Cosmo Films - Diffentiated player in commodity business

Stock Opportunities Untested - but worth a good look
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45% of Cosmo revenue comes from commodity films while 55% comes from speciality films as per the last concall. This qtr that percentage would be higher. Also the spread of 28/kg in Q2 , according to management speak was expected to sustain for the next 12 months. In the next 2 years the share of speciality films is expected to reach 70% so the business will behave less like a commodity business. The other lines of biz i.e speciality chemicals and masterbatches will also contribute significantly with mgt expecting them to do 500cr revenue in the next 5 years or so. Then there is the pet care vertical which will get demerged as per the latest investor presentation once it can stand on its own feet. I think the efforts to decommoditize are visible and clear. The management is also very investor savvy and has a good record with minority shareholders.

I think the story is unfolding in the right direction

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BOPP cycle is working out perfectly.

Have booked profits in 60% of my quantity in one my invested BOPP company.

Here’s a screenshot of the margins. Entry was near perfect. Stock is almost 3x. All because of learnings from previous cycles.

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Hi Jiten, do you think the situation is really different this time and the margins could sustain for some more quarters?

https://www.outlookindia.com/newsscroll/profitability-of-packaging-film-cos-to-improve-to-19-pc-this-fiscal-report/2032224

However, in phases of supply glut – largely on account of chunky capacity additions, it becomes difficult for players to fully pass on the input cost increases. This was visible in fiscal 2013 and fiscal 2017 when margins shrunk due to excess, according to the report.
This time, however, the situation looks very different. Industry capex has been slow in the past few years and operating rates are high at 80-90 per cent – showing well-balanced demand-supply.
Consequently, despite rising crude prices, operating margins are expected to remain range-bound at 15-17 per cent for the next few quarters, the report added.

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yes. it is possible that margins may sustain for some more time.

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Jiten ji, what do you think of management comments on sustainability of the margins (not only due to demand-supply situation) but the value added sales contribution increasing.

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I would refrain from any comments on what managements say. I believe there is cyclicality in the sector. Maybe for someone like Cosmo, it may be reduced from before, buy cyclical it remains. In my opinion.

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Cosmo films is beyond commodity play. They invested hugely on R&D with a team of 35 to 40 members.

In one of concalls investors asked what would our position in BOPP space as we see all our competitors are doing Capex and expanding their capacity?.

Management replied we are far away from commodity business and 70% of revenue from speciality films and only 30% is from BOPP. The BOPP Lines are suitable to convert into speciality with little expense.

Very interesting point is now they are going to textile speacility chemicals with the backward integration and management is so optimistic about business and need to verify " word of walk".

Next pet car segement, really a huge potential in India and need to look at how they mould this vertical.

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Q4 quarter EPS is 41.8 , while entire 2020 EPS is 59.2

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I was looking at the presentation of the company today as have been hearing good things about the company and the nos have also been very strong consistently for last few qtrs. Good thread above!

However, while looking at the presentation, I was concerned to see that the co is talking about entering two new segments (both of which are hot words in this market)…why? what’s the logical reason? why do cos want to venture into un-related areas when they start doing well?

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Disc: Not invested. Just trying to understand

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Hi Ayushbhai,

Maybe they are trying to have a diverse product stream like SRF which does both flexible packaging films and also speciality chemicals.

Rossari biotech also does speciality chemicals + pet care

Thanks
Bheeshma

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The specialty chemical business is basically backward integration as they need this for their manufacturing. They put this business in a new company so as to get benefit of lower tax. Having started that business they are finding customers outside also.

Pet care is something a very different business. I am hazarding a guess if it does not violate the code. It may have been done as a hobby of the chairman’s family member.

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Hi Ayush, they’ve been talking about making products in specialty chemicals and dye industry for more than a year if you go through their concalls.

The venture into the pet care business seems to be completely unrelated to their core business and is definitely a concern.

From a cursory look this company seems to be highly cyclical enjoying peak margins currently though the management has been talking for a long time about derisking the business model to make it less cyclical.

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Today in CNBC the Cosmo CEO was mentioning the textiles entry. He was saying since they have the R&D team and they have developed this products which are more environment friendly. He mentioned about 30 to 40% reduction in water usage from current usage. So they are getting customers for these products. He did mention Textile is currently bit down due to covid situation but rest of the segments are not impacted.

