. Understood. So therefore, the glassware.

Than we would have projected at least 35% growth.

Got it. Got it. Got it, sir. So the glassware and Opalware division, which you have done approximately INR 350 crores of sales this year, including a partial ramp up of the new plant plus some increase in opalware would around INR 500 crore number be a good estimate for FY '25?

I think our original target was around INR 460 crore to INR 475 crore.

Okay. Okay. Got you, sir. Second question is that if I look at your consumer houseware, excluding the Opelware and Glassware division, what is the kind of growth that you are targeting for that in FY '25?

So around 15%.

The next question is from the line of Jay Doshi from Kotak.

I have only one question, and that is on receivables. So if we look at FY '24 versus FY '23, incremental sales were about INR 200 crores and increase in receivables was about INR 145 crores. And I think there's an increase of about 17 days. So could you give us some color on what is the channel inventory level and whether this receivable increase is largely pertaining to the expansion of Opalware's capacity? Or even in your other businesses, you're seeing higher channel level inventory and receivables? And how should we think about it going forward?

So the inventory levels are -- have increased by around 2 days and what was 87 days and [indiscernible] in fact, if the receivable definitely has gone up. The general trade last whole year was not very, very okay. So we have given a little 10 to 15 days extra credit line to most of the customers, 2% more to the retail. So that's why there is [indiscernible] what delays. Going forward. And second was we have just government tender. With these money is coming in 4 to 5 months, I don't know. So that's one, and that's around in the range of somewhere [indiscernible].

You mention government tenders, does it mean CSD channel, Army canteens channel? Or is there something there other [indiscernible].

It's not too late, no other than that, back-to-school, there are many channels in Assam and Rajasthan and Andhra Pradesh, we did a [ blast ] also for that thing. Mumbai Municipal Corporation.

Understood.

So that is taking it up by 2 or 3 days and other than 10 to 15 days we have given extra to the channel, if you see a channel shift also from last year, 81%, which was General Trade has come down to 77%, SO General Trade this year was really very well, right. Though I think so, with our product mix and everything we could achieve higher growth sales in last year had a very good margin that is set out there. An because of that, we do not want in the be [indiscernible] of this. So we could partner around 15 days more to this, I think so by September this year, we should be in line with what we were in '22, '23.

Understood. So then does it mean that there is at the channel level at distributor, and retailer level inventory level is higher than usual, and if that inventory level goes back to normalized levels by September, then there is a possibility that your primary sales could be a tad weaker than the retail offtakes or tertiary and consumer level sales?

Not 100% because when I gear growth, yield pushes back sales, only the retailer wants to pay at this price because there are not very -- has higher inventories. There's some important products and about the retailer fee. So there, they get high margins. So if you want to utilize your money sometimes. So cost might have gone up for the retailer everywhere not 100% sure. Yes, a little bit could have gone up because retailer has a little take on's so [indiscernible] slower roll.

Correct. So we use your credit.

So [indiscernible] 5% to 10%, [indiscernible] .

So he uses your credit facility or limits perhaps for to ease the pressure that we may be facing for some of our other products.

There are higher margin product where we get it from importers and where they want to see this bigger high discount of 3% to 5% on a cash count level, and we thought that this is an opportunity, fine, we put in more so our product can do more. So if there are [indiscernible] if I could sell 5 and 6 because he's not paying in time, I sell 4, so we took a view that no, it is better we put, we can give 10 to 15 days extra credit and over the next 2 quarters, we will get it down.

Understood. One or 2 quick bookkeeping questions. So with this fundraise, you will fully repay the promoter debt?

Yes. [indiscernible] We could...

INR 350 crores, right? It's about INR 300 crores, INR 350 crores.

INR 330 crores.

Understood. And over and above that, whatever you intend to raise will be potential requirement for organic or inorganic growth?

Yes.

Lastly, any update...

Through opportunities, which I said, which I will not be able to disclose, but a good level.

But I'm assuming this will be small ticket size, right? I mean...

So ticket really doesn't matter because the gearing up in that business is possible and which is aligned with our portfolio.

Got it. Lastly, any updates on consolidation or sort of on -- Wim Plast or merger of Wim Plast with Cello, essentially because there is unutilized cash on the [indiscernible].

This is on the card and it will be very soon, very, very soon.

Goodluck for FY '25.

The next question is from the line of Achal Lohade from JM Financial.

Sir, if you could -- like you gave numbers for FY '24 in terms of volume growth and the value growth. Can you help us with the same thing for fourth quarter?

Fourth quarter of '24 or '25.

Fourth quarter of '24, sir. Like 4Q '24, you said about FY '24 volume growth will be so much for each of the segments, Similarly, if you can give for FY '24 -- foruth quarter.

So fourth quarter, the volume growth, if we see in our consumerware would be around 7%, 8%.

Okay.

In our writing instrument is around 11%.

Okay.

Furniture was around 18% to 20%.

Understood. So essentially, what you're saying is that while it is 7%, 8% in the fourth quarter, the quarter was sluggish, in terms of specifically GP, and that is seeing a pickup now in March, early April. Have I understood it right, sir?

Right. January, February was very bad.

Okay. Understood.

March middle has started picking up but -- it got a little down for the [indiscernible] period, I think so because of the elections.

Understood. And the order what you said for the consumer business, right? It is for consumerware business, the money which should come in 5 to 6 months. Have I understood right? And that has contributed about 2 to 3 days of extra receivable in terms of impact?

No. No. The order supply wasn't there. That is 2 to 3 days -- this has taken up because it's 5 to 6 months. Overall, 10 to 12 days, we've extended credit extra in some of the product lines, just to be there, which has been in the last question. So these are the 2 things that why the receivables are higher. The market was sluggish, we extended a little more extra credit because we could penetrate more in the retail. Thereby, it is not 100% that whatever we penetrated is still [ aligned ] to that. It could have got sold. But because of the payment delay, we want to pay at times in which we've given the previous extra so they would not like to pay earlier, whether they could invest in something else to make money or in that term pays what we have to pay [indiscernible].

Understood. Just one last question, if I may, sir. With respect to gross margins, which is gross profit divided by the sales for these 3 segments, we see a sharp swing in both directions for each individual segments. Is it possible to give a specific number for fourth quarter? What is the gross margin and compare that with third quarter and explain what has the driven the swing? If there is any?

So gross margin for Consumers is around 55.9% in this quarter. For Writing Instrument, it is 59.2 %, and Moulded Furniture is around 37.7%. And for the year, it is -- the Consumerware is around 53.5%, writing as well 58.8%, and Moulded Furniture is 42.6%.

Right. So for the fourth quarter, what is the swing from third quarter, sir, from third quarter to fourth quarter. Is there a large swing? Because I think third quarter, we had Consumerware at around 52%, while it seems to have gone up to 55.9%.

Consumerware was [ 58.7% ] and Moulded Furniture was 42.8%. So moulded furniture has got a little down. The reason being because of the little raw material which has gone up because it was -- raw material was at a very low level in that quarter. Writing instrument is for [indiscernible] the same level of both is only 0.5% difference. Consumerware was because of the bottle season [indiscernible] whereas the gross margin was much higher because that's why it always goes up last quarter is -- over the last 3, 4 years, also, you see a quarter, January, February, March, the profit margins are always higher.

The next question is from the line of Vaidik from Monarch Networth Capital Limited.

Congratulations on good set of numbers. So my first question is towards the Opelware division. Firstly, I would like to know the capacity utilization levels and going ahead, do we see possible CapEx for the opelware division [ went ] well?