Cello World Ltd Management Discussions

<dhhead>MANAGEMENT DISCUSSION AND ANALYSIS</dhhead>

ECONOMIC OVERVIEW

Global Economy

In CY 2023, the global economy exhibited strong resilience, despite challenges from ongoing geopolitical tensions and volatility in energy and food markets. The slowdown in China and other major emerging economies impacted global trade. However, the International Monetary Fund (IMF) reported a moderate global growth rate of 3.2% for the year. Economic expansion was supported by declining inflation, unexpected increases in Government spending and household consumption, and a boost in the labour force participation.

The United States and several large emerging markets demonstrated notable recovery and resilience. Global inflation decreased faster than expected, with the headline inflation rate projected to fall from 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025. This rapid disinflation was driven by aggressive monetary tightening and prolonged high interest rates, although these measures have led to weaker business conditions.

 

Outlook

The global economy is projected to grow by 3.2% in both CY 2024 and CY 2025, supported by accelerated disinflation and a stable outlook for world trade. Lower inflationary pressures may reduce borrowing costs and boost consumer confidence. However, high geopolitical tensions pose significant risks, especially if conflicts in the Middle East and along the Red Sea route escalate, potentially raising logistics costs and energy prices. Ongoing service price pressures could also cause unexpected inflation spikes, prompting financial markets to reassess expectations of monetary policy easing.

 

[Source: International Monetary Fund]

Indian Economic Overview

Amid global economic uncertainties, the Indian economy showcased remarkable resilience in FY 2024, achieving a robust expansion of 8.2%, up from 7% the previous year. This growth was driven by strong domestic demand, robust investment, a pickup in rural demand, and sustained manufacturing momentum, with the manufacturing sector growing by 8.5%. To curb down the elongated inflationary pressures, the Reserve Bank of India kept the repo rate unchanged at 6.50% for the seventh consecutive time, cooling CPI inflation to an average of 5.36%, within the RBI’s tolerance level. GST collections reached Rs 20.18 lakh crore, growing by 11.7% due to strong domestic demand. The Purchasing Managers Index (PMI) consistently stayed above 50, hitting a 16-year peak of 59.1 in March 2024, indicating strong manufacturing growth. Additionally, per capita income expanded by 8%, and gross national disposable income grew by 8.9%, although these rates were lower than the previous fiscal year.

 

Outlook

India is well poised for significant growth, aiming to become a USD 5 trillion economy by FY 2028, with an estimated 7% growth rate in the next financial year. This growth is expected to be driven by cooling inflation, increased consumer spending, a rising middle class, and robust government support. Key risks include sluggish global economic growth, geopolitical tensions, and prolonged tighter monetary policy. However, Government initiatives such as a Rs 11.11 trillion allocation for infrastructure development, the PLI scheme, the ‘Make in India’ campaign, and relaxed FDI limits are designed to mitigate these risks and further boost economic growth.

 

[Source: MOSPI: Provisional estimates of annual GDP for 2023-24, Tradingecnomics.com, PIB.GOV.in, Economic Times, rbi. org.in, indiabudget.gov.in]

INDUSTRY OVERVIEW

Indian Consumerware Market

The Indian Consumerware market, comprising Consumer Houseware and Consumer Glassware segments, has shown significant growth and diversification. The Consumer Houseware segment includes products like hydration, cookware, insulated ware, lunch boxes, storage containers, small kitchen appliances, and cleaning products. The Consumer Glassware segment covers opalware, glassware, and porcelain products. Valued at Rs 377 billion in FY 2023, the market grew by 8.4% compared to the previous year and has a three-year CAGR of 7.32%, up from Rs 305 billion in FY 2020. This expansion is driven by rising disposable incomes, the trend toward nuclear families, and increasing demand for organised and functional kitchen spaces.

Both online and offline channels contribute to the market, with E-commerce’s share growing from 1.5% in FY 2015 to 6% in FY 2022, projected to reach 9% by FY 2027. Offline channels like brick-and-mortar stores, supermarkets, and hypermarkets still dominate. The shift from unbranded to branded products is significant, with the branded segment’s market share rising from 52% in FY 2015 to 61% in FY 2023. The hydration category holds the largest market share at 40% in FY 2023, followed by cookware at 23%.

 

Outlook

The Indian Consumerware market is poised for significant growth, with a projected CAGR of 10.6% between FY 2023 and FY 2027, reaching a valuation of Rs 565 billion. This growth is driven by favourable demographics, such as shifting kitchen responsibilities and an increase in working women. Factors like increased discretionary spending, improved product availability through online platforms and multi-brand outlets, and a shift towards innovative products will further boost the market. Additionally, the market share of branded products is expected to rise from 61% in FY 2023 to 67% by FY 2027, offering consumers safer and higher-quality products aligned with cutting-edge technology.

