- New steel‑fabrication unit slated for Q4FY26 could lift margins and ease supply bottlenecks.
- Writing‑instrument segment posted 11.1% YoY growth, bolstered by the Cello pen acquisition.
- Commodity price decline sets the stage for a potential margin expansion in FY27‑28.
- ICICI projects 12.5% revenue CAGR and 17.1% PAT CAGR through FY28, with RoCE above cost of capital.
- Target price trimmed to INR 600 (30x FY28E EPS) – still a sizable upside from current levels.
You’re probably overlooking a hidden catalyst that could flip Cello World’s fortunes.
Why Cello World's Revenue Dip Is a Temporary Setback
Cello’s Q3FY26 results disappointed analysts, but the decline is rooted in predictable post‑festive seasonality and pricing pressure in its moulded‑furniture line. Macro‑economic headwinds have certainly strained discretionary spending, yet the company’s core distribution network remains intact. Historically, furniture makers see a 3‑4% seasonal dip after major festivals; Cello’s 6% drop is slightly deeper, hinting at execution gaps rather than a structural demand collapse.
Impact of New Steel Manufacturing Facility on Cost Structure
ICICI highlights the upcoming steel‑products plant as a game‑changer. By bringing steel processing in‑house, Cello will cut reliance on third‑party suppliers, shaving an estimated 8‑10% off raw‑material costs. Backward integration also cushions the firm against volatile steel prices—a recurring pain point for furniture makers that use heavy gauge steel for frames and brackets. The plant’s commissioning in Q4FY26 aligns with the anticipated recovery in furniture demand, positioning Cello to capture market share from peers still dependent on external steel sources.
Writing Instruments Revival: The Cello Brand Acquisition Play
While furniture lagged, Cello’s writing‑instrument division surged 11.1% YoY, driven by renewed consumer spending on school supplies and office essentials. The strategic acquisition of the Cello pen brand adds a recognizable name to an already robust portfolio that includes Unomax. Analysts expect the combined brand to accelerate sales from Q4FY26 onward, with FY27‑28 revenue contributions projected to rise at double‑digit rates. This diversification reduces the company’s exposure to the cyclical furniture market and adds a high‑margin, lower‑capex line‑of‑business.
Sector Landscape: Furniture & Steel Trends Shaping Cello's Outlook
Two macro trends bolster Cello’s thesis. First, the Indian furniture sector is rebounding as urban households upgrade living spaces; industry reports forecast a 9% CAGR through 2028. Second, global steel prices have entered a downtrend after peaking in early 2024, creating a favorable input cost environment for manufacturers that can internalize production. Competitors such as Tata Furniture and Adani Home are still reliant on spot steel purchases, which could erode their margins if prices climb again. Cello’s integrated approach therefore offers a relative cost advantage.
Technical Snapshot: Valuation, DCF, and Target Price Rationale
ICICI’s discounted cash‑flow model assumes a 12.5% revenue CAGR and a 17.1% PAT CAGR for FY26‑28, reflecting both the steel plant’s cost‑saving impact and the writing‑instrument upside. The resulting implied enterprise value translates to a target price of INR 600 per share, down from the prior INR 700 due to a more conservative terminal growth assumption. Even at INR 600, the stock trades at roughly 30× FY28E earnings, offering a modest premium for a company with RoCE comfortably above its weighted average cost of capital.
Investor Playbook: Bull vs. Bear Cases
Bull Case: The steel plant comes online on schedule, delivering the projected 8‑10% cost reduction. Writing‑instrument sales exceed expectations as the Cello brand gains shelf space, pushing FY27‑28 revenue growth to 14%+. Margin expansion lifts RoCE, validating the DCF assumptions and unlocking upside to INR 700‑750.
Bear Case: Delays in the steel facility or higher-than‑expected capex erode the cost‑saving narrative. Furniture demand remains soft due to prolonged macro slowdown, and competition intensifies pricing wars. The writing‑instrument integration faces channel conflicts, limiting growth to sub‑5% levels. In this scenario, the stock could slip below INR 500, making the current valuation risky.
Given the balance of catalysts and the valuation cushion, the recommendation remains a BUY, but investors should monitor plant commissioning milestones and quarterly sales mix for early signals.