Cosmo First Limited (COSMOFIRST) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Cosmo Films Limited Q2 FY 2022 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to [ Mr. Bhavya Shah ]. Thank you, and over to you, sir.

Thank you, [ Imba ]. Good afternoon, everyone. On behalf of Essential Technologies, I welcome you all to Cosmo Films Limited Q2 FY '22 Earnings Conference Call. From the management, we have CEO, Mr. Pankaj Poddar; and CFO, Mr. Neeraj Jain. I request you all to refer to the investor presentation, which is uploaded on the website, which can throw much more light. 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 guarantees of future results. Now may I request Mr. Neeraj Jain to take us through his opening remarks, subsequent to which we can open up the floor for the Q&A. Thank you, and over to you, Neerajji.

Well, thank you. Very good afternoon, ladies and gentlemen. I'm Neeraj Jain, CFO at Cosmo; joined by Pankaj Poddar, CEO at Cosmo Films. Our financial results and investor presentation, both are uploaded on the company's website. Well, we'll start with the call with a brief on the company's performance, which will followed by the questions. The company has posted record consolidated EBITDA of INR 152 crores during the September '21 quarter. In fact, this quarter now -- this is continuously in a row uptick performance by the company in terms of the EBITDA from last 10 quarters. Consolidated sales for the quarter is INR 759 crores, which is 36% higher compared to September '20 quarter. And this was largely for 3 reasons: higher speciality sales by more than 20%; increased margins; and third is raw material price increase, which got passed on to the customers. The EBITDA has increased to INR 152 crores, which is in fact, 54% higher compared to last year's similar quarter on the back of 3 key factors. First is higher speciality sales, which has grown for us more than 20%, better operating margins. BOPP film margin during September '21 quarter was running INR 40 per kg as against INR 27 per kg in September '20 quarter. And third factor is, of course, the uptick performance by the overseas subsidiaries. Subsidiaries, taken together, have contributed INR 24 crores of EBITDA as against INR 5 crores in the similar quarter last year. Subsidiaries are being very well on the back of higher sales and better margins. There were a lot of operational efficiencies also we could drive on favorable sales 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 we have done buyback of shares in December 2020 quarter. On trailing 12-month basis, EPS now is INR 178 per share as compared to INR 127 per share at the end of the March 2021. Now again, based on the trailing 12 months, ROCE is close to 24% and return on equity is close to 32%, which is one of the best, in fact, in the industry. On balance sheet side, net debt-to-EBITDA stand at 0.85x and net debt to equity stands at 0.5x, reaffirming strong financials. In September 2021, the company has launched its Petcare brand, Zigly, with the opening of its first experience center in South of Delhi, launch of mobile and services in NCR and launch of e-commerce platform. These omnichannel offerings will provide unique convenience to -- and value proposition to pet parents. Initial response, in fact, is propitious and the company intends to significantly expand its footprint, both in the digital and off-line in the coming quarters, be it experience centers, stores and events. In fact, post-COVID, the industry growth has significantly increased in the Petcare as such. During the quarter, the company has announced its first interim dividend of INR 25 per share, which in fact, is equivalent to last full year dividend, which has been paid at the beginning of the October '21. The company is looking close to INR 300 crores of CapEx during FY '22, primarily on the specialized BOPET line; value-add CapEx to further enhance specialty films and on speciality chemicals using. The financials are expected to remain fairly strong even with this CapEx in the balance sheet as the cash generation is fairly robust. The bottom line addition from the CapEx will effect -- will be effective from the starting of the next year. Coming to specialty films, in fact, specialty films have been growing consistently more than 3 years -- from last more than 3 years. And growth rate in FY '21 has surpassed more than 20%, actually, although the base was wider. September 2021, YTD specialty growth is even higher than 20%. The company is in process of ordering several other value-add 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 bottom line impact would 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 minority products, in fact, we are working on include shrink label film, direct thermal printable films. Turning to growth projects. As you can notice now, largely, we can see now in the B2B segment growth and B2C segment growth. First, starting on the B2B segment. Growth of the specialty films is running fairly intact. The pipeline is looking robust. The specialized BOPET line will add to it further. And just very recently, we have announced new BOPP line, which will further enhance growth projects. On 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 add close to 20% capacity and is expected to commence from the beginning of the next year. We are targeting complementary 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 to us to convert the non-recyclable PVC film market in India, which is close to 30,000 metric tons. 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 1/3 capacity to our existing capacity. The line is expected to commence commercial production from FY '25. Now both these lines, specialized BOPET line and the BOPP line, this will allow the company to further expand its specialty sales. 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. The company is working on several ESG initiatives. A separate report covering details for these initiatives shall be shortly available on company's website. Beside environment and social impact, these initiatives shall bring cost rationalization as well. It will be reflected in the P&L in the coming quarters. And some of these initiatives include renewable power at all our plants, offering monolayered structure for ease of recycling; our water, gas consumption rationalization; rainwater harvesting and reuse of effluent-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 times. So we feel that, beside rationalization, of course, this will also contribute to the environment. I think these are the few updates on the quarter from the company side. Now we would like to open the call for the questions, please.