 

Source: Technopak Analysis

Indian Stationery Market

The Indian stationery market is divided into two main segments paper stationery (42% by volume) and non-paper stationery products (58% by volume). Within paper stationery, notebooks hold the larger share by value, while non-paper products include writing instruments, office supplies, and art and craft, with writing instruments being the largest contributor.

In FY 2023, the market was valued at Rs 385 billion, marking a 37.5% growth from FY 2022, driven by a lower base effect due to a downturn during the COVID-19 lockdown. The non-paper segment was valued at Rs 162 billion, holding 42% of the market share. The branded segment expanded to 36% of the market Rs 139 billion in FY 2023, up from 28% Rs 69 billion in FY 2015. The industry is also seeing increased demand for innovative products and benefiting from E-commerce, which offers competitive pricing and convenient delivery options.

 

Outlook

The Indian stationery market is projected to grow at a CAGR of 14% from FY 2023 to FY 2027, reaching Rs 657 billion. This growth will be driven by an increasing youth population, shorter replacement cycles for stationery products, and Government initiatives like the New India Literacy Programme (NILP), Right to Education Act (RTE) 2009, Sarva Shiksha Abhiyan, and the NIPUN Bharat Scheme, which will boost literacy rates and significantly contribute to market growth.

 

Indian Writing Instrument Market

The writing instrument market in India includes pens, pencils, markers, and highlighters, with pens being the largest revenue contributor, accounting for approximately 80% of the revenue in FY 2023, generating Rs 107 billion. India also exports its writing instruments, with the United States and the United Arab Emirates being major destinations for these exports.

The Indian writing instrument market has demonstrated consistent growth over the years, with its value increasing from Rs 101.5 billion in FY 2020 to an estimated Rs 133.5 billion in FY 2023, representing a CAGR of 9.56%. The demand for writing instruments has also surpassed pre-COVID levels, with a complete return to physical modes of education following the interim online learning phase.

 

Outlook

In FY 2025, India’s writing instruments industry is expected to grow by 13-15% due to rising demand from the education sector as students return to in-person classes. The industry is projected to reach Rs 657 billion by FY 2027, with a CAGR of 14% from FY 2023. The organised sector, comprising nearly 80% of the market, will be the primary beneficiary of this growth.

 

Indian Furniture Market

The Indian furniture market is segmented by material type, with wood furniture holding a dominant 66% share, metal 17%, and plastic 9%. The retail furniture sector in India reached Rs 1,550 billion in FY 2023. The plastic moulded furniture market, valued at Rs 142 billion in FY 2023, grew by 16.4% from FY 2022. This segment is popular due to its easy maintenance, lightweight, durability, variety of designs, affordability, and ease of manufacturing. It is favoured by urban dwellers with limited space and the tourism and hospitality industry for its durability and easy cleaning.

 

Outlook

The rise of E-commerce platforms offering diverse products at competitive prices has significantly boosted furniture adoption. These trends are expected to drive the Indian furniture market to Rs 2,700 billion by FY 2027. The moulded furniture market is projected to reach Rs 270 billion, fueled by demand for affordable furniture, urbanisation, and a growing middle class. Technological advancements have enabled cost-efficient manufacturing, further contributing to this growth.

 

Source: Technopak Analysis

BUSINESS OVERVIEW

Incorporated in 2018, Cello World Limited ("the Company" or "Cello") is a leading player in the consumer ware market in India. The Company has developed a deep understanding of Indian consumers’ preferences and needs, through its diverse product portfolio and a pan-India presence via a multi-channel distribution network, Cello effectively meets consumer demands. The Company’s diversified product range, robust distribution network, and focus on innovation and technology have helped the Company become a major player in the Indian consumer houseware and writing instruments market.

Cello offers 17,000+ SKUs across all product categories, including consumer ware, writing instruments, stationery, and moulded furniture and allied products. The Company has a diverse range of products across different product categories, types of material, and price points, which enables Cello to serve as a "One-stop-shop".

As of March 31, 2024, the Company owns, leases, and operates 14 manufacturing facilities across six locations in India. Cello’s manufacturing capabilities enable it to produce a wide range of products in-house. The scale of the Company’s operations, coupled with its effective supply chain management, allow it to benefit from economies of scale across various aspects of its business model.

 

Key Risks and Mitigation Measures

Cello fortifies its risk mitigation strategies through proactive measures that empower it to navigate unforeseen events or challenges adeptly. This approach ensures that the Company is well-prepared to respond effectively to any potential obstacles that may arise along its journey.

