Cello World (CELLO IN) – Q2FY27 Result Update – Steelware ramp-up remains a key growth monitorable – Downgrade to ‘ACCUMULATE’

Consumerware, which contributed 65.9% of Q2FY27 revenue, remained broadly flat, with steel bottle sales continuing to weigh on growth amid operational inefficiencies at the in-house manufacturing facility. Steel bottle production stood at ~2mn pieces against an installed capacity of ~5mn pieces, including two additional lines being installed in Q3FY27. Management is expanding the SKU portfolio to 50-55, with ramp-up benefits expected over the next couple of quarters. Glassware capacity utilisation remained at ~60%, with revenue growth supported by improved product mix and 8–10% price hikes; however, elevated gas prices, which account for ~30% of segment costs, offset the benefits, resulting in EBITDA breakeven. Operations are expected to resume fully by Dec’26 following machinery upgrades. Opalware utilisation stood at ~80%, with marginal YoY growth, and existing capacity is expected to be exhausted by next year. Management is evaluating a brownfield expansion depending on demand trends and competitive intensity. Writing Instruments delivered strong 69% YoY growth, led by Cello pens, while Unomax remained broadly flat; however, Cello pen margins are currently less than one-third of Unomax margins, with improvement expected through cost optimization. Management expects margin recovery as steelware efficiencies improve, gas prices moderate and Cello pen profitability strengthens, while festive demand deferred from Q2FY27 is expected to support Q3FY27 performance.We estimate revenue/EBITDA/PAT CAGR of 6.7%/7.7%/6.2% for FY26-29E. We downward revise FY28/FY29 earning estimate by 6.7%/8.6%, factoring in the slower consumerware growth and slower-than-expected ramp-up and Steelware businesses. We assign SOTP-based TP of INR394 (earlier INR428), implying PE of 23x Sep’28E. Downgrade to ‘Accumulate’ from ‘BUY’.