[Operator Instructions] Our first question is from the line of Shubham Agarwal from Aequitas India.

Sir, first of all, congratulations on a very good result this quarter. Firstly, my question was on the speciality base business. So in your opening remarks, you did mention that spread was very healthy at INR 40 per kg. But given the recent increase in cost in various things like power or packaging or freight cost in last 1.5 months especially. So how do you see directionally this spread for us? And are we able to pass on most of the increase in cost?

Well, you rightly pointed out some of the cost increases. I'm glad to confirm that, yes, I mean, large part of these cost increases have been passed on. 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 level remain very robust. The -- 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, yes, I mean, it should remain fairly healthy, except if, in a quarter some capacity increases, there may be some temporary impact on the margin front. Other than this, we feel fairly robust overall provision.

So on the supply side, we are expecting 3 more lines in the next 1 year. Am I right?

That's right.

Okay. And secondly, on the masterbatch. So are -- we commissioned our masterbatch last quarter. So I wanted to understand what is the current capacity utilization? And how incremental it is impacting our EBITDA positively? If you can detail -- give some detail around it.

Well, we are running close to 55% to 60% capacity utilization depending on demand, which in fact, is increasing on a month-to-month basis. So we are running fairly towards the target to have the full utilization by the end of the year.

Okay. So this should increase our spread positively. Is that correct assumption?

That's right.

Okay. And can you give some numbers around how much the impact will be?

You see, I mean, 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 is expected to have 2 to 3 years payback. The CapEx incurred on the line was close to INR 20 crores. So from that perspective, you can easily compute.

Perfect. Okay. And lastly, on the various new products, we have already launched 2 products in our chemical side. And shrink label also launched last quarter. So I just wanted to understand as to how the response of all the products currently? And what is our time line for launching rest of the chemical, textile chemicals?

Well, in fact, the response is very positive. So our R&D team, along with the production team, are working now on the commissioning of the production line because all of this, so far, we have been doing on the pilot line. Now we're going to have the main lines in place. So from that perspective, you may expect next few quarters, then you should further increase.

So the main line is expected to come up next month. Is that right?

Yes. In the current quarter, September '21 quarter, we just started. So in the current quarter, December '21 quarter, we should be able to stabilize the line for the commercial production.

Okay. And 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.

Well, in fact, response is very, very positive. So we already have experienced a lot of good feedback coming from the -- at various level of the customers. Having omnichannel presence is also helping the -- providing the end-to-end solution to the pet parents. So yes, I think expansion plan, we are already working. As we indicated at the beginning that it's more a pilot launch initially, which we'll do. Based on learning from it, then we will further expand. Very soon we'll announce our expansion plan.

Okay. And lastly on the BOPET line. So last time, it was mentioned that by Q1, we are expecting to get this commission. So the time line, right now, is similar? Or is there any change?

