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 Q2 and H1 FY '26 results. 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 management's current expectations and are subject to uncertainties and changes in 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 can open the floor for Q&A. Thank you, and over to you, Neeraj ji.

Well, thank you. Very good afternoon, ladies and gentlemen, and thank you for joining us on Cosmo September 2025 Results Conference Call. Our financial results for the September '25 quarter and investor presentation, both are available on the company's website. Hope you could go through the same. We'll begin this call with a brief opening remarks from the management side, which may be followed by the questions. First talking about the results. Consolidated sales for the September '25 quarter is INR 919 crores, which is higher compared to last year same quarter by almost 21%, primarily due to higher volume. EBITDA for the quarter has increased by 19% to INR 128 crores compared to INR 107 crores since September '24 quarter. Well, EBITDA, in fact, had three favorable factors and three unfavorable factors. First, let me talk about those factors, and then I will also try to quantify those for you. In terms of favorable factors, higher sales volume by 25% largely because of the new capacities; second, higher specialty margins; third, improved performance of our Specialty Chemicals subsidiary, these three favorable factors. The unfavorable factors include the margin decline on the BOPP and BOPET commodity film due to imports in India, higher U.S.A. tariffs, which could only be partially passed on to the customers. And third one is the stabilization cost related to commissioning of the new line. Let me try to quantify those for you. First, I'm comparing September '26 quarter (sic) [ '25 quarter ] quarter with September '25 quarter -- September '24 quarter. First is the higher sales volume has a favorable impact of close to INR 33 crores. Higher specialty margins have a favorable impact of INR 10 crores, improved performance of Specialty Chemicals subsidiaries by close to INR 4 crores. In terms of unfavorable factors, lower BOPP margins is close to INR 16 crores, lower BOPET margin is close to INR 7 crores and higher U.S.A. tariff impact has close to INR 6 crores of impact. Let me now quantify these factors for you compared to the previous quarter also, means I'm comparing now September '25 quarter with the June '25 quarter. Higher sales volume has a favorable impact of INR 20 crores. Higher specialty margins have a favorable impact of INR 5 crores. Improved performance of Specialty Chemicals subsidiary has a favorable impact of INR 1.5 crores. In terms of unfavorable factors, lower BOPP margin has an adverse impact of close to INR 7 crores. Lower BOPET margin has an unfavorable impact of close to INR 4 crores. And higher U.S.A. tariff has an unfavorable impact of close to INR 6 crores. You would notice our PAT impact is muted, although there is an increase in the EBITDA level, largely because of increased depreciation and interest related to new capacities. The BOPP line -- the new BOPP line is ramping up stage by stage and could achieve close to two-thirds of the potential in quarter 2. We expect this line to get fully utilized by quarter 4 of FY '26. BOPP Films gross margin has been running close to INR 22 per kg during September '25 quarter as compared to INR 25 per kg in the previous quarter, June '25 quarter. BOPET film gross margin has been running at INR 6 per kg in September '25 quarter versus INR 12 per kg in June '25 quarter. The margins dropped, as we discussed, largely because of the imports, which got curtailed towards the end of the quarter. Now I'm moving to outlook. In terms of outlook, if we look at macro level, the company has invested in key packaging assets over the last 3 years, which include BOPP line, CPP line, window film, et cetera. All these investments have started commercial production recently and should provide a significant ramp-up in revenue as well as profitability in the coming years. The new film lines are most cost-efficient and should make Cosmo more competitive in the market. While for film business, the company's focus will be on taking full leverage of the new investments, grow the specialty films and further try to push down the cost, which we expect close to INR 25 crores of the annualized impact of the cost rationalization in 12 to 15 months from now. In the current year FY '26, the company is expanding capability in coating and other high-end specialty products, which should yield results in the coming year. Moving to Specialty Chemicals subsidiary. The Specialty Chemicals subsidiary has continued to achieve traction and posted record EBITDA of INR 13 crores on top line of close to INR 49 crores in September '25 quarter. The Specialty Chemicals subsidiary also developed three new coated products compared to the previous quarter, which should get commercialized over the next 2 quarters. We expect this growth trend for the Specialty Chemicals subsidiary to continue with new innovative products. Moving to Rigid Packaging. Cosmo Plastech, which is our rigid packaging business vertical, the focus is on achieving profitability through higher capacity utilization and improving on the cost efficiencies. The business has reached close to 70% capacity utilization in quarter 2, which should further increase in the coming quarters. Moving to consumer businesses. Well, Cosmo has two consumer businesses, one Zigly, which is into petcare space; and second, Cosmo Consumer, which includes window films, paint protection films and ceramic coatings. Both the consumer businesses continue to scale up during the quarter. For Zigly, the business model is fast moving towards services and house brand, which is a high-margin business. Zigly has also acquired two established veterinary hospitals during the quarter, one in Mumbai and another in Bangalore. Both of these are profitable centers. Now I'm moving to corporate side. The company's net debt position at September '25 is close to INR 1,230 crores, which is 2.97x to EBITDA and 0.8x to equity. At this stage, the company is running close to peak level of the debt as most of the debt related to planned growth is already built in the balance sheet, but we do not have full year effective returns coming out of this as of now, which should start in the coming quarters. We believe the net debt reduction should happen in the coming year fairly fast. During the quarter, the company has also earned globally recognized information security management certificate, which is called ISO/IEC 27001 in this quarter. Well, now all our plants are partially using renewable power as a source of energy. In FY '25, the company has used more than 50% of the power consumption from renewable sources, which we are targeting to increase further to close to 2/3 from -- in 12 to 15 months from now. Besides environment, this will also facilitate cost rationalization. On this note, we conclude our opening remarks and would be glad to discuss any questions. Over to you for the question-and-answer session please.

