Cello World - BIS Order On Potable Water Bottles, DCF Accretive: ICICI Securities

ICICI Securities Report

The BIS order regarding compulsory use of standard marks is likely to be implemented in June 2024. We reckon it may lead to accelerated sector formalisation and create competitive advantages for larger and compliant players.

While it may impact near-term earnings by ~5%, we believe the discounted cash flow-benefit of potential market share gains will likely offset the impact. Incumbents currently import the potable water bottles (copper, stainless steel and aluminium) and may need to set up their own manufacturing units in India.

However, we believe industry may:

1. up-stock inventory in near term; and

2. also focus on selling melamine and glass bottles more.

We believe that smaller and unorganised players (~30% of industry) may see a greater impact.

We note similar regulations were implemented in air conditioners and fans too – larger players likely gained market share.

Cello World Ltd. (Buy) remains a top pick.

Key risks:

Steep increase in competitive pressures and raw material prices and failure of key new product launches.

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