Ladies and gentlemen, good day and welcome to the Q3 FY 2025 conference call of Cello World, hosted by ICICI Securities. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Karan Bhuwania from ICICI Securities. Thank you, and over to you, sir.
Thank you, operator. Good morning, everyone. It is our pleasure at ICICI to host Q3 FY 2025 results conference call of Cello World. From the management we have Mr. Gaurav Rathod, Joint Managing Director; Mr. Atul Parolia, CFO. I will now hand over the call to management for their opening remarks post which we can open for the Q&A. Thank you. Over to you, sir.
Thank you, Karan. Good morning, everyone, and a very warm welcome to our company earnings call. Joining me is our CFO, Mr. Atul Parolia, and our investor relations advisor, Strategic Growth Advisors. The results and presentation are available on the stock exchange and on our website. I hope you had a chance to look at it. In the first half of the quarter, the effective demand was healthy. However, subsequently, there was some pressure on demand side due to lesser consumption and discretionary spending by the customers. For the quarter, revenue saw a growth and stood at INR 557 crore as against INR 527 crore for the same period last year. Despite a slow growth within revenue, we were able to maintain our EBITDA margin levels at 25% and 16% for PAT. Our operational efficiencies and stable input prices contributed to a general stability in our manufacturing costs.
Our core business consumer wear grew by 8% for the quarter year-on-year. The Falna facility began commercial production on February 1st and rolled out several new product lines, starting with our Bombay collection. We have achieved an efficiency level of around 50%, and we believe a gradual and continuous improvement happening in this area. Modular furniture grew by 7% year-on-year. The writing instrument business saw some recovery on the export side on a sequential basis. However, on a year-on-year basis, we are yet to scale back to previous year's sales. But we are confident in this quarter to achieve good numbers given good export orders. Moving forward, we anticipate a rebound in consumption-driven demand, supported by the finance minister's revised income tax policies in the budget and the recent interest rate cuts.
This is expected to boost the purchasing power of our largest customer segment, the middle class. To strengthen our position, we continue to have an innovative and a premiumized approach towards our product portfolio. Consistent spending towards brand building and a strategic expansion in our overall reach to various distribution models. I will now hand over to our CFO, Mr. Atul Parolia, for financial highlights. Thank you very much.
Thank you, Gaurav, and good morning to everyone. I will be sharing the financial details for the quarter gone by. In Q3 FY 2025, we achieved a revenue of INR 557 crore and EBITDA of INR 140 crore with a healthy EBITDA margin of 25%. Our PAT stood at INR 86 crore with a margin of 16%. Speaking of the revenue mix, over 69% of our revenue came from the consumer wear, 14% from the writing instruments, and the remaining 17% from the modular furniture and light products. Channel check, our primary channel contributed 79% of the sales, while export and online sales makes up to around 8% and 9% respectively. Modular accounts for the remaining 4%. In terms of segment by the pattern, writing instruments led by 55% gross profit margin, followed by consumer wear, where we achieved 50%, and modular furniture at 44%.
Speaking of nine months FY 2025, revenue was INR 1,548 crore and year-on-year growth of 4%. EBITDA stood at INR 407 crore with a margin of 26%. PAT was INR 251 crore with a margin of 16%. With this, I would like to open the session for question- and- answer.
Thank you, sir. Ladies and gentlemen, we will now begin with the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Percy Panthaki from IIFL Securities. Please go ahead.
Hi, sir. Can you tell us the date of commercial production for the glass plant?
Yeah. The commercial production, which is saleable production, started on February 1st. That is the time we were able to call it quality which is saleable. Of course, we had started trial production before, about two and a half months we were doing trial production, but which was not saleable. But now we've got saleable production since February 1st, and we have just started sales.
Understood. What kind of sales should we expect from this plant for this quarter, January to March quarter?
January to March, you might not see a very big jump because we are just building our product line. It is just initial sales that is going to happen. But we are still waiting for building product lines. We will be collecting some stock in the next couple of months, and you will see the real impact in the next quarter.
