Cosmo First Limited (COSMOFIRST.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the investor call of Cosmo First Limited to discuss the Q1 FY '26 Earnings Conference Call. Today, we have us with is -- today we have with us from the management, Group CEO, Mr. Pankaj Poddar; and Group 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 the management's current expectations and are subject to uncertainties and changes in the circumstances. These statements are not the guarantees of future results. [Operator Instructions] Please note that this conference is being recorded. Now may I request Mr. Neeraj Jain to take us through his opening remarks, subsequent to which we will open the floor for Q&A. Thank you, and over to you, sir.

Thank you. Good afternoon, ladies and gentlemen, and thank you for joining us on Cosmo June 2025 quarter results conference call. Our financial results for the June '25 quarter and investors presentation, both are available on company's website. Hope you could go through the same. We'll begin this call with a brief opening remarks from the management, which may be followed by the questions. So first, talking about the financial results for the quarter. Consolidated sales for the June '25 quarter is INR 800 crores, which is higher by 16% from June '24 quarter, primarily on the back of higher volume by 19% and higher BOPP margins. The EBITDA for the quarter has increased to INR 116 crores compared to INR 84 crores during June '24 quarter. The improvement in EBITDA is backed by four primary factors: higher volume by 19%, better BOPP film margins, improved cost rationalization by about INR 4 crores and enhanced performance of our Specialty Chemicals subsidiary by close to INR 4 crores. BOPP film margins has been valued close to INR 25 per kg during June '25 quarters as against INR 21 per kg in March '25 quarter and INR 19 per kg in June '24 quarter. During June '25 quarters, the company has commissioned two key assets: First, new BOPP line with annual capacity of close to 81,000 metric tons, which started operations from June beginning and added close to 45% of company's BOPP capacity. Second is window film line,, which has started operations in May 2025 under brand, Sunshield, and has gained momentum with more than 50 distributors. Moving to outlook. The company has invested in key packaging assets over the last three years including BOPP line, CPP line, window film line and paint protection film. All these investments have started commercial production in recent months and should provide a significant ramp-up in revenue as well as profitability in coming years. The new film lines are one of the most cost efficient and should make Cosmo more competitive in the market. The company is growing specialty film sales by close to 10% CAGR growth over last six years, and we expect this trend to continue. For film business, in fact, the company's focus will be on taking full leverage of new investments, grow specialty film sales and further push down the cost. Moving to Specialty Chemicals subsidiary. The Specialty Chemicals business continued to achieve traction and posted record EBITDA of INR 12 crores on quarterly sales of INR 49 crores in quarter 1 June '25. The business vertical should continue to grow, backed by new innovative products and specialty films sales. Moving to pet care venture, Zigly. Zigly is all set for the next level of growth and should see higher momentum in FY '26. The business model is moving more towards services and house brands, which is a high-margin business. Some initiatives on ESG. Recognizing need for sustainability and future preparedness, the company is taking several initiatives on sustainability, which improve initiatives like all plants are now partially using renewable power as the source of the energy. In FY '25, company has used more than 50% of its power conjunction from renewable sources, which we expect to further increase to about 2/3 in 1 to 2 years period. Besides the environment, this also facilitates cost rationalization. Other initiatives include reduced power consumption through efficiency improvement, rain water harvesting and many others. On that note, we conclude our opening remarks and would be glad to discuss any questions, comments or suggestions that you may have. I would now like to ask the moderator to open the line for questions and answers, please. Thank you.

[Operator Instructions] The first question is from the line of Rehan Saiyyed from Trinetra Asset Managers.

So sir, my first question is on the BOPP line product strategy size. So the new 81000 million tone BOPP line is already done [Technical Difficulty]

I'm sorry to interrupt. I just request you to speak a little louder, please.

Sir, my first question is around the BOPP line product mix strategy. The new 81000 million tonnes BOPP line is already running. [Technical Difficulty] fully utilized within the month. So how soon will it have a higher session in product mix and what for their operational customer initiatives on [Technical Difficulty]?