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They have been talking about that for more than a year. The primary objective is to do backward integration (as they feel there are good margins in that business) and hence controlling their cost as well and better margins and of course they will be selling part of their production to outsiders as well.

Pet care is totally un-related and needs to be monitored.

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Nice video. A little old but answers a lot of questions. Their main focus is to move towards more specialty films. By this year end 60% specialty volumes and in less than two years targeting for 70% specialty sales volume.

On Pet Care: Repeats most of the things mentioned in presentation about pet care.

  1. A business idea that solves a problem faced by 20% of India’s population
  2. One of fastest growing industry in India ~ 20-22% growth YoY. With rise of disposable income and nuclear families, pet adoption is going to increase.
  3. Pet population in India one third of US pet population, but the industry size is one thirtieth part of US markets. So early mover advantage.
  4. Will be a B2C technology portal/platform which will provide services and sale of products to pet owners and will also provide answers to questions like where to adopt, which breed to go for, right food for pets, vaccination, grooming services etc.
  5. Is part of Cosmo films because it is comparatively tax efficient and plan to hive off this into a separate entity in next 2-3 years.
  6. Also answers a question on pet care that not much capex/opex for pet care. At best 100 cr in 4-5 years. Then it becomes self sustainable and starts making money. It’s more of brand building in that business rather than opex/capex.
  7. Appointed a business head for pet care business. Form this link, Mr. Ambarish Sikarwar seems to be heading pet care.

There is question about too much diversification like in specialty chemicals and pet care to which he says we are appointing business heads for all verticals. Also question about why pet care as it is completely different from current business. But other than saying huge opportunity and growth he doesn’t provide any concrete answers to why pet care business.

Disc - Invested from lower levels. I am not a SEBI register advisor. The above note is not an investment advice but an educational post to discuss a business model.

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New product launched by Cosmo Films
Company launched fabric sanitizer named “Fabritizer” in the market

46f7f23f-b500-4437-a180-6d9dd14ae01f (1).pdf (696.2 KB)

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Very optimistic going forward
Dis:- invested

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The pet care business sounds like the teeny business idea we all had growing up :joy:

Where to find, where to adopt… Sounds funny. I think it makes sense to at least sell pet care products, if at all any integration is possible. Actually, is it? Do they mean that?

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Hi Jiten

Since you seem to be the most knowledgeable on this business, I want to ask you about this or any other expert members who know the answers. This concerns mostly the latter part of this reply.

However, since you’ve also spoken about the management, want to ask what you know about the management too.

I read this year’s ConCall Transcript. The management seems to sound over-optimistic and looks like they’re trying a bit too much or a bit overtly to create a good impression.

(Peter Lynch warns against this and says some industries with pessimistic to moderate expectations are good, while those constantly in hyperbole deserve a sceptic approach to understanding them.)

Is it because the business is good or are they trying to look good and pretty all the time? Some of them are convincing while some are not.

For example, while talking about Direct Thermal Printable Films, these days I refuse to even take the Print receipt from Petrol Bunks.

But they’ve invested a lot in R&D of DPT Films to come up with a Printable Film that has a 5 year shelf-life of the print, since currently it fades too soon. (Besides, is this a slow industry or an industry undergoing rapid change?)

Why do I need a 5 year shelf-life, if I’m not even going to take the receipt because I get SMS and statements online?

Are there any other applications of a DPT Film that the company will benefit out of like they said something about use in hospitals, wrap-arounds or used on wrists or something.

Is DPT unique to them? As a Google search turns up only Cosmo Films. Is it important by size in volume, price, revenue and margins? Or is it something insignificant to be ignored?

If it’s their own finding out of their R&D, should any of us ask if they have any patents in the next ConCall? Is a patent required for this or any other offering of theirs, if they’re from their own labs?

I’m way too ignorant of this field and I think this is the only company currently with good numbers.

Do you also think their good numbers are a concern too due to the cyclical nature of their business? There seems to be some tailwinds for their business for the next couple of years at least. Doesn’t it?

Please let me know your thoughts on these aspects of this company, when you can. Thanks In Advance

Regards
Dinesh

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