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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Amit Aggarwal

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Management

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During the quarter, flexible packaging industry in India experienced pressure on the margins due to commissioning of several new production lines during last six months.

— Management

The impact on Cosmo although was minimal as our strong and growing portfolio of specialty films is least prone to competitive pressure.

— Management

We witnessed margin pressure in the overseas subsidiaries as well, and there were two prime reasons for this.

— Management

The bottom-line impact of this capex will come in years to come.

— Management

So it is very difficult to calculate the blended spread for the quarter.

— Jiten Parmar

And now with the commencement of new specialty BOPET line, do you think you can do a better EPS for Q3 because or the demand is tarred, and the margins are still in pressure?

— Abhishek Maheshwari

And just to understand, everyone is talking about some kind of slowdown or subduedness in the global demand environment, so how we are seeing second half of this FY23?

— Rohit Sinha

The only margin pressure has happened because of the multiple lines coming within the short time gap that is in the last six months, multiple capacity has come in India.

— Management

And as people are talking about the slowdown in the textile space for a short-term, maybe, so what kind of revenue contribution is there?

— Rohit Sinha

See, I mean, as I was trying to explain, it's very difficult actually to predict margins in the non- specialty kind of the businesses.

— Management

And sir, what will be the sustainable margins for new BOPET plant, considering the weak BOPET spread and the considerable fall recently and as well as introduction to specialty products in BOPET segment as well?

— Anshul Mittal

So I mean, difficult to say on the commodity part of the business, but yes, very clearly, we are looking to increase the specialty only.

— Management

So are we facing any pressure in this segment or we have been conservative over here?

— Anshul Mittal

Subham, it is very difficult to enhance a particular segment quarter-over-quarter.

— Management

So we do not see any kind of demand pressure coming in Indian industry.

— Management

Q

Thank you, and very good afternoon, ladies and gentlemen. I am Neeraj Jain, Group CFO at Cosmo First. My colleague, Mr. Pankaj Poddar, Group CEO at Cosmo First is not able to join the call today due to an emergency at his family. Our financial results for the September 2022 quarter and investors presentation both are available on company's website. We will start the call with a brief on the performance of the company, which may be followed by the questions. First, starting with the flexible packaging business. During the quarter, flexible packaging industry in India experienced pressure on the

Management

Q

Sir, there has been an announcement regarding single-use plastic packaging three months back, especially in the cigarette industry. Will this change the scenario for the demand of our products?

Management

Very minimal impact. So, if I have to look at, maybe less than 1% of consumption of BOPP and BOPET goes to those kind of the products which have been banned. So, I would say, insignificant. So is this domestically only or is this internationally, the same impact would be there across the board for the whole industry? Well, this single-use plastic, the ban has been in India. But yes, you are right, some of the other countries may also follow or might have already been implemented. But as we indicated, I mean, there is insignificant level of impact on the BOPP industry as such. And my second que

Q

Congratulations on a decent set of numbers in a challenging environment. My question is, what were our stats for Q2? I believe, commodity film spreads were quite low, but what were our spreads?

Management

So as we mentioned at the beginning of the call, for plain vanilla BOPP film, which is non specialized film, it was running Rs. 20 gross margins, which of course, is after considering all variable costs, including raw metal, power and others. No, for but as with lot of specialty, 64% you mentioned specialty. So what was our spread? Well, we have close to 2/3rd of our product portfolio selling into specialty products, which will have a much superior margin compared to plain vanilla BOPP margin, which is getting reflected in the company's performance as well. The investor presentation which we h

Q

Sir, I would like to congratulate you. The numbers are quite commendable in the scenario that we are in today globally. So we have actually pulled off quite a good set of numbers despite all the uncertainties around us. Sir, I had one question, I wanted to understand. So you have specialty and then you have BOPP as a commodity. So in the specialty, I believe your margins were at roughly Rs. 65. Would that be a fair assumption?

Management

Yeah, broadly that range only. You are absolutely right, Mr. Singh. And sir, so my follow-up question would be, if the commodity margins are coming down, why the specialty margin is not coming down? And another follow-up question to that would be, in your specialty margins, could you give the break-up between specialty and semi-specialty and how are they affected? How is the semi-specialty affected? We again tried to deal this perspective in our investor presentation. You might have noticed that there is a clubbing of specialty and semi-specialty taken together. Broadly, you can see 50% of thi

Q

Sir, you did an EPS of about 27 this quarter. And now with the commencement of new specialty BOPET line, do you think you can do a better EPS for Q3 because or the demand is tarred, and the margins are still in pressure? Any views on that?

Management

So frankly, I mean, it is difficult for me to comment specifically for the Q3 EPS, because in principal, company do not provide any forward-looking projection. But all I can share is the factors with respect to demand and supply in the quarter 3 as of now, it has not changed much from the quarter 2. The company's endeavor will be to further enhance the specialty part of the business and stabilize the BOPET line, which commissioned from the beginning of the quarter. So that ways, I think those are the things to be looked at in the current quarter. And sir, secondly, the stock had fallen signifi

Q

Just wanted to understand that in this sustainable product environment where everyone is talking about sustainable product or sustainable thing. So what type of demand change we have seen in our products? And how we are looking at this scenario going forward maybe after three, four years?