Fair enough. So April to June quarter, what kind of sales should we be building? I just wanted to understand the extent of ramp up. In the first quarter, what kind of sales should we have?
We are anticipating about INR 5 crore-INR 7 crore additional revenue each month. In a quarter, about INR 20 crore-INR 25 crore. In the first quarter, then there will be scale-up even further.
First quarter as in April to June?
April to June. Correct.
Okay. INR 25 crore in April to June. Then what kind of scale-up? Because I understand that the plant at full capacity can do a turnover of about INR 250 crore, right?
Yes, that is correct.
INR 25 crore is annualized INR 100 crore. So when do we reach that annualized INR 250 crore run rate? Is it two quarters, three quarters?
Currently, we are at only 50% efficiency levels. In the glass plant, it takes a little time because this is a singular furnace. So when we start, we will achieve lower levels of efficiency. But as we build, so it takes about six odd months. So from now, six months, we will be at about 75%, 80%, which is when the full capacity utilization kind of comes in or kicks in. So in the first year, we anticipate close to INR 150 odd crore revenue from this plant, not the whole INR 250 crore. That is at peak capacity.
Got it. So second year should be INR 250 crore, right?
Yes. That is what we would like to achieve, yes.
Another question is, since a lot of the costs here are fixed at this INR 150 crore, would the margins be affected negatively? How should we build in?
We try and not. We might not be very positive prior numbers in the first odd year, which we basically start making from the second year. But we hope to break even, at least in the first year, or probably make a very small profit. That is the idea going forward.
Got it. Another way of thinking is, at your console EBITDA level, how many basis points of impact should I take from this plant in FY 2026? Would it be like 100 basis points impact at the console level, or how should I look at it.
At console level, yes. EBITDA margins will not be affected as much as your EBIT margins because your costs are down. Your gross margins might be decently good for glass because they are actually pretty good, in line with our other glass products. From EBIT level, yes, it will affect more.
Okay, understood. EBITDA, there is no dilution, which is likely.
EBITDA, there might be dilution whereby I anticipated about 1 basis point.
Understood.
It might actually, for the entire year, it might not even be that much.
Understood. Second question is on the writing instruments segment. There is a decline here, but can you split it up between exports and domestic?
Sure. Export is the major decline here. Domestic has been stagnant. Domestic also has not grown. But the decline has come due to exports. We had a lot of issues in the last quarter, which I had mentioned as well, that the exports, there were a lot of shipping concerns. There was global slowdown. So the customer had kind of delayed orders as well. And because of the shipping concerns also, it got exaggerated a little bit. But we are seeing it back. We are seeing some back, though we had expected a little more comeback. But I think this quarter, we are seeing good orders already in the pipeline. So I think if not growth, we might at least not have any de-growth for this year.
Got it. For the domestic business, what would be required for it to show some good growth?
I think for the domestic business, consumer demand has been quite weak in the segment. If you see, barring one or two players, not much has happened. Even in the unlisted space, people are struggling a little bit. I think overall consumer demand, as it improves, we should see some improvements. Also, we are adding new product lines, as I mentioned-
Gaurav, are you there?
Hello. Hi, can you hear me?
Yes, sir. Since our participant has dropped, we will move to the next participant.
Sure.
The next question comes from the line of Praveen Sahay from PL Capital. Please go ahead.
Go ahead.
Yeah. Thank you for taking my question. Sir, my first question is related to the gross margin, and especially in the consumer as well as in the writing instrument. The gross margin contraction is quite high in a quarter. Is that RM inflation or some product mix change? Will that continue at this level or improve?
The gross margin level has contracted a little bit. Mainly, it is because of exactly a few factors, as you rightly said. It is part inflation of raw material, not a lot, but very limited inflation. Plus, the product mix has changed, mainly in the writing instrument segment, which is affected, and also the consumer segment to a certain extent. Of course, there were some discounts that were passed on because due to weak demand conditions, there was some discounting that happened, which also has resulted in a slightly lower gross margin. I think as the consumer demand improves, if you see consumers were actually growing at a decent pace of 8%. I think we are kind of getting back a little bit of that demand. As demand improves, this number should actually improve in the next few quarters.
