20,000 Metric Tonnes Glassware Plant Will Strengthen Future Prospects

Key Takeaways

• The new glassware facility and festive demand are projected to enhance revenues and improve margins through expanded production and import substitution.
  
• Inorganic growth and improved domestic demand in Writing Instruments suggest potential revenue enhancement and recovery through new product introductions and export ease.
  
• Flat revenue and profits, export delays, and competitive pressures threaten Cello World's growth, profitability, and revenue stability.

Catalysts

Manufactures and sells consumer houseware and glassware products in India and internationally.

• The completion of the state-of-the-art glassware manufacturing facility in Rajasthan with an estimated annual capacity of 20,000 metric tonnes is expected to enhance revenue through new product lines and import substitution in the next few quarters.
  
• The festive demand combined with the ramping up of glassware production is anticipated to boost revenues and potentially improve net margins as the new facility scales up.
  
• The exploration of inorganic growth opportunities to complement current business lines could lead to enhanced revenue streams and potentially more favorable net margins.
  
• The domestic demand improvement and strategic focus on Writing Instruments, with additional products being introduced, suggest potential revenue growth of 12% to 15% over the next 2 to 3 years.
  
• The easing of export challenges, particularly in the Writing Instruments sector, and improved domestic demand could contribute to a recovery in revenue and improved earnings in the coming quarters.

Cello World Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Cello World's revenue will grow by 14.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 16.6% today to 19.8% in 3 years time.
• Analysts expect earnings to reach ₹6.0 billion (and earnings per share of ₹25.25) by about February 2028, up from ₹3.4 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 57.8x on those 2028 earnings, up from 42.1x today. This future PE is greater than the current PE for the IN Consumer Durables industry at 47.0x.
• Analysts expect the number of shares outstanding to grow by 4.25% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.13%, as per the Simply Wall St company report.

Cello World Future Earnings Per Share Growth

Risks

• Revenue and profit remained flat on a year-on-year basis, indicating potential challenges in maintaining growth momentum, which could impact future earnings.
  
• The delay in container shipment due to Russian sanctions and Red Sea issues has affected exports, particularly in the Writing Instruments segment, potentially impacting revenue and export margins.
  
• The Writing Instruments and Molded Furniture businesses experienced a decline, contributing to the overall flat performance and posing a risk to revenue growth and profit margins.
  
• Seasonal demand fluctuations, as seen with the impacts of the festive season, elections, and weather, suggest potential volatility in the revenue stream.
  
• Competitive pricing and discount strategies in the Consumerware segment, driven by weak demand, might pressure gross margins if they continue longer-term.

Valuation

• The analysts have a consensus price target of ₹909.833 for Cello World based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹30.4 billion, earnings will come to ₹6.0 billion, and it would be trading on a PE ratio of 57.8x, assuming you use a discount rate of 15.1%.
  
• Given the current share price of ₹644.55, the analyst price target of ₹909.83 is 29.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.