Yes. It's similar, quarter 1 of next year.

Our next question is from the line of Amit Doshi from Care PMS.

Sir, what will be the current quarterly volume growth? I just want to bifurcate into the price growth and the volume growth.

Compared to previous quarter, it's close to 10%.

You mean sequentially?

Compared to June '21 quarter I indicated. Compared to last year, broadly similar volume.

Okay. Okay, okay. Fair enough. There is a mention of there is a launching of FMCG and B2C products. So is there anything apart from Fabritizer that we launched, Fabritizer and the Zigly, anything else apart from that?

Not at this stage. Well, there will be a lot of launches in the next 12 to 15 months in terms of more stores, putting more services on the digital platform, ensuring that the services are being provided through marketplace model in more cities. So all that will start for Zigly. When it comes to FMCG, we are right now working on our detailed strategy in terms of which are the other products that we should launch and how should we go about the expansion plans. As and when we have more details, we'll be certainly happy to share with the investors.

Okay. Okay. So this will be primarily in the chemical space?

Yes. So see, as I also mentioned last time that Fabritizer was initially a B2B product, and we launched it as a B2C product as well because we expected that customers will like it. It's the [ meat of the art ], and therefore, we launched it as a consumer product. It is already now available at many modern retail outlets as well as in online space. And as we speak, we have also have a business head for it, who is detailing the detailed strategy for it. And hopefully, that study should be complete in the next 3 to 4 months, in which case, we'll decide which are the other products we have to launch, which markets we have to launch and the go-to-market strategy. But as of now, we are, right now, only expanding on our Fabritizer sales.

Okay. Okay, okay. What would be your current sales of Fabritizer?

It is still very small. I would say we have, if I remember correctly, around 10,000 to 12,000 bottles till now.

Okay. Fine, fine, fine. There is a mention of -- that the synthetic paper market is -- Indian synthetic paper market is around 6,000 tons and global is above [indiscernible]. So apart from Cosmo, how did the Indian market is being catered on the synthetic paper side?

See, right now, as far as BOPP is concerned, only Cosmo is there. Though there are some imports which come from the overseas markets as far as BOPP market is concerned. India is having one unique product, which is being serviced out of polyester, which is for digital films. In that segment, again, there are 1 or 2 more players. But that is a very specific product right now only in Indian market, and I do not think so that is a large market outside India. But the market that we have shared is largely for BOPP-based synthetic paper, which has many, many applications. And I mean, as far as that product is concerned, Cosmo is the only player in India. Though there are some imports, which happens from YUPO Japan and from Nan Ya Taiwan.

So I mean, broadly, would you know that out of 6,000 tons, what is -- how much we cater to it? So what is the percentage share basically?

Yes. Obviously, we have those details, but we cannot share that.

Okay. Okay, okay. Do you have...

[indiscernible].

Sorry?

I'm seeing Cosmo is a sizable presence, but how much is the share of business, we cannot share overall like this.

Okay. Okay, fine. Got it. Got it. In terms of these patents, where we already have 6 patents and there are 6 more patents in the pipeline. So what would be our say, 6, which are already in place, what would be contribution of that portion and some of that 6 which are in the pipeline. Is there any particular product which is like a sizable big-time market of any particular product that we have applied for patents?

Yes. Some products will certainly scale up because, obviously, when you launch these products, you have certain things in mind. In the past, we had launched a lot of other products in the past, which were worth the patent but we did not apply for patent like the first version of heat reduction film that we launched for the first time in the world when that may be structured for soap, recyclable soap packaging that was done first time in the world. But for some of those products, we had not taken a product but a patent. But off late, we decided that we will go for a patent, and therefore, we applied for 6 patents. Some of the earlier launches that we had done has got good market share. And some of these products that we are continuously developing, I'm sure some of them will certainly scale up. But if you ask me today, obviously, it requires a lot of innovation, a lot of work with the customers, a lot of joint development and therefore, it becomes very difficult to pinpoint any number. What we certainly share with the investors is where is our specialty number and how it will project over the next 2 years.