[Operator Instructions] The first question is from the line of Nirav Jimudia from Anvil Wealth.

Sir, a few questions to ask. So first, on the clarification side, the positive and the negative impact, which you mentioned in your opening remarks pertains to at the EBITDA level or at the PBT level?

Those were at the EBITDA level.

Correct. And sir, you also touched upon the impact on our business from the U.S. tariff side. So just wanted to understand like the impact numbers, what you mentioned, till -- first of all, what is the current tariff to us in terms of exporting films to U.S.A.; and b, two, what level of tariffs we are able to pass on and the balance is showing as an impact in our P&L?

Sure. Fair enough. I think earlier it used to be 5%. Post August, it moved to 55%. So as of now, it's 55% tariff on import of film in U.S.A. from India. As we know, this tariff increased in two parts in the month of August, one at the beginning of August, second part was at the -- towards the end of August. So full month impact was for September. As we mentioned, close to INR 6 crores was the impact for the quarter 2 results. So if we annualize, we expect close to INR 55 crore number annualized impact if there is no change from now in terms of the tariff. But having said so, a significant part of this, we could also take price increases from the customers. So we expect close to half of this will be price increase from the customer. So remaining net impact for us is close to 25% tariff.

Correct. So just to summarize here, 25% -- till 25%, we have taken the price increases. And let's say, the balance 30% is still the impact on the books. So just want to reiterate here, let's say, if hypothetically, the additional tariffs, which were levied in the last round goes away, this impact of INR 55 crores on an annual basis, what you mentioned should also go away, correct?

That's right.

Got it, sir. Sir, second question is on the newer lines, what you mentioned that it should start seeing the ramp-up or fully ramped up from Q4 of FY '26. So just wanted to understand here, you also mentioned some cost associated with it because of which the numbers were not fully reflecting on the P&L side. So just wanted to understand, let's say, once it fully ramps up, what sort of cost savings one should envisage, a, on the variable side; and b, on the fixed cost side. So if you can just compare it with your older lines, what we are currently having vis-a-vis this newer line and give some quantitative understanding, that would be very helpful.

Yes. So basically, the fixed costs have already been incurred for the new line, while once we scale up, the fixed costs are going to remain the same. Second is for any new line, you have to end up doing a lot of trials during stabilization. So those trials would not carry on. So in this quarter, we could easily say that a couple of crores have gone into different kinds of trials and multiple shutdowns that we had to take to ramp up the speed.

Correct. So safe to assume that the newer line would have a lower variable cost vis-a-vis our current existing lines. And in terms of percentages, if you can share, let's say, vis-a-vis our existing lines and the newer lines, which we have currently commissioned, what sort of cost advantage should come to us once it is fully ramped up?

It will be 15% lower cost.

Okay. Got it. Sir, third question is on, let's say, once this line is fully ramped up, do we need to expand on the specialty or the semi-specialty lines because last time when you mentioned, we were already at 76%, 80% close to the volumes from the specialty side. So let's say, once this line starts ramping up and it is fully utilized, do we need to further invest on the semi-specialty and specialty lines?

So see, some of it has already been commissioned. We have added two new lines very recently. And two lines are under commissioning. One line will come up in the quarter 4 and the other line will come up in the quarter 1 of next year. So basically, these are part of INR 250 crores of CapEx that's planned for this year. And then beyond this, then we are kind of in a consolidation phase, and we are not committing any further CapEx at this stage, any major CapEx, I would say, for the rest of the year and for the next year.

Correct. And sir, with the four lines, what you mentioned, would it again help us to go back to that 70, 80 percentage ranges in terms of the volume mix between the specialty and commodity?

Yes, that is what is planned. And obviously, it would not happen overnight. It is going to happen...

Absolutely, over a period of time.