Yes. So the new BOPP line will ramp up to 100% capacity within the next 2 to 3 months. We will be filling up with specialty films over a period of time. So our objective is again to have more specialty mix even from the new line.

Okay. And sir, Next, I want some more understanding on the window film scope and opportunity. Like with Sunsheild gaining quick domestic traction, in international market or segment, are you prioritizing and what will be your real eastate for [indiscernible] contribution on [Technical Difficulty] maybe some quarters?

See, our first is-- the target is the domestic market we feel there is a very significant potential to make a brand here. And we have already started with certain ATL and BTL activities to create the brand. It's starting of the journey. It will take its own time. And we are also looking at exports in multiple markets. To begin with, our focus is Americas and Europe. So those are the two markets where we'll-- at the most to begin with also with the Middle East.

Okay. And sir, one more last bookkeeping question from my side. So on Zigly demerger time line, you have indicated a medium-term plan to demerge Zigly. So can you share a more specific time line, whether you intend to bring in a strategy or a financial partner before the demerger?

So we have to scale up to a certain level before we even decide whether we want any financial or strategic player. We are bringing very sound business principles. And once we feel -- so I feel that it's very difficult to assess at this stage what time we'll bring. But more than likely, it will be anywhere by latest by 2028 or '29. It can happen even earlier than that, but it's too early to predict anything on this. We keep getting a lot of interest from globally many players. But at this stage, we are not -- immediately, we had -- I mean, at least in the last 12 months, we had not looked to get any partner into the business because we feel that we have to achieve a certain size before we induct someone.

The next question is from the line of Gaurav from Capital Farming Consultants.

So once again, congratulations on a good set of numbers. First, just a clarification. Since first time we have, I think, reported segment-wise revenue in our quarterly results, so in that, which all line of businesses we have included and we have mentioned a separate segment as others, the reported turnover as INR 25 cr approximately in Q1 FY '26. Just a clarification.

So packaging is film business. Specialty Chemicals, of course, is Specialty Chemicals business, which we have in a 100% subsidiary. Pet care is Zigly business. And others include Sunshield and rigid packaging business.

These two are relatively very new businesses and therefore been included in others. Once we scale them up, we will evaluate to show them as well separately.

Sure. So my first question is on our newly commissioned BOPP line that I think was commissioned in the last week of May 2025, right? So considering the current industry dynamics, specifically the BOPP segment, right, so if you would like to give some color that after the -- one of the major player capacity is now out of stream, right? What is the current installed capacity in Indian market vis-a-vis the utilization level, right? And how do you foresee maybe one year down the line that how it is going to pan out, either increasing capacity or maybe some better utilization level or some moderate level from here onwards. Your colors on that, please.

Yes. So as we understand that there was around 15,000 tons produced by the player you are talking about, close to 11,000, 11,500 tons of domestic sales and close to 3,500 tons of exports. I mean, obviously, these numbers used to change a little bit here and there. But broadly, we understand that 15,000 tons was what they were producing on an average. We have to also remind the investors and the listeners here that in this year, four lines have to be added, out of which three have already been added and the fourth line will be added soon. These four lines put together will add 10,000 to 12,000 tons of additional capacity. So on a net basis, right now, the reduction is 3,000 to 4,000 tonnes of capacity. Right now, the entire capacity is utilized. India is right now sitting at 65,000 to 70,000 tons of domestic consumption. And India is doing exports of close to 15,000 tons, of which Cosmo is by far the largest player in exports.

Sure. Sir, second question with related to BOPP line only. The line that we have commissioned, right, so that is just as of now the majorly producing the commodity line of packaging films or it also includes the specialty? And within this, if consider that it operates at an optimum level of, let's say, 80% to 90% of capacity utilization, what could be the revenue potential in 12 months or trailing 12 months like or 4 quarters down the line? So these are my questions.

This new line can add close to INR 750 crores of revenue when it is running at full capacity. Given that we had a lot of queuing up for specialty orders, within the first two months itself, we have been able to move certain businesses to specialty. Right now, that number is still small. We are also adding many assets alongside in the coming months to increase our specialty sales from this asset. So eventually, in three years' time, we want a very significant part of this line to be sold into specialty film area.