[Operator Instructions] We'll take our next question, that's from the line of Miraj Shah from Dalal & Broacha Stock Broking.

Sir, I just have 2 questions. First one is regarding the cases that you've said that is approximately INR 300 crores. Does this include the CapEx for Zigly that was approximately INR 15 crores? And can you give us if you can roughly give the breakup for CapEx in terms of what is the CapEx for chemicals also?

Yes. All type is included in INR 300 crores.

Everything is included?

Yes.

Okay. Okay. And sir, could you also just tell us -- the -- what was the specialty versus nonspecialty film sales for this quarter? I think in the previous quarter, it was 80%, and we were targeting also 80%. If you could just tell us about this quarter.

The last 2 quarters, it is hovering between 60% to 65%. And our 80% target is -- initially, we had given a target by March 24, which last call, we suggested that we should be able to do earlier. We are trying to -- can we reach that target by March '23.

Okay. So for this quarter, it will be close to 60%?

Yes, it is between 60% and...

We'll take our next question from the line of Sanjay Shah from KSA Securities.

Sir, hearty congratulations on an excellent set of numbers. So my question was majority has been answered, barring one was regarding this adhesive mark reached, which we are going to start from maybe next year. So can you highlight upon what are the adhesives which we are planning to launch catering to which -- what segment of the industry and what is the scope of that business?

So initially, we are going to complement our film business. And we intend to launch adhesives for packaging, lamination and labels. But as we move along because adhesive is a very vast field, depending on the success of these 3 areas, we'll certainly evaluate other areas.

Our next question is from the line of Mohammed Patel from Care Portfolio Managers.

So my question is regarding what is driving the growth for our subsidiary over the last 2 quarters?

So specifically, the U.S. subsidiary has grown very well. And I mean, I won't be able to share quarter-on-quarter numbers right now with you, but I can say that U.S. alone will grow close to 30%, 35% this year. And even Korea, Japan is also growing by close to, I think, 15%, 20%. So overall, there's a very handsome growth in the subsidiaries.

What is driving this growth apart from -- is it volume-wise or price-wise?

Speciality sales. It is partly speciality sales, partly volume and partly price, all 3 put together.

Okay, okay. And what kind of ad expenditure are you expecting from Fabritizer or other products?

See, right now, we are not doing too much ad for Fabritizer. Because until we have a robust strategy and entire product mapping, we are not going to do too much of advertisement. We had done some digital advertising earlier. We had done some newspaper advertising only in a few large cities, but that is not really substantial.

Okay. Do we have the capacity to cater to the kind of growth in the subsidiaries market on the export side?

Yes. That is the reason we have announced a new BOPP line, which was done in September.

We'll take our next question from the line of Abhishek Maheshwari from SkyRidge Wealth Management.

Sir, I would like to -- I'm seeing that there's been a considerable improvement in EBITDA margins over the last 3 years. So is it because of increasing share of speciality?

Yes. That is certainly one important reason.

Is there [ anything here you could include as well ]?

There are many reasons for that. We had put up one line in 2017 that has added to the margins. The market pricing has been favorable. That has added to the margins. Subsidiaries have shown outstanding performance, that has added to the margins. Speciality sales have grown, that has added to the margins. Some cost reductions have been done, that has added to the margins. So it is a mix of multiple factors.

Okay. So considering all these parameters and if economic growth sustains globally, is it reasonable to assume that the term margins should remain sustainable or maybe will improve further as the specialty share increases?

Largely yes. We have stated many times in the past that what we can control is the speciality film margins. Obviously, commodity is also dependent on demand-supply. But as you rightly pointed out, today, we are close to 60%, 65% as we continue to grow. The speciality, a point in time will come that there will be hardly any impact from the market ones, and therefore, we feel that a lot of these margins are largely sustainable for us.

