COSMO FIRST LIMITED

Management

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Management

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Management

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Management

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Management

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Management

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Management

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Management

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Ravi Naredi

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Management

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First on flexible packaging business: During June 2022 quarter the flexible packaging industry experienced pressure on the margins due to commissioning of several new production line within a short span of three, four months.

— Management

This is backed by 8% volume increase and remaining is primarily impact of higher raw material price passed on to the customers.

— Management

This also contributed little pressure on the subsidiary margins.

— Management

And sir one more question that when we talk about masterbatch chemicals and adhesive business, are these like commodity business or specialty business where R&D is required and it is difficult for the players to replicate?

— Mukesh Panjwani

Just a clarification in your presentation you mentioned that flexible packaging industry experienced pressure on margin side, so my question is regarding what do you mean by this flexible packaging industry I am asking this because I have a little confusion on your product portfolio like are we the suppliers of this BOPP films only or do we also manufacture the final products basically the wrappers like we see for chips, biscuits and chocolates etc?

— CA Garvit Goyal

I just wanted to understand that we have mentioned that there were a lot of lines commission this quarter due to which we faced the margin pressure, but I want to understand would hear that we were not expecting lot of big influx of lines in BOPP lines while we were expecting in BoPET side, so how is that affected our margins I just wanted to understand that first?

— Miraj Shah

Q

Thank you. A very good afternoon ladies and gentlemen. I am Neeraj Jain – Group CFO at Cosmo First joined by my colleague Mr. Pankaj Poddar – Group CEO at Cosmo First. Our financial results for the June 2022 quarter and the investor’s presentation is available on the company’s website. We will request you to look at our new investors presentation uploaded on company’s website in which actually we have tried to provide a comprehensive perspective on the Cosmo First. Starting with statuary declaration first, certain statements in these concall maybe forward looking statements. These statements a

Management

Q

Sir you said in investor presentation new production line open in short span in four to five months so it will hamper margin in time to come for long duration?

Management

I did not understand your question. Sir you have mentioned in investor presentation today so many several new production line opened in short span in four to five months of other companies so our margin is down in Quarter 1, so this margin will be down for longer terms? No, this should not be longer term because demand is growing at a robust pace having said that 65% of our sales are on specialty where the margins are not impacted. It is only on the 35% margins that are impacted and we are consciously trying to increase our specialty sales. And second as regards the pet-care you gave all inter

Q

Sir couple of questions regarding the realizations what kind of trend are we seeing right now?

Managament

Can you repeat the question please? Regarding realizations what kind of trend are we seeing right now considering that you know there are recessionary kind of situation in Europe and US and all? We have just clarified on the margins. Realizations. So, our specialty realizations are linked to raw materials so our margins are intact, commodity goes as per the market, so 35% is linked to the market right now. What I am trying to ask is how do you protect your EPS seeing that a lot of your sales are linked to raw material pricing, so if raw material price goes down you will also have to pass on th

Q

Sir my question is what kind of revenue can be generated by current capacity of masterbatch chemicals and adhesive?

Management

Yeah revenue growth I mean these are very large industry segments and I mean these are very large markets so it is going to take time to scale it up in Quarter 1 year-on-year basis we have grown three times and I mean ideally speaking with these two, three sectors that we have started we can look at reaching very sizable numbers in four to five years. But with the current capacity I wanted to know the current capacity we have? The current capacity can take us to roughly say 300 crores, 350 crores. As of now what revenues we are getting from synthetic paper? These are numbers we cannot share th

Q

My question was on the capex plans two things have happened one is that there is a slight overrun in your previous presentation we had said that the capex would be about 890 crores now we are saying it is 940 crores, so any reasons for that I think the BoPET project is seeing 50 crore overrun?

Management

See basically we are going for more value added assets and therefore this addition is there so this incremental capex that we have committed in last one quarter. And the second is the commercial production also seems to have been deferred a bit like BOPP earlier we had said we will commence by FY25 now we are saying it is H1 FY26? The project will commission by FY25. The sales number will come from FY26. So 6 months time H1 26 you said? It is like in we are expecting that March 25 the lines will get commissioned as soon as FY26 we should start getting revenue. No revenue in FY25 from BOPP? At

Q

Sir, my first question is our target was to sell 80% of the volume of specialty segment by FY23, but in our investor presentation it is mentioned that you will achieve by financial year 24, so can you please clarify the same?

Management

So, this is actually the volume number. So, 80% in volume we target to achieve by end of FY24, but in revenue this figure we should be able to achieve in FY23. In spite of our growing focus of specialty segment as our target is 80% value as you were saying in financial year 23, you continuously keep mentioning that our margins are protected because these are linked to the raw material prices, so what is the reason behind this 200 basis point fall in our operating margins as compared to Q1 FY22? As we see I mean we of course every time mentioned that our specialty film is to a large extent prot

Q

I just wanted to understand that we have mentioned that there were a lot of lines commission this quarter due to which we faced the margin pressure, but I want to understand would hear that we were not expecting lot of big influx of lines in BOPP lines while we were expecting in BoPET side, so how is that affected our margins I just wanted to understand that first?