The next question is from the line of Nirav Jimudia from Anvil Wealth.

Sir, my question persists to the INR 25 crores of revenue, what we have shown between window films and packaging -- rigid packaging. Sir, in one of the earlier conversations, you were mentioning that the breakeven sales for window films could be anywhere between INR 30 crores, INR 35 crores. So let's say, between this INR 25 crores of revenue, how much would be window films? Because we have just started. So the losses in this division is predominantly for the window films? Or if you can just help us with respect to this.

See, first is in this vertical is no more just a window film. If you remember, we had also launched paint protection films. And subsequent to that, we have also launched ceramic coatings for the car. We are the first manufacturer for ceramic coatings for the car. Until now, all these ceramic coatings were coming from overseas market. So paint protection film is a premium solution, while ceramic coating is a little lesser priced solution. As of now, the window film sale in the one month of operation is still a small number, and the overall loss is actually a loss in both the business verticals which is rigid packaging as well as the Cosmo Consumer vertical. What we expect is that the rigid packaging should start making positive EBITDA, let's say, in September month of -- most likely in September month, it will be September or October. And we expect that quarter 3 should have positive EBITDA coming from rigid packaging. And within quarter 3 or quarter 4, we should start making a positive profit before tax also in the rigid packaging business. As far as the Cosmo Consumer vertical is concerned, the paint protection film is already making profit without the fixed overheads. Fixed overheads have to be obviously allocated to all three businesses. So majority of the losses are actually coming from the marketing costs that we've already started incurring and the employee cost.

Got it, sir. So for rigid packaging, if we see the run rate of revenues for making breakeven at the EBITDA level, can a quarterly run rate of INR 20 crores, INR 22 crores is a right number to work with, at which possibly we could break even?

Yes, you're right. We should be breaking even at INR 25 crores roughly sales number. Obviously, we had done a lot of cost improvements in last 2, 3 months, and we will continue to do a lot of other cost improvements. The second focus area for the company is to increase our presence with the brands because when we started with this business, to fill up the lines initially, we had to sell to distributors and also sell to other converters. But our ultimate objective is to sell premium products, which are various specialty products which company has made, whether these are high shelf life products, whether these are products meant for automotive industry, electronic industry and so on. So we have already started focusing on those high premium markets, where we can earn better margins. And as well as cut down the cost, there were a lot of opportunities for us to cut down the cost. So we expect that even the current mix of customers that we have, we should be able to start doing breakeven close to INR 25 crores and, beyond that, start making positive EBITDA on that sale. From the current set of assets that we have, we should be able to do an annual sales of anywhere between INR 130 crores to INR 150 crores.

Got it, sir. Perfect. The second question is on the newly commissioned line. I think last interaction, you mentioned that this new line could have a lower fixed cost to an extent of INR 7 crore to INR 8 crore as against the traditional lines, what we have. So let's say, in terms of the numbers, with the addition of this line, how much of the fixed cost we have added on a quarterly basis? If you can just share your thoughts here.

The cost for the new line is quite minimal right now because we've hardly hired anybody at middle or senior level, barring two or three people in sales. So we do not expect that the incremental fixed cost because of this new line will be more than INR 6 crores to INR 8 crores in a year.

Okay. On an annual basis, once the line fully ramps up.

Yes, yes.

Got it. Sir, third question is on the cost-saving initiatives. Like you mentioned in the presentation and also on your opening remarks that we have got some INR 4 crores of benefit this quarter. So is this a peak number of the benefits we are supposed to derive, through the renewable power? Obviously, you mentioned that this is going to go up. But let's say, apart from this renewable power, we were also working on some other cost initiatives. So what we could see, the potential benefit of these cost initiatives in the subsequent quarter, so over and above this INR 4 crores, if you can help.

So the last year, we had saved around INR 40 crores in cost reduction exercises. So this year also, we are targeting to achieve a INR 40 crore cost reduction.

Correct, correct. Sir, last bit from my side, your thoughts on our exports to U.S. and the ongoing -- just between the tariffs and everything. So a, how we would be impacted; and, b, what are we doing in terms of minimizing the tariff impact on our exports to U.S.?

