Cosmo Films : Concall Transcript - Q2, FY22

"Cosmo Films Limited

Q2 FY2022 Earnings Conference Call"

October 28, 2021

MANAGEMENT: MR. PANKAJ PODDAR - CEO- COSMO FILMS LIMITED

MR. NEERAJ JAIN - CFO - COSMO FILMS LIMITED

MODERATOR: MR. BHAVYA SHAH - S-ANCIALSOLUTIONS PRIVATE LIMITED

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Cosmo Films Limited

October 28, 2021

Moderator:Good afternoon everyone and welcome to Cosmo Films Limited Q2 FY2022 earnings conference call. From the management, we have, CEO, Mr. Pankaj Poddar and CFO, Mr. Neeraj Jain. Starting off with the statutory declaration, certain statements in the conference call may be forward-looking. These statements are based on management's current expectation and are subject to uncertainties and changes in circumstances. These statements are not guarantees of future results. Now may I request Mr. Neeraj Jain to take us through his opening remarks subsequent to which we can open the floor for the Q&A. Thank you and over to you Neeraj Ji!

Management:Thank you. A very good afternoon ladies and gentlemen. I am Neeraj Jain, CFO at Cosmo Films joined by Pankaj Poddar, CEO at Cosmo Films. Our financial results and investor presentation both are uploaded on the company's website.

The Company has posted record consolidated EBITDA of Rs.152 Crores during the Sept 2021 quarter. In fact, with this quarter result there is a continuous uptick performance by the company in terms of the EBITDA since last 10 quarters.

Consolidated sales for the quarter is Rs.759 Crores, which is 36% higher compared to the Sept 2020 quarter and this is for largely three reasons, higher specialty sale which has grown for us more than 20%, increased margins and third is raw material price increase which got passed on to the customers.

The EBITDA has increased to Rs.152 Crores which is in fact 54% higher compared to the last year similar quarter on the back of three key factors. First is higher specialty sales which has grown for us more than 20%, better operating margins, BOPP film margin during Sept 2021 quarter was running Rs.40 per kg as against Rs.27 per kg in September 2020 quarter and third factor is of course the uptick performance by the overseas subsidiaries.

Subsidiaries taken together have contributed Rs.24 Crores of EBITDA as against Rs.5 Crores in the similar quarter last year. Subsidiaries are doing very well on the back of higher sales and better margins. Lot of operational efficiencies also we provided favorable result in overseas subsidiaries and hence EBITDA together with the lower finance cost and lower effective tax rate led to increase in PAT by 83%.

In fact EPS increases by 96% as the company has done buyback of shares in December 2020 quarter. On trailing 12 months basis, EPS now is Rs.178 per share as compared to Rs.127 per share at the end of the March 2021. Based on the trailing 12 months ROCE is close to 24% and return on equity is close to 32% which is the best in fact in the industry.

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Cosmo Films Limited

October 28, 2021

On balance sheet side, net debt to EBITDA stands at 0.85 times and net debt to equity stands at 0.5 times reaffirming strong financials.

In September 2021, the company has launched its Petcare brand Zigly with the opening of its first experience centre in South Delhi, launched mobile van services in NCR along with e-commerce platform. These Omni channel offerings will provide unique convenience and value proposition to pet parents. Initial response in fact is propitious and the company plans to significantly expand its footprint both digitally and offline in the coming quarters be it experience centres, stores and vans. In fact, post COVID the petcare industry has grown significantly.

In the quarter the company has announced its first interim dividend of Rs.25 per share which in fact is equivalent to last full year dividend, which has been paid at the beginning of the Oct 2021. The company is looking close to 300 Crores of capex during FY22 primarily on the specialized BOPET line, value add capex to further enhance specialty films and on specialty chemical division. The financials are expected to be fairly strong even with this capex and the balance sheet as the cash generation is fairly robust. The bottomline addition from the capex will be effective from the starting of the next year.

Coming to specialty films, in fact specialty films has been growing consistently for last more than three years, and growth rate in FY2021 has surpassed more than 20% as base was wider. The company is in process of ordering several other value added assets for further growth of specialty sales. The capex size in these assets will not be very substantial, but of course the potential for the bottomline impact will be higher.

As we announced earlier, we have increased R&D headcount to 30 numbers to further enhance our R&D focus. The company is further enhancing its specialty film portfolio and some of the new innovative products in fact, we are working on includes Shrink Label films, direct thermal printable films.

Coming to new projects, as you can notice now largely we cater to both B2B and B2C segment. On the B2B segment growth of the specialty films is running fairly intact. The pipeline is looking robust. The specialized BOPET line will activate further and very recently we have announced new BOPP line which will further enhance growth. In the B2C side, Petcare and very specific specialty chemicals will drive the growth.