Okay. Especially in the writing part, if you look at your peers for the non-paper segment, their gross margin has not been impacted, actually. That is why I was looking at your number. Why is it so? Is it because of RM or some change in the distribution? What exactly versus the industry?
Two factors in isolated point. One is, of course, the product mix has changed a little bit. Also due to export being lower than domestic sales. Export, we actually have better margins compared to domestic. That is also one of the reason why it has contracted a little bit.
Okay. Second question, sir, related to the. If you can give any color on the working capital side by end of the nine months, how we have moved.
Correct. I think we have kind of improved on the working capital side. Trade receivables, which are about at 124 days in Q2 of 2025, has now improved to about 111 days. Inventories have also improved by about 10 days, from 98 days to 88 days. Of course, our payables stay pretty much the same, as we pay in about 25 odd days. We are seeing about a 20-day kind of drop in our working capital. We feel, of course, there is a lot of room to improve here. Our target is to reach about 90- 95 days in terms of our trade receivables. Inventories, I think we are at now optimal levels. I do not see any improvement there, but I think there is room, we still want to go down to by about 15 days.
Okay. Second on this, the volume growth, if you can give in all three segments of nine months or a quarter.
So volume growth is pretty much in line. I think it is not very different from the value growth of about 8%, because there has not been a very. Sorry, 5% for the entire company. Because raw material prices have been pretty stable. Volume growth slightly is more because your gross margins have contracted a little bit, but it is not too different. So normally we have a difference of about 3%- 4% value growth is slightly more than the volume, but this time around it is pretty much in line with the value growth.
Okay. Can you give the CapEx number as well for nine months and the full year and the next year respective?
The CapEx number is expected around INR 275 crore and next year is around INR 3,500 crore.
Okay. And guidance is maintained 20% sales growth for the quarter?
I think way forward, it is not in our hands for us this year around. I think going forward, our revenue would be about conservatively, I am saying because we have seen a very weak demand in this past year. So if this continues at this slightly weaker scale, we expect about 12%-14% growth for the next year. Given that we also have an addition of revenue from our last line. But if things improve, it can go up to about 15%-17%, which is where we would like to be, which we were in the past as well. I think that would be something that we would be happy with.
Okay. Great, sir. Thank you for taking my question. All the best.
Okay. Thank you.
Thank you so much. The next question comes from the line of Achal Lohade from Nuvama Institutional Equities. Please go ahead.
Yeah, good morning, team. Thank you for the opportunity. Just couple of questions. One is, can you highlight on the channel inventory, given you talked about higher discount schemes, et cetera? Are you looking at the channel inventory already at optimal or slightly higher level, or it is under stock?
You see, we have been improving our days debtors, basically. There has been actually a correction of a lot of inventory this year. If you see the last quarter, the different demand in the festive season kind of changed a lot of inventory. I think going forward, inventory position is pretty good. I think I have said it earlier. It has been comfortable than the retail counter. I guess, that is not going to be a challenge in the coming year, at least, which was a big challenge this year.
Essentially, you are saying channel inventory was a bit higher in the start of the year, and now it is at normal level. Have I understood right? Okay.
Yes.
The second question is, if you could break this 12%-14% growth in terms of these three segments?
Yeah. I think in terms of the three segments, about 3.5%-4% additional revenue we will receive for the glassware plant. In consumerware, growing at about 8% odd. The writing instrument segment at about 8%-10%, which is conservative but should grow slightly faster. At a conservative level, about 8%-10%, and furniture at about 5%-7%. Because furniture this year has been a decent growth. Normally, if you see the previous years, it is more of a half of the segment demand growth has been difficult. But this year has been a decent growth, which hopefully will continue, but we expect it to be about 5%-7% around that number. In total, this will total to about 12%-14%.
Understood. Just remind me, when we got listed, what was the revenue growth guidance and, given where we are currently talking, which two or three factors which has driven this correction?