Impact	Mitigation Measures
In situations of economic constraints, items that are in the nature of discretionary spending are the first to be curtailed. Factors such as low GDP growth and high food inflation can result in the postponement of purchases or down trading from premium to mass-market products.	The Company’s diversified product range includes essential items and products that are less affected by economic downturns. Evaluating pricing strategy to ensure it aligns with the current economic climate. Offering schemes, discounts and promotions to consumers. This can help us offset a slide in sales of discretionary items.
The cost of raw materials constitutes a substantial portion of the Companys expenses. The prices of these materials are subject to various factors, such as regulations, Government policies, geopolitical tensions, and others. Fluctuations in raw material prices can have a significant impact on the Companys profit margins.	The Company is keeping a close eye on price changes and managing our inventory carefully in response to changes in the market and potential risks. We have an efficient system for managing our inventory, which helps us keep our production optimised. Further the Company may pass on an increase in raw material prices to customers by increasing the product prices.
Ensuring liquidity involves prudent management of financial resources to ensure timely payment of bills, expenses, statutory dues and payments to creditors and suppliers. The Company also needs to maintain an adequate cash reserve and credit lines with the bank, for having a contingency plan in place for accessing additional credit when needed.	To ensure it can meet its obligations as they arise, the Company constantly monitors its financial position, assessing both current and future funds requirement. This vigilant approach gives the Company the confidence that it will be able to fulfil all financial commitments on time.
The Company leveraged its distribution network in both Indian and overseas markets to effectively deliver its products to consumers. Failure to sustain and expand this network could result in its products not reaching consumers effectively, potentially leading to a loss of market share.	The Company is actively diversifying its network by partnering with new distributors in both domestic and international markets. This approach reduces its reliance on any single distributor and ensures broader market coverage. Additionally, the Company is enhancing its relationships with existing distributors through incentives and support programs to improve their performance and loyalty.
The presence of unorganised businesses and intense competition within the industry pose a significant threat. Intense competition can impact the profitability margins, as the	The Company’s diverse product range, catering to various price points, underscores its commitment to offering quality products, setting it apart from competitors.
Company needs to lower its product prices. The unorganised entities may counterfeit and clone the Company’s products, selling them in the market, which can severely tarnish the Companys reputation.	With a legacy spanning over sixty years, Cello has entrenched itself as a household name, fostering a robust brand reputation. The Company has conducted numerous brand awareness campaigns, fortified its image and mitigated the risk of counterfeiting.
Quality risk involves the potential for defects or substandard products that could harm its reputation and lead to financial losses. This risk encompasses issues such as manufacturing errors, inadequate quality control processes, and supply chain disruptions. Failure to address quality risks could result in customer dissatisfaction, product recalls, and legal liabilities.	The Company’s dedicated quality control team oversees product manufacturing to ensure adherence to the specific quality control guidelines established for each process. Inspections occur at each stage of the moulding, branding/decoration, assembly, and packaging processes.
Demand can be adversely impacted by a shift in customer and consumer preferences.	The Company keeps a close watch on changing trends and identifies new product lines that it can offer to its customers.

 

CONSOLIDATED FINANCIAL HIGHLIGHTS ( in lakhs)

Particulars	FY 2024	FY 2023	Variance (%)
Operating Revenue	2,00,026.41	1,79,669.50	11.33%
Other Income	2,506.74	1,673.98	49.75%
EBITDA	53,430.14	43,726.63	22.19%
Interest	255.33	175.60	45.40%
Depreciation	5,674.60	5,032.54	12.76%
Profit/(Loss) Before Tax	47,500.21	38,518.49	23.32%
Tax	11,881.85	10,013.41	18.66%
Net Profit/(Loss)	35,618.36	28,505.08	24.95%
EPS (Basic)	15.60	13.65	14.29%
EPS (Diluted)	15.60	13.17	18.45%

 

KEY FINANCIAL RATIOS

Particulars	FY 2024	FY 2023
Revenue Growth	11.33%	32.19%
Gross Margin	52.59%	50.16%
EBITDA Margin	26.71%	24.34%
EBIT Margin	23.87%	21.54%
PAT Margin	17.81%	15.87%
Return on Capital Employed	27.31%	44.48%
Debtors Turnover Ratio	3.72	4.12
Inventory Turnover Ratio	2.13	2.22
Current Ratio	2.39	2.22
Debt Equity Ratio	0.27	0.62
Interest Coverage Ratio	209.26	249.01
Return on Equity	47.95%	134.43%

 

Key Operating Highlights

Cello’s continuous addition of new and differentiated products to its portfolio has been instrumental in boosting sales and expanding its market share. To support this growth, the Company has implemented strategies to extend its sales and distribution network, enhance customer wallet share, establish partnerships with additional distributors, and fortify the brand presence. In the FY 2024, the Company’s capital expenditures totalled Rs 26,400.84 lakhs, with approximately Rs 15,914.73 lakhs allocated to capital work-in-progress.