See, the current tariffs are quite crazy and what we feel are unsustainable. If it remains at the current level, then it is a precarious position. A significant part of our sales can get impacted to America. Last year, we had done close to INR 250 crores to INR 280 crores of sales. And so we may have to shift that sales to other markets if it has to continue at 55%. But what we feel is that better sense will prevail and these will come to more realistic levels. If it stays around 15% to 20%, then we do not foresee any impact because all the competition countries have also been charged with similar duty rates. If it remains at 55%, then we expect close to 50%, 60% business may get impacted. But hopefully, the duty rate has to come down.

The next question is from the line of Aman Kumar from AK Securities.

My question is related to the margins. Actually, I think in the month of June, we have a very good margin in the BOPP line. But then I think some of the competitors have imported a lot of quantity of BOPP films and the margins and the prices has come down. So what is the current margin, sir? And how do you see the margins going forward because import will be a threat in the future also?

See, a lot of dealers in India thought that film companies will take the margins to a very high level. We were mindful of this, and therefore, we never took very high price increases. We were always very rational in that. But we were expecting that a lot of imports will come and they actually came because traders anticipated that companies will increase far beyond. Now these traders are struggling because they are not making those margins that they had expected. Many of them will have to sell their inventory at a significant loss. Having; said so, this should be a temporary phenomena because traders have really understood that companies are here not to make extraordinary margins but reasonable margins. And therefore, we feel that, yes, there's a temporary import which has happened in the month of July. It may happen -- some of this may land even in August, but this should get sorted out in the next 30 to 45 days and the market will be back to normal. And as we said, there is more real need for imports because close to 15,000 tons of capacity went away from the market and 11,000, 12,000 tons of new capacity has already come up or is about to come up. So there's no reason for why India should import these films, and we do not anticipate that such kind of imports will happen in the future.

Sir, my understanding is that there are two types of film. One is in the food grade films and other is textile grade films. So the price fall is much higher in the textile grade film and there is less fall in the food grade. Is it right?

See, it's always more difficult to import nonfood grade films. But to be honest, right now, the margin in spite of this import is quite decent. The value-add in tape textile film is 30-plus, while in the non-tape is close to 45% plus, these are decent margins. I mean these are the margins, which in a normal market, we expect to earn, and that is what we are earning right now. And this should subside. And I mean, there's nothing to really worry about. I mean, if at all, anybody has to worry are those traders on which we feel sorry that they have to incur losses. Let us understand that if somebody imports this films into India, there's a 10% custom duty. And with the way the logistic cost is so high, especially from East Asia to India, it is never going to be profitable to import this film into the country unless somebody is looking to export these where they can import against advanced license. So only for the exporters, it may make sense to import. But for everybody else, it does not make sense and, therefore, some of the traders have already burned their fingers on it.

And sir, how true is that manufacturers, the producers of BOPP and BOPET films are asking the government for BIS in the film import?

Yes. Because these films are required for packaging, government is evaluating in different areas. And there's nothing wrong. Government has already implemented in many areas to ensure that there is a quality. We do understand that in many segments, many of the traders were importing very poor quality products into the country and consumers are not very happy. So I mean, I do not have any news that any BIS standards have been implemented, but it should be a welcome step if government really considers to implement BIS into this industry also.

And sir, one last question. That recently, we have seen that we have taken over some pet hospitals. So what is our target in the pet -- this pet hospital business? And number two, we have seen that sequentially there is a flat growth in Zigly. So can you throw some light on this?