I think, when we got listed, the previous years, the last previous years before listing were about 30%, 30% growth. They were exceptional years. Of course, before that also we were growing at about 15%-17% year on year. I guess the last one and a half to two years has been very difficult in terms of consumer demand, actually has been pretty weak. You see this across all the segments in the consumer, discretionary and even FMCG. I think we are seeing some improvements, and I think that has been the biggest factor, driving this down a little bit. I believe that, once this is improving and with the budget being favorable for the middle class, I think this number should change in this coming year.
Understood. There is nothing on any specific product competition or distribution, et cetera, which has got impacted this growth?
I think if you look at our competition and their growth has also been pretty muted. Though there has been additional discounts doled out by a lot of our competitors as well, but the growth in revenue has not been robust. I guess, in a better demand scenario, although we should have taken a lot of market share, which has not happened. I guess, keeping that in mind, I believe, overall, the macro scenario also like that, probably, just keeping our margins intact, and growing at a maybe a slow, slightly slower pace was probably the right approach that we took in the last couple of years. But going forward, I think, we have a lot of very good things happening in terms of having additional kind of product range that has been added.
I think this can now propel the company into a different kind of growth trajectory.
Understood. I just ask question with respect to margins. You commented about 12%-14% revenue growth, but how do you see the margins panning out aggregate at company level, EBITDA margins, if you could guide for FY 2026 and 2027 as well, if possible?
EBITDA margins should be in line next year. Maybe as I mentioned earlier, due to the glassware plant being just initiated, and it takes a little time for efficiencies to come in, we might see slight haircut , maybe 0.5- 1 basis point. But EBIT margins might be a little more in the first couple of quarters. Maybe it will actually improve in the last. We will see how that goes. But overall, we would like to maintain it at about 24%-25%, in line with the value growth. But could be slightly 1.5% lower than the value growth that we expect. It is only for the next year. Possibly improve again, because product margins are pretty strong, even in the glassware segment.
Got it. Thank you. I will call back if I have to. Thank you.
Thank you.
Thank you. A reminder to all participants, please press star and one to ask a question. The next question comes from the line of Ankur from HDFC Life. Please go ahead.
Hi, good morning. Thanks for your time. Two questions. One, as we enter the summer season and the whole school reopening, which is like peak season for your lunch boxes, bottles. If you could just talk about how is the channel restocking happening? Are you starting to see some signs of a rebound on demand side or is it still fairly tapered like what you've seen over the last couple of quarters? That's question number one. Question number two would be, if you could also talk about impact, if any, of Q-commerce on your distribution channels and how are you handling the front?
Right. I think, of course, summer is a good season for us. The bottles and the lunch packs, we're already seeing demand for it. It starts from about middle of February and goes up to about May, end June. Restocking has been good in the channel, and that is why as I mentioned, our take-up rates have also come down. That's because a lot of inventory has gotten affected. I guess this time around, summer should be strong. Last year, again, we were very summer-heavy stock. The first quarter should be good, though we might not reach full efficiencies by then. But whatever product mix that we make, we hopefully see a pretty strong demand for that. I think, sorry, Ankur, your second question was?
The impact of e-commerce, and how are you dealing with that?
E-commerce?
Yeah.
It has been a good start. We started last year. Of course, there is a lot of things that even they are getting now in the kitchen and home space. I think we are seeing decent growth. In the tune of about 1.5%-2% of our e-commerce sales today comes from there. I think this number can be a lot larger in this year. I had put at about 15%-20%. We are focusing on quick commerce. There is a lot of friction from their side that they are now implementing, because this was not a category of choice for them for so long. It was majorly groceries and other specialties. Now we see a lot of focus on this category. This would drive. Because e-commerce in India is still growing just about 8%-10% in the normal channels.
I am talking about an Amazon or a Flipkart. In quick commerce channels, we will see faster growth. Those will be propellers probably for this coming year.
Got it. Okay. Just to clarify on the EBITDA margins for next year, you said there may be a slight hit because of the start of this new glassware factory, but what kind of absolute number range you can provide on EBITDA margins for next year? Where will you see that?
