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Business News/ Markets / Stock Markets/  Cello World share price soars as Motilal Oswal initiates coverage on the stock with a 'buy' call, sees 31% upside
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Cello World share price soars as Motilal Oswal initiates coverage on the stock with a 'buy' call, sees 31% upside

Motilal Oswal Financial Services covers Cello World stock, forecasting a 31% rise with a buy rating and target price of ₹1,100. Today, the stock price surged over 5%, starting at ₹858.80 on the BSE.

 The Cello World stock price today surged by more than 5%. On the BSE, the Cello World share price opened at an intraday low of ₹858.80. Premium
The Cello World stock price today surged by more than 5%. On the BSE, the Cello World share price opened at an intraday low of 858.80.

Brokerage house Motilal Oswal Financial Services has initiated covering Cello Word stock, indicating an uptick of 31% from the counter's current market price (CMP). The brokerage has a buy rating for the stock with a target price of 1,100. The Cello World stock price today surged by more than 5%. On the BSE, the Cello World share price opened at an intraday low of 858.80. 

According to the brokerage's analysis, Cello has a strong brand reputation and a wide distribution network, making it a prominent participant in all of its product categories.

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The company's ability to produce a wide variety of goods while managing appropriate inventory levels allows it to rapidly grow its current stock-keeping units (SKUs) and enter new markets.

"Cello has built a strong brand portfolio, including "Cello" and “Unomax," with several sub-brands. The company focuses on meeting evolving consumer needs by leveraging its experience and innovation. It continually introduces new product ranges across various categories, totaling around 15,841 SKUs, demonstrating its commitment to innovation and expansion," the brokerage said.

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Growing TAM across categories

Cello, which operates in a variety of sectors, gains from a growing total addressable market (TAM) due to a number of sector tailwinds, such as favourable demographics, rising discretionary spending, improved product penetration, import substitution, innovation, changing patterns in gifting, and brand loyalty, believes the brokerage.

According to the brokerage's analysis, Cello is a diverse business that operates in three main segments: writing instruments, moulded furniture & allied products, and consumerware. In FY23, the domestic market accounted for 92% of the company's sales. From FY15 to FY23, the local market grew at a robust CAGR of almost 9%.

“The combined Indian TAM of all the three segments was 743 billion as of FY23, which is expected to increase to 1,229 billion by FY27 (at a CAGR of 13%). Of this, Consumerware had the largest TAM of 348 billion in FY23, followed by Writing Instruments at 280 billion, and Moulded Furniture at 142 billion," the brokerage said. 

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Strong track record of healthy financials

The brokerage also highlighted the company's long history of sound financial performance. Cello has demonstrated robust revenue growth over the past two years, according to the brokerage, with a revenue CAGR of 31% over FY21–23, driven by robust growth across all sectors.

Writing Instruments saw the most increase at 60%, followed by Consumerware at 33% and Moulded Furniture at 11%. By FY26, the margin is predicted to expand from its current levels of 23.4% to around 26.7% thanks to increased production and distribution efficiency, economies of scale, and a growing mix of value-added goods.

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Risks

The brokerage identifies increased competition, reliance on outside manufacturers, and price volatility for essential raw materials as the main negative factors.

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"We estimate Cello to deliver a revenue/EBITDA/Adjusted PAT CAGR of 18%/23%/ 25% over FY23-26. Cello is currently trading at 35x FY26E P/E with a RoE/RoCE of 32%/39% in FY26E. 

We believe that the company will be able to successfully scale up new businesses, and expand SKUs as well as distribution reach to evolve as a leading brand in its respective industries. We initiate coverage on the stock with a BUY rating and a target price of 1,100 (premised on 45x FY26E P/E)," the brokerage said. 

Also Read: Anand Rathi initiates coverage on Apeejay Surrendra Park Hotels stock with a 'buy' call, sees 28% upside; here's why

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.

 

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Published: 27 Feb 2024, 12:25 PM IST
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