Management

Well of course we are not expecting many lines, but whatever lines have come those were scheduled. The only change is there was a bunching of couple of lines within the short time gap. This temporary demand supply gap was created. But sir it would be different from BOPP lines the BoPET lines should not affect the demand for BOPP or does it affect the demand for BOPP? So, there has been increase both into BoPET as well as BOPP. So, three product lines in BOPP has commenced commercial production during last three, four months. I am not sure that any detail was provided earlier I missed the earli

Q

Sir my question was about the pet-care segment, are we looking for any kind of inorganic opportunities for the same?

Management

Can you repeat please. So the question was regarding the pet-care segment are we exploring any kind of inorganic opportunities for the same? Unfortunately, this is a much unorganized segment. There was hardly any organized player and that was one of the reasons which also attracted us to all these segments. Having said that if there are smaller opportunities also we will always be happy to look at them. I do not see there are too many sizable players where we can do a larger acquisition. And sir I am not sure if you have mentioned this I joined the call a little bit later, can you tell me sir

Q

Sir, I have two, three questions to ask sir one is on the specialty BoPET line, so in one of your remarks you mentioned that we can do a turnover of almost 450 crores when we will fully utilize those capacities and in the investor presentation we have been eluding also that the payback period could be anywhere between 4 to 5 years, so is it safe to assume that whenever we will do this 450 crores of top line from the specialty BoPET line our EBITDA margins could be anywhere between 24% to 25% for this particular project?

Management

We are very optimistic that it will make very strong margins for us. However, it is not going to happen within a short period of one or two years because this is a very special line that we have designed which can make commodity films at a compromise output and it can also make specialty films at full output. So, initially until because typically doing specialty take some period of time initially we will have to start selling normal commodity packaging films, but we are hoping that within three to four years at least 50%, 60% volumes will be converted into specialty films and some of these spe

Q

I just wanted to clarify one thing in your previous calls you have mentioned that your specialty contribution margins is somewhere in the range of Rs. 50 to Rs. 60 per kg and now you are saying that it has gone up to Rs. 65 and Rs. 70, is that right the specialty margins have increased during this quarter?

Management

See this more and more technical films our margins are going up. However I am not sure if we have indicated this kind of a number for this quarter. So, just to add to it I mean during June 22 quarter there were lot of export actually and in export in a dropping raw material scenario on a little better margins so that cause the overall margin profile to improve on the price? So, what it basically means is that because they were raw material in a last quarter in some cases where raw material cost was still higher so we could get a better sales. So, this is purely a timing issue in a quarter it d

Q

CPP when should we expect volumes to increase in the new CPP lines?

Management

CPP line will come in the FY24 revenue expected in FY25. So, typically how should we build in the ramp up I mean the first 6 to 12 months what kind of capacity we should build in utilization and then subsequently how should we build in the rampup of capacity? If you see EPP is a emerging market and obviously it will take us some time and it is a fairly large line. We have produced anywhere between 1,500 tons to 1,800 tons per month which is quite sizable. I mean we will have to develop the market for this. We are the first ones to get into CPP and created some very nice application. Post our l

Q

Sir you mentioned Rs. 35 margin in this quarter so that is at the gross margin level right?

Management

Yeah that is gross margins. And this 47 crores revenue this quarter from specialty chemicals it is outside films or it is mainly in our sense at a transfer pricing at arm length pricing you come to this figure, so can you clarify this? It is a mix of external and internal sales and for internal sales you are right we do transfer pricing at arm’s length. Sir if you can briefly explain technically what is the difference between this BOPP specialty film and BoPET specialty films and why we have incurred such a huge capex of 450 crores for BOPP specialty line so you said that it will generate a tu

Q

Sir my question is going forward are we going to make a capex disbursals for the segment results for these new segments like excise and pet-care also like we are currently making for that specialty film?

Management

Well in due course yes of course the pet-care and specialty chemical they will be segmental in the due course. And by when do you expect the same? Let the business size to little grow as we mentioned in the course earlier the statutory requirement is 10% of the top line, but we expect this to commence before that.

Q

Well I would like to summarize in a way the company is taking all key steps required to transport into specialty packaging and specialty chemical company with clearly B2B and B2C segments in years to come. Specialized polyester lines BOPP line and CPP line to be commissioned in FY23 and FY24, FY25 respectively focus on growing specialty sales, diversification into specialty chemicals and direct to consumers pet-care. The other area that will drive growth in the coming years. Our focus very clearly will continue on improving specialty films, research and development and sustainability particula

Management