EBITDA margins, the maximum impact would be probably about a percentage point. That would be the impact.
Okay. Over this year. Okay.
Yeah. Over the year.
Got it. Thank you.
Thank you.
Thank you so much. Participants, please press star and one to ask your question. The next question comes from the line of Sumant Kumar from Motilal Oswal Financial Services Limited. Please go ahead.
Hi, good morning. Can you talk about the export outlook? In last couple of quarters, we are seeing a subdued growth. Is it because of Russia or is it because of trade and container issue? What is the key issue there, and when we are going to rectify it?
The container issue has been a problem, and that is why a lot of shipments had gotten delayed. But it has improved. It's not that it has not improved in the last quarter, but now we feel a bigger pipeline in the next quarter. I believe that we'll be able to cover a lot of the loss of sale that has happened in the last quarter over this quarter. It should end up, if not growth in the segment, at least that upper numbers.
Okay. Now coming to discounting, what percentage, what is the rule of faster increasing in competitive intensity in consumer households except for glass and cookware?
Right. I think you've seen that in the contraction of gross margins. Of course, it has been a mix of raw material product mix. But there has been some amount of about 0.5%-0.7% of GP because of basically discounting. I think this has happened in this quarter. Of course, this is also a very heavy quarter, as you know, because of the festive season. Always, because the intensity was high this time, because everyone was facing challenges of selling. So there was a compression. But I don't see this as a very long-term impact because any impact that happened because of the weak demand scenario.
Thank you.
Thank you.
Thank you so much. Participants, please press star and one to ask a question. The next question comes from the line of Karan Bhatelia from Asian Markets Securities. Please go ahead.
Hi, good morning. This is with respect to the cookware capacity expansion. Sorry, cookware capacity utilization. How does it trend now? What are the targets for the next year?
Right. Cookware capacity for us is at about 80% today. We still have about 20% capacity left in this segment. We hope to be at about 95%, minimum 97% by next year, because we might see our furnace will go under maintenance. So that we lose a little bit of the capacity. Otherwise, 99% capacity utilization managed.
All right. How is the pricing scenario now on the cookware side?
Pricing scenario is not bad because we had some. Our raw material and energy cost had gone down over the years. Thanks. The prices were slightly lower, but it was offset by lower input costs. I think that's why the margin has not been affected so much.
Right. And like we've been focusing much on the new product launches. How has been the new product launches count for the nine-month FY 2025?
Actually if you see across our segments, it's about 15% contribution is of new products, which is actually in line with the kind of number. Even last year, this number stood at about 13%-14%, which is a good number, 15-odd percent comes from new products.
Right. In the previous calls, you've been mentioning to launch new products, especially in the writing instruments, crayons, geometry boxes, markers. How does that stand for [Hache]?
It has happened to a certain extent, not a lot. But we are still working on it, to build those product lines. This should start contributing a lot more from the next year.
Right. Thanks for that.
Thank you.
Participants, you may press star and one to ask a question. The next question comes from the line of Praveen Sahay from PL Capital. Please go ahead.
Yeah, just a follow-up on the margin front that you indicated about the 1% impact. Is that you are talking about only consumer segment or as a whole consolidated level because of a glass.
The biggest impact will come from the consumer segment because of the glassware ramp-up. On an overall basis, it could be about 1% at the max. Of course, the impact is going to come from the consumer segment, but it will have an overall impact on the company EBITDA.
Just to understand this 25%+ of margin you are delivering on. On that, you are saying the 1% of a contraction or the in EBITDA 1% reduction?
Yes.
In place of a 25%, 24% around you are expecting.
Around 24%. Yes.
Thank you for the clarification.
Thank you. Participants, please press star and one to ask a question. Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to the management for the closing comments.
Thank you so much. Hopefully, we see much better quarter ahead and thanks a lot everyone.
Thank you, sir. Ladies and gentlemen, on behalf of ICICI Securities Limited, that concludes this conference. You may now disconnect your lines.