Cello World shares, trading below IPO price, now get their first 'sell' rating fearing more downgrades

Shares of Cello World Ltd. are in focus on Tuesday, December 16, after brokerage firm Investec initiated coverage on the stock, projecting a potential downside nearly 7% from its previous close.

Investec has initiated coverage with a "sell" rating on Cello World with a price target of ₹530 per share. The stock ended the previous session at ₹569 apiece. This is the first "sell" recommendation that the stock has received post listing.

The brokerage said that a sizeable 30% of the company's portfolio — opalware, vacuum flask, US stationery exports — is exposed to adverse near-term macro headwinds, putting both growth and earnings before interest, taxes, depreciation and amortisation (EBITDA) margins at risk.

Scaling the glassware segment could also prove challenging for Cello World, given the competitive intensity, which could cap the EBITDA margin at 25% compared to the 30% to 35% management guidance, Investec said. It could also stretch payback periods and leave return on capital employed broadly in-line with the cost of capital, the brokerage added.

Given this, Investec's estimates of Cello World's EBITDA and Profit After Tax (PAT) for financial year 2028, are 26% and 22% lower than consensus estimates. The brokerage also fears that there is room for further consensus downgrades.

Cello World's valuations are not attractive either, according to Investec, who is valuing the stock at 32 times estimated price-to-earnings for financial year 2028, compared to the two-year average of 34 times.

Of the 10 analysts that have coverage on the stock, eight have a "buy" rating, and one each have "hold" and "sell" ratings.

Shares of Cello World shares ended the previous session 0.3% lower at ₹569 apiece. The stock has declined 24.85% this year, so far. It is also 12.2% lower than its issue price of 648 apiece and 31.4% lower than its listing price of ₹829 per share

from November 2023.

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