Management

Well, of course, sustainability is the future. We have no doubt about this. So in the future, flexible packaging structure needs to be fully recyclable in nature. That is a clear mandate, both from the government side & the large brands side, so that is where we are working on. You might have noticed company has announced world's largest CPP line to start operations in India. And key rationale behind this line is to promote sustainability. Why? Because what happens with CPP line, the raw material family, which is polypropylene, remains the same along with the BOPP family. So if you put one lay

Q

Actually, I wanted to ask for the spreads for commodities’ segment has fallen to close to Rs. 20 per kg. So do we feel that these are near bottom based on a historical data? And also, can we call current margins of 15% to 16% as sustainable based on this fact that we expect specialty segment to reach 80% in next couple of years?

Management

See, I mean, as I was trying to explain, it's very difficult actually to predict margins in the non- specialty kind of the businesses. It will largely depend on the how the supply comes, whether bunching of supply happens, or it comes in a scattered way. Demand side, we are fairly optimist which may continue to improve only. But having said so, I think as a company, we are more looking at specialty growth which has been working well in favor of the company. So I think whole endeavor will be to further expand our specialty portfolio. I mean, one or two quarters because of the disruption or imba

Q

Sir, most of my questions have already been answered. I just had one last question. So basis the numbers that have been provided in the presentation, if we see the proportion of specialty, which was 69% last quarter, has fallen down to 64% this quarter, almost a drop of 5%. So what were the key reasons for such a sharp fall?

Management

Subham, it is very difficult to enhance a particular segment quarter-over-quarter. There could be various supply chain disruption, order flow gap or many, many factors, seasonality aspects. So my humble request is to look at on a year-to-year basis. One or two quarters up or down would always happen. But sir, if we see almost 35% to 40% of our sales is exports and earlier in the call, you mentioned that only Europe is impacted. So I just wanted to understand whether this fall in specialty is because of decreased demand from our export. So that is true. Subdued demand from Europe region impacte

Q

Given you are indicating that the overall capacity being added to BOPP and BOPET, it is 30% - 40% incremental. Actually, were you referring to the amount we are increasing, or the industry is increasing capacity by 30% to 40%?

Management

So you want to know for the future capacity or the capacity which got added already? No, I have got the capacity and announced capacity additions which have happened in the industry. Did you indicate that there is a 30% to 40% incremental capacity. So that is for the future endeavor for the next three years based on the projected capacity which may happen to kick off the operation. And of course, from the various players in the industry, not Cosmo alone. Cosmo is also coming up with the BOPP capacity and CPP capacity and as we mentioned, the specialized BOPET line has already kicked in the ope

Q

So what will be the asset churn in BOPET line? And what was the capex for this BOPET line? And this BOPET is 100% specialty, sir?

Management

So BOPET line, we did actually a lot of customization on this line. capex was about Rs. 350 crores. And what was your second part of question? So what was the asset churn? And is it 100% specialty? Well, not necessarily from the day one it will make specialty. So as we are trying to explain on the call, in the initial phase, it will make both commodity and specialty. But in the medium to long-term, we are looking at this line to make largely these specialties. Over medium term means over the next two, three years? Yes, it will take that kind of time. And sir, what about the asset churn there?

Q

I just want to clarify something. First is, in the new line that you set-up for Rs. 350 crore capex, by when do you expect it to reach a 90% capacity utilization with the current demand trend?

Management

See, in FY24, we expect that kind of capacity utilization to happen. And what kind of turnover would you expect at 90% utilization? So it should provide between 1.5x to 2x of asset turnover ratio. So that is approximately Rs. 450 crores to Rs. 500 crores at 90%? Maybe a little higher. It also depends on the raw material prices, but broadly, you can take Rs. 500 crores. With the crude oil prices coming down, have you not seen the raw material prices pull down at the same pace? That is true. That is happening. So from the last quarter to this quarter, what percentage the raw material pricing com

Q

I mean, last call, you had mentioned that we are getting into capacitors and the metallization line that we are putting up. So I would like to understand your thoughts behind we are getting into capacitor business. The target markets and your target industries and how is the competitive scenario in those markets?

Management

The market has been fairly large. So we are looking at FY24 to kick off the operation. Little early to say exact margins. But yes, when we evaluated the business, it was very exciting. So I mean, I understand from Jindal that they have been trying to get into capacitor for long. And they have struggled to get the right quality of films. And in India it is the only player which have been able to do it pretty consistently. So I mean, we have a very strong technical setup. So what gives us the confidence that we will be able to come up with the requisite quality and we will be to sell in the mark

Q

My first question is on the EBIT. We are having very good cash flows and the stock price is very much down. Though I understand buybacks are always a decision of the Board of Directors, but has the management actively considered doing a buyback or is in the process of actively considering?

Management

So, sir, that is outside my preview. So that is board to decide, frankly. But I am sure that board consider all the facts before taking on any appropriate action this year. And the question there was, you had announced at one point of time some Rs. 30 crore investment on a PLI scheme for some electronic film manufacture. I did not see a commentary on that in the entire presentation. Can you just give us some commentary on that? So that business will be, I mean, a fairly exciting business. But as we just said in the previous discussion, that will be in FY24, which is yet to kick in the operatio

Q

So I think as an outset, company is taking all the steps required to transform into a specialty packaging and specialty chemical company with of course very clearly two broad segments, B2B and B2C in years to come. While on the full side specialty polyester line, BOPP line, CPP line, these will drive the growth and our focus will continue to be on improving further the specialty films, research and sustainability. On the other hand, I think diversification into specialty chemicals and Zigly may drive other part of the growth. At the end of the call, I would like to repeat the statutory declara

Management