Progress on specialty BOPET line is broadly running as per plan even with the COVID related challenges. The line will have close to 20% capacity and is expected to commence from the beginning of the next year. We are targeting complimentary growth in specialized BOPET line including Shrink Label and other high end specialty. This will partially substitute imports as well in India and this will also provide an opportunity towards to

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Cosmo Films Limited

October 28, 2021

convert the known recyclable PVC film market in India which is close to 30,000 metric

	tonne.
	The company has placed order for the new BOPP line which will be the world's largest
	production line and this line will add close to one-third capacity to our existing capacity.
	The line is expected to commence commercial production from FY2025. Both these lines
	specialized BOPET line and BOPP line this will allow the company to further expand in
	specialty films.
	Textile chemical production line is under commissioning while the company continues to
	conduct extensive trials on the newly developed products.
	Now moving to the ESG initiatives. A separate report covering complete details of ESG
	initiatives shall be shortly available on the company's website. Besides environment and
	social impact these initiatives shall be cost rationalization as well, which will be reflected in
	the P&L in the coming quarters. Some of these initiatives include renewable power, at all
	our plants, offering monolayered structure for ease of recycling, power, water, gas
	consumption rationalization, rainwater harvesting and reuse of affluent treated water, waste
	elimination recycling of the waste. We planted already more than 5,000 trees and we have
	plan to increase this to 50,000 trees in the coming time. So we feel that besides
	rationalization of course this will also contribute to the environment. I think these are the
	few updates on the quarter from the company's side. Now we would like to open the call for
	the questions, please.
Moderator:	Thank you very much Sir. Ladies and gentlemen, we will now begin the question and
	answer session.
Question:	First of all congratulations on very good results this quarter. Firstly, my question was on the
	specialty film business. In your opening remarks, you did mention that spread was very
	healthy at Rs.40 per kg, but given the recent increase in cost in various things like power,
	packaging, freight cost, in the last one and a half months, so how do you see directionally
	the spread going forward and are we able to pass any increase in cost to customer?
Management:	Well, you rightly pointed out some of the cost increases. I am glad to confirm that yes a
	large part of these cost increases have been passed on to customer. In fact, we internally as a
	company are trying to work on the FOB basis rather now on the CIF basis. Having said so, I
	think the spread is more a function of demand and supply. So far, we feel that demand
	levels remain very robust based on the industry information, the kind of the supply which is
	expected further on the BOPP side, and the kind of the demand which we expect, we expect
	that it should remain fairly healthy except if in a quarter some capacity increases there may

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	Cosmo Films Limited
	October 28, 2021
	be some temporary impact on the margin front other than this we feel fairly robust overall
	position.
Question:	Secondly on the Masterbatch line which we commissioned last quarter, what is the current
	capacity utilization and how incrementally it is impacting our EBITDA positively, if you
	can just give some detail around it?
Management:	Well, we are running close to 55% to 60% capacity utilization depending which in fact is
	increasing on month to month basis. So we are running fairly towards the target to have the
	full utilization by the end of the year. EBITDA for the Masterbatch line is already positive.
	Now with the increase in volume, it should add further. What we initially indicated was the
	line was expected to have two to three years payback, the capex incurred on the line was
	close to 20 Crores so from that perspective you can compute.
Question:	For Masterbatch if I remember from one of the earlier presentations you mentioned it was
	supposed to cater to 75% in house consumption and 25% was supposed to be sales outside
	customers. So, have we started outside sales and what kind of a revenue will this bring into
	us?
Management:	We have already started 10%-15% sales outside and I would not be able to recall the exact
	numbers but from the overall volume perspective 40%-50% was planned for sale outside
	Cosmo Group.
Question:	As we have already launched two new products in our chemical side, and Unilever has also
	launched one last quarter, how is the response and what is our timeline for launching rest of
	the textile chemicals?
Management:	Well, in fact the response is very positive. Our R&D team is working along with the
	production team on the commissioning of the production line, as all new launches done so
	far is on the pilot line. Now we are going to have the main line in place. So you may expect
	next few quarters then it should further increase. In Dec 2021 quarter we should be able to
	stabilize the line for the commercial production.
Question:	Given the initial response in Zigly now what is our plan for rest of the year and next year if
	you can elaborate on that?
Management:	The response is very very positive. We already have experienced lot of good feedback
	coming from the various levels of the customers. Having Omni channel presence, providing
	the end to end solution to the pet parents. As we had indicated at the beginning that it is
	more a pilot launch initially which we will do, based on learning from it then we will
	further expand, very soon we will announce the expansion plan.
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