Yes. So vet care is the, I would say, the most critical aspect which a consumer expects and where standardization has not happened into the country. Vet is the biggest influencer for the customer and, therefore, as Mr. Neeraj Jain earlier stated, that Cosmo as a group has a lot of focus on services and in-house brands. So these -- I mean, these are not very big sized hospitals. These are vet care hospitals which are really small in size. And if you have seen, that the capital outlay we have done is not that significant. So this will help us increase our overall vet care revenue as such. In fact, one of the centers that we had acquired just a couple of months back, we have already been able to increase its sales by good 20%, 25%, which is quite positive for us that we are able to add value to that acquisition. And as far as your other question that why it is just a very small growth of 2%, 3% in this quarter versus much higher growth in the earlier quarters, the reason is that in February, we had implemented omnichannel, which basically means that now we can dispatch our products from any center for an online order. Now what unfortunately happened is that Amazon and Flipkart, which are the marketplaces, if you have some cancellation beyond 1.5%, 2%, then they put you on hold. Now given that this is a new system and we were discussing from various locations, some of the orders had to -- I mean, they got canceled because they could not be dispatched within the same day. That was a learning for us. And because some orders could not be dispatched, our online revenue went down in this quarter actually. The retail sales had a very good growth once again in this quarter. But because -- so what happened is when we implemented this omnichannel in February month, February, March, we had 30%, 30% growth in online orders. But then we had account blockages from Amazon and Flipkart because of more cancellations than their standard cancellation of 1.5%. Almost for two months, we were not able to sell on these platforms in the right manner, the right value and that impacted our online sales. So retail has a very good growth, while there was a negative growth in the online. And we are trying to correct the situation. Hopefully, in the next quarter, we should start seeing the real benefits of omnichannel sales.

The next question is from the line of Tushar Gupta from Sagun Capital.

Congratulations for a good set of numbers. Sir, I want to know about the monthly revenue for June, especially and segmental gross margin in Q1.

I think it's already there as a part of the presentation in the investor presentation that you see.

No, I'm just -- okay. I am asking about the monthly revenue, if you can provide it.

Monthly revenue for each segment, it will be a little difficult to provide over the call. Maybe we request you to send an email communication. We'll come back to you.

Okay. Sir, second question is about whatever capacity -- sorry?

What I was saying is that our revenue numbers should any ways go up because the new line is being implemented. And even in the new businesses, revenue is growing. So you should be able to see a ramp-up in revenue numbers in the coming quarters.

Okay, sir. Sir, second question is that what is the total current capacity in terms of revenue at current BOPP prices?

Capacity has nothing to do with -- you mean in revenue terms?

Yes, yes.

Again, this number would not be available on an immediate basis because we are into multiple businesses and we won't have such numbers in hand. You can write an e-mail and we'll try to answer that.

Okay, sir. Sir, one last question. Sir, as we are working on 100% capacity, as mentioned in the presentation, so in AGM management has said, we are going to debottleneck it. So sir, by debottlenecking, how much capacity will increase and what will be the revenue from that debottlenecking?

So see, the company is running a total quality management project. And we do expect that our earlier lines should be able to do 6%, 7% more production over the coming quarters. It's a very large-sized organization-based project, which is based on two fundamentals: total employee involvement and continuous improvement. So that's a very large project which we have taken for the entire film business. And I mean that would also figure out in the coming quarters when the revenue will go up for us.

The next question is from the line of Amit Aggarwal from [ leeway ] Investments.

My question is regarding import duties in America. What would -- what would import duty will were paying last year?

Until last year was 5%. And this year it's 55% at the moment.

So even if they come down to 20% also, then also we will be squeeze in the margins from 5% to 20%?

Yes, if it stays at 20%, then we have no problem whatsoever.

My next question is regarding Zigly. How many stores have you right now currently?

We have already opened 33 centers -- 33 or 34 centers. And in next three months, we will cross 40.

40 by what time?

In three months.

In three months. And how many are cash positive and how many stores are we losing money?

Some centers have started making money, but we then increase the vet care in all these centers, due to which you can understand that vets had a higher salary compared to other staff. So we expect that by December, some 25% old stores should start making money. Normally, the fundamentals of retail are that they typically tend to make money in the third year. I mean, there was fortunately an article in Economic Times even today that any store makes money in the third year. And we hardly have 3, 4 centers, which are more than two years old. So most of the 2-year old centers, we do expect that they will start making money by quarter 3 of this year, quarter 3, quarter 4 latest.

Is there any other player who is providing the vet services, except us?

Sorry?

Is there any other player who's providing these vet services? Or we are the only one providing this services, the vet services?