But yes, that is a plan that within the next 2 to 3 years, we are back to the same numbers. And we have already started two very large, which at this stage, we would like to keep it -- so there are two very important product lines that we are going to start within the film. And once we start scaling up, we'll certainly share with the investors.

Got it. Sir, last from my side. Sir, last conference call, you mentioned that there were some unreasonable imports of BOPP into India with the competitor line going out. So where are we currently in terms of those imports? So have they been exhausted? And let's say, over some period of time, we can again see some sort of positive price increases in the market? What's your take on that?

Yes. So see, in anticipation, some traders did import and that negatively impacted in August, September. Diwali month is always a tight month for the industry historically because a lot of Gujarati traders and certain other traders, they shut down almost for 15 days. Things are getting back to normal. Imports are not happening because most of these importers realize that they lost a lot of money in this import exercise. Now we have to also consider the fact that four new BOPP lines got added. So there is not as much shortage which happened once that line got fired, that plant had fired. There is a fair balance between demand and supply and the prices should improve from here.

The next question is from the line of [ Raman KV ] from Sequent Investments.

Sir, I joined the call a little late. Can you be -- can you just repeat the realization for the quarter with respect to the films?

Okay. Gross margin on the BOPP film quarter 2 was running INR 22 per kg. It was compared to INR 25 per kg in the June '25 quarter. In terms of the BOPET film, the gross margin was running close to INR 6 per kg compared to INR 12 per kg in June '25.

Sir, the second one was INR 6 in which...

BOPET.

BOPET. Okay. Okay. So I have noticed that both the realization across both the products has dropped significantly, especially with the BOPET. Can you give us an idea about -- is it because of the oversupply in the market? Or is it because of the decline in the raw material prices?

As we mentioned, there were some imports which have happened starting from the month of August, which towards the end of the quarter, which tempered. It reduced significantly. And now post quarter also, it has reduced very, very significantly. So because of that import, we reduced the selling price. That's why the margin reduced.

Okay, sir. Sir, my second question is with respect to the specialty films like the paint protection films and sun protecting films. How much did we do -- if you can give us a rough figure with respect to the top line? And how are we expecting to scale this up?

So there is definitely traction in these two films. And each quarter, there is a sales growth which is happening. As of last quarter, we have close to INR 4 crores, INR 4.5 crores of the sales for the quarter.

And sir, when -- how are we planning to scale the business up? Because if I understand this, these are very niche and specialized products, and this will also help us shift from a commodity-driven business and these have a better margin realization as well.

Yes. So these are consumer businesses. See, the window film and paint protection film have two sides of it. One is in India, we are working towards making it a consumer product, launch it as a consumer product. While there are export opportunities also. So domestic, whatever till now has happened is largely in the domestic market. And month-on-month, as Neeraj said, we are scaling up, we are adding more distributors. And at some point in time, we would like to even explore how we can scale this up faster through time-tested ways. As far as the export is concerned, we have hired salespeople for the export market. Our teams are working in the U.S., Europe, South America and Middle East markets to have distributors even in those regions. So it will be a mix of both. And in the recent past, we've also launched ceramic coatings for the car. So for cars now we have three options: window films, ceramic coatings and paint protection films. While for the architectural building side, we have window films. And in the near future, we are planning to add one more product line so that we have multiple options, both for the buildings and the cars.

Okay, sir. So my final question is how -- any guidance for the revenue for the entire year with respect to the specialty films?

Yes. So see -- I mean, it's very difficult to give such projections. But at a very broad level, we could close this year between INR 3,500 crores to INR 3,800 crores. And within that, the specialty portfolio should be anywhere between INR 1,700 crores to INR 2,000 crores. Actually it could be more because I'm -- the value is more. So -- sorry to say this number. I was looking more from a volume perspective. I think the number should be close to INR 2,200 crores to INR 2,500 crores. We actually look more as a volume number in the absolute number, but it will be close to something INR 2,200 crores to INR 2,500 crores.

And sir, the overall, you said INR 3,500 crores, right?

INR 3,500 crores to INR 3,800 crores.

Okay. And sir, can we expect the gross margin with respect to BOPP to remain at 22 levels for the entire year? Or will it pick up in the second half now that imports have reduced?

Ideally, it should pick up from here because it's the season time for our industry. And also the demand [Technical Difficulty] so if at all, the margins should ideally go up. So nobody can predict the future. [Technical Difficulty].

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

Sir, my question related to this, right now, the spread has come down significantly. So what is the current spread in the commodity BOPP film?

What has come down?

Spread, that gross margin.

Yes. Gross margin has come down because of imports in between and is expected to improve from here.

So right now, it is around 22 or even less than that.

It is on an improving trend.

Okay. And sir, how is the demand-supply balance in the BOPP segment going forward over the next 2, 3 years?