During the reporting year, the Company bolstered its manufacturing capabilities by expanding its Opalware manufacturing production capacity to 25,000 tonnes through its wholly-owned subsidiary. Furthermore, it successfully commenced operations of its Glassware manufacturing facility in a phased manner. Additionally, the glassware furnace is expected to be operational in Q2 FY 2025, overseen by its subsidiary, Cello Consumerware Private Limited, situated in Falna, Pali District, Rajasthan.

 

Sales Distribution Network

Our robust pan-India distribution network ensures the widespread availability of our products. Leveraging the extensive distribution network of 29 super stockist, 3,489 distributors, 1,45,745 retailers, we have developed a comprehensive nationwide sales network. As of March 31, 2024, this network is supported by a dedicated team of 749 sales members.

To enhance efficiency and optimise inventory levels, we equip our field staff with an enterprise resource planning system, which assists in accurate production forecasting. Over the years, we have cultivated and maintained enduring relationships with our distributors and retailers. In addition to traditional distribution channels, our products are accessible to consumers through modern trade, E-commerce and export avenues.

Furthermore, we are committed to expanding our network in regions where our presence is limited, aiming to increase market share and forge new distributor partnerships while strengthening existing ones. We are also focussed on enhancing our international presence by growing our distribution channels abroad and entering new markets, particularly for our writing instruments and stationery products.

 

Information Technology

The Company has implemented various IT solutions and integrated automation and technology into its design, manufacturing, and distribution processes to boost efficiency and ensure cost-effective quality. It has automated manufacturing facilities, which enables quick production of large volumes at competitive costs.

The Company has implemented an Enterprise Resource Planning (ERP) system for its consumer houseware, moulded furniture, and allied products and is extending it to its writing instruments and stationery category business. This ERP system integrates different functional areas for better communication, productivity, and decision-making efficiency. It also manages the Company’s supply chain, tracks consumer demands, and helps maintain optimum inventory levels.

To enhance productivity and efficiency, the Company has consistently upgraded its automation and technological infrastructure. The sales team utilises ERP software and secondary sales software to monitor real-time movement and market trends, facilitating strategic and agile expansion in response to consumer preferences.

Cello has implemented measures to enhance E-mail security, effectively safeguarding against phishing attacks. Additionally, defense against cyber threats has been fortified through the adoption of advanced security protocols and comprehensive employee training programs.

 

Human Resource

It firmly believes that its people are its key competitive advantage. The Company’s employees bring a wealth of multi-sectoral experience, technological expertise, and domain knowledge. Its HR culture is characterised by its ability to challenge traditional norms to improve competitiveness. The Company consistently makes decisions that align with employees’ professional and personal goals, striving to achieve an ideal work-life balance that fosters pride in being associated with Cello.

As of March 31, 2024, the Company employs 5,736 individuals, with 37% being female. The attrition rate, based on the Last Twelve Months (LTM), was 24% at the end of FY 2024, marking a notable decrease from the 27% recorded at the end of the previous fiscal year.

 

Internal Control System and its Adequacy

The Company has established a comprehensive system to ensure the utmost accuracy in all operations and effective management of potential risks. This encompasses robust monitoring of the company’s financial assets to safeguard them from unauthorized access. A dedicated team conducts regular inspections to ensure compliance, while a robust system accurately tracks expenses. Such an efficient system is vital for the Company’s success and bolsters stakeholder confidence in meeting regulatory and legal requirements.

 

Cautionary statement

The statements in the Management Discussion and Analysis section describing the Company’s objectives, projections, estimates, and predictions may be considered forward-looking statements. All statements that address expectations or predictions about the future, including, but not limited to, statements about the Company’s strategy for growth, product development, market positioning, expenditures, and financial results, are based on certain assumptions and expectations of future events. Cello World Limited cannot guarantee that these assumptions and expectations are accurate or will be realised. The Company’s actual results, performance, or achievements may thus differ materially from those projected in such forward-looking statements. Cello assumes no responsibility to publicly amend, modify, or revise any forward-looking statement based on any subsequent developments, information, or events. To avoid duplication and repetition, certain heads of information required to be disclosed in the Management Discussion and Analysis have been included in the Board’s Report.