Cello World IPO review (May apply)

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Review By Dilip Davda on October 27, 2023

•    CWL is a prominent player in consumer ware/houseware, writing instruments, stationery. 
•    It marked consistent growth in its top and bottom lines for the reported periods. 
•    Based on its FY24 annualized earnings, the issue appears fully priced. 
•    In general, investors are not keen for pricey OFS issues. 
•    Well-informed/cash surplus investors may park moderate funds for medium to long-term rewards.

CORRIGENDUM: Due to some miss calculations, my review carried P/E of 83.07,but after cross verifications and recalculations, it came to 41.51 and stands revised. But on valuation aspect, the conclusion remains same as this secondary issue is fully priced discounting all near term positives.

ABOUT COMPANY:
Cello World Ltd. (CWL) is the prominent player in the consumer ware market in India with presence in the consumer houseware, writing instruments and stationery, and moulded furniture and allied products and consumer glassware categories, according to the Technopak Report.

As of June 30, 2023, it offered 15,891 stock-keeping units ("SKUs1") across its product categories. The company sells its products under the brand name of "Cello" and "Unomax". The company has own/lease and operate 13 manufacturing facilities across five locations in India, as of the said date. It is currently establishing a glassware manufacturing facility in Rajasthan.

The company has strong Pan-India distribution network consisting of 717 distributors and approx. 58716 retailers for housewares, 29 Super Stockist, 1509 distributors and 60826 Retailers for writing instruments and stationery, 1067 distributors and 6840 Retailers for moulded Furniture and allied products, and a network of 721 member sales team, as of June 30, 2023. As on the said date, it had 5502 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO to mobilize Rs. 1900 cr. by way of offer for sale (i.e. a secondary issue). It has announced a price band of Rs. 617 - Rs. 648 for equity shares having a face value of Rs. 5 each. At the upper cap, the company will issue approximately 29320998 equity shares. The issue opens for subscription on October 30, 2023, and will close on November 01, 2023. The minimum application to be made is for 23 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 13.82% of the post-IPO paid-up capital of the company. This being a pure secondary issue, no funds are coming to the company. 

The company has allocated shares worth Rs. 10 cr. (approx. xx shares at the upper price band) to eligible employees and offering them a discount of Rs. 61 per share. From the rest, it has allocated not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors. 

The join Book Running Lead Managers (BRLMs) to this offer are Kotak Mahindra Capital Co. Ltd., ICICI Securities Ltd., IIFL Securities Ltd., JM Financial Ltd., and Motilal Oswal Investment Advisors Ltd., while Link Intime India Pvt. Ltd. is the registrar of the issue. 

Having issued initial equity shares at par value, the company converted four tranches of CCPS in the month of October 2023. It has also issued bonus shares in the ratio of 6499 for 1 in September 2022, and 1 for 2 in March 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. Negligible per share.

This being a pure secondary issue, CWL's post-IPO paid-up equity capital will remain same at Rs. 106.12 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 13752.57 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, CWL has (on a consolidated basis) posted total income/net profit of Rs. 1059.58 cr. / Rs. 165.55 cr. (FY21), Rs. 1375.11 cr. / Rs. 219.52 cr. (FY22), Rs. 1813.44 cr. / Rs. 285.06cr. (FY23).  For H1 of FY24 ended on June 30, 2023, it earned a net profit of Rs. 82.83 cr. on a total income of Rs. 479.88 cr. 

For the last thee fiscals, CWL has reported an average EPS of Rs. 11.36, and an average RoNW of 35.60%. The issue is priced at a P/BV of 11.21 based on its NAV of Rs. 57.79 as of June 30, 2023, as well as on post-IPO basis. 

If we attribute annualized FY24 earnings on post-IPO paid-up capital of the company, then the asking price is at a P/E of 41.51. Thus the issue appears fully priced discounting all near term positives.

The company posted PAT margins of 15.8% (FY21), 16.2% (FY22) and 15.9% (FY23), and RoCE margins of 58.7%, 40.9% and 44.5% for corresponding periods, respectively. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per offer document, CWL has shown Borosil Ltd., Kokuyo Camlin, La Opala, Stove Kraft, TTK Prestige, Linc Ltd., and Hawkins Cookers as their listed peers. They are trading at a P/E of 49.32, 41.04, 35.46, 46.98, 43.32, 30.72, and 40.50 (as of October 27, 2023). However, they are not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The five BRLMs associated with the offer have handled 94 public issues in the past three fiscals, out of which 28 issues closed below the issue price on listing date.

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