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Cosmo Films - Diffentiated player in commodity business

Cosmo Films Q1 19 results are out. Just attented the concall. A tough quarter, again. EBITDA margins are at 8.5% which are on lower side.

As I have said before, polyfilm business remains a cyclical business. If no new capacities come, situation might improve in few quarters.

Disc : Not invested.

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Supply is more than demand giving their clients a better bargaining power and jeopardising the margins. I wonder why do they give such a high dividend and at the same time increase the debt. Crude oil volatility impacted their margins and have a very little pricing power in the current scenario.

Descl: Exited

They have always given good dividend. Even in years where they made loss, they did give dividend. Cosmo is a very good company, IMHO. Idea is not to keep stock in portfolio always. If one can get the cycle right, one can enter and exit stock accordingly. Whenever, I see BOPP margins reversing, Cosmo will be the first company on my radar.

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This has reference to our announcement in April, 2017 for setting up of new production line for Specialized Polyester (BOPET) Film at Aurangabad, Maharashtra, India. The Line has been ordered but due to adverse market conditions, the Company has decided to postpone the delivery & commissioning by 8-10 quarters.

This has no impact on current operations of the Company.

Source: https://www.bseindia.com/xml-data/corpfiling/AttachLive/6911b6f3-d587-4277-8da7-76a8eea521e8.pdf

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First my appologies of mentioning a company in another compan’s thread. How about cosmo ferrites also by the same promoters of cosmo films. They are into ferrites which can be in huge demand when the use of magnets are bound to increase in the new technologies such as EVs etc.

As I have been saying for last 1 year, BOPP cycle is not good currently. I think we are sometime away before things reverse.

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Yes true ! Also delaying the capex seems like a good plan. Rather than stretching the balance sheet more, they can reduce debt now thus improving their return ratios. Also BOPET situation though favourable now might have turned bad by the time their new line commissioned production. Overall seems like a good decision by management.

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@ jitenp, Management sounded relatively more positive in the latest conf. call. Are we there yet for a turnaround based on the details below, appreciate your inputs.

  • Supply demand is improving from December and margin is slowly increasing as per the management in the conf. call. BOPP spread is improving from last couple of months.
  • Capacity utilization is around 95%. No further capacity addition in planned for next one year in the domestic industry.
  • Specialty product pie is increasing, a new line is coming up in Q1 FY 20 with 5000 tonnage addition.
  • Differed BOPET project for couple of quarters and focusing on improving balance sheet.
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Yes. Supply-demand scenario is slowly improving. though it will take more time. CU of 95% is a myth (it’s 95% nameplate capacity). I think actual will be around 70%. Capacity not coming is entirely not true. But yes, less capacity being added then demand.

Specialty is an abused word. :slight_smile: Always, treat this and others as commodity companies.

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Dec 2017: Supply 570-580 MT; Domestic Demand 410-420 MT
Dec 2018: Supply 600-620 MT; Domestic Demand 430-450 MT

In the last 1 year, supply growth has continued to outpace demand growth. Further, Dd growth at double the GDP growth has not held true in the last year. At best it has been about 6% only based on interactions with Cosmo management.

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Sir as you have good sources in the industry, are you seeing any increased in spread now that the situation is becoming favourable?

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Yes. BOPP industry spreads are slowly improving.

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Q4 margins of BOPP and BoPET have improved - Uflex Interview
Spreads have improved for both BOPP and BOPET

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@kb_snn is this right time to add Cosmo films. Stock trading 0.6 times the book value and Q3 FY19 OPM is 4.49% which is lowest the the last 2 years.

True . Slowly Cosmos is coming to its fair value .

You can take starter position below 170 and add aggressively below 140 .

But never let this stock be > 5% of your total portfolio .

Q4 Results Press release:

Very good results. The margins have moved up and management expects the margins to sustain. However, looking at historical quarters, there is huge volatility in quarterly gross margins. Last 11 quarters gross margins - 34,37, 32, 29,32,31,30 , 26, 27, 24, 30 (March 19). No clear trend. Very tough to take a call on how this cycle moves. Hence, probabaly, investors are avoiding the stock even though it we annualize the March quarter run-rate if is trading at 3.5 PE and 3% sustainable dividend yield. Also, Specialty plant starting in few months which can add 20 cr to bottom-line on full ramp up.
Disclosure: Not invested, tracking

Cosmo films Q4 conference call updates.

1)Commodity margins in domestic market improved from 4-5rs/kg to 10-15/kg. Margins improved after 2 years due to no capacity addition in domestic market leading to better Utilization of lines and increasing contribution of specialty films. Normalized margins are 18rs/kg.

2)Capex is minimal for next year only 10000 tons specialty films line. It will start from Q2.

3)Industry growing at 8-12%. BOPP growing faster at 1.5 to 2 times Gdp growth rate.

4)No supply coming this year. Next year 40000 tons to come in.

5)Expect to reduce 100-150cr of debt this year. Net debt is 643cr. Debt to equity is 1:1.

6)Mix in sales between Commodity and speciality 55-45.
Prior quarters 65-70%of margin was coming from specialty. Now the mix is 40%-60%.

7)Demand is strong currently. Domestic marketgrowing faster than exports.

8)American subsidiary was Ebitda positive this year. Expect it to improve from here. Earned 500000$ on 33M$ sale.

9)Target is to get 2/3rd revenue from specialty in 3-4 years.

10)Will only expand when debt to Ebitda is more than 2-2.5.

11)Currently having to refuse orders in specialty as lines running at full Utilization.

12)Capacity Utilization is 90+%.

Disclosure : I have a small tracking position

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Good compilation. As was expected margins have started to improve. It all boils to supply-demand. Just keep tracking that.

Did anyone attend the AGM ? If yes, please share notes.