And lastly, sir, could you give an approximate of your overall utilization levels? Are you at optimal levels or is slightly below that?

You mean capacities?

Yes. Yes, capacity.

The capacities are fully utilized for us. What we are trying to do is change of mix. But when you talk about masterbatch line, that line is only 50%, 60% utilized, and we are working towards full utilization of masterbatch line.

We'll take our next question from the line of [ Amit Agarwal ], an individual investor.

In one of the previous interviews, you mentioned that oil prices reduce our profit margins. Generally, oil prices are going through the roof. So what is the opinion now?

Yes. There is inflation in almost every raw material, every packaging material, every -- I mean, the freight and so on and so forth. But I personally feel that some of this inflation will start to reverse. And hopefully, they should start reversing from January onwards. Now whether it goes back to the original levels, it will take a lot of time for it to go back to the original levels. They may reach back to original levels only in 2023 or mid of '22. That is really not known.

And my second question is, all big international e-commerce companies are shifting to paper boxes compared to film parcels. How is it affecting the packaging industry as a whole and your company specifically?

We do not have any supplies to e-commerce. That is definitely one opportunity for us to look at. But as of now, we do not supply to the e-commerce, and therefore, there is no impact to Cosmo.

Okay. And sir, regarding pet industry, Heads Up For Tails has just closed INR 280 crore funding 2 months back. Do you think they have taken the lead and will be the #1 pet company for near future?

I cannot talk about their vision, but our vision is certainly to be the #1 in India.

So are you looking for outside funding once the company is demerged from the main company?

We have clearly said that in the past that within 2, 3 years, we intend to make it a separate entity. And I mean, what you are asking is a very long-term question. And I may not have all the answers as of now. But certainly, we do see that this will drive a lot of valuation for the company as such.

And sir, do you intend to open the stores on a lease basis? Or you intend to buy the properties where you're opening the stores?

Only on lease basis.

Only on lease basis. And sir, my last question is regarding FMCG sector is lately slowing down the growth rate. So will it affect our packaging industry as such?

We see a very huge growth coming from FMCG. Last quarter, FMCG grew by 15%, and that is obviously showing a positive result for the packaging companies.

15%. My idea is that [indiscernible] 8% or 9% this year, Nestle or ITC or some other companies included?

Overall, FMCG growth in the last quarter was 15%. And full year also, year-to-date, there's a very significant growth, which FMCG companies have seen. Let us not forget that a lot of new brands are coming in the FMCG segment. Earlier, there were -- every category, there are hardly 4 or 5 products. Now if you see, there are so many challenger brands which have come up in every category. If you add up all of them, FMCG is growing at a very handsome pace. However, for Cosmo, packaging is only 40% of its total sales. We have system sales outside of packaging. And for us, within packaging, again, we do exports and domestic. So we really do not get as much affected by this. But your question is -- I mean, to answer your question, packaging is growing at a very handsome pace.

And sir, my last question is, like Zigly and Zomato, there are being a lot of food packaging and delivering to the households. Does it help the packaging and sales record? And are we supplying to companies like this?

Again, we do not supply to that segment. That is untapped opportunity for us.

But is it -- in the future, we are thinking of tapping that industry or no? Or we just like they are too small a market to be bothered right now?

See, packaging is a very broad industry. And obviously, Cosmo is not supplying all types of packaging. We are largely into flexible packaging. You have separate packaging for pharmaceuticals, you have containers, you have small containers, you have corrugated boxes, you have paper packaging, you have tin packaging. I mean Cosmo is obviously not in every type of packaging. We are into flexible packaging, and therefore, those are untapped areas for growth.

We'll take our next question from the line of [ Ayush Agarwal ] from Mittal Analytics.

Congratulations on a good set of performance. I have a couple of questions. The first one is that I see during the presentation that we have metalized those lines as well, and we do heat control sales. And I can -- under the customer segment, I think Avery Dennison is a customer for us. From what I understand, sir, I mean, the automobile some control sales data banned in India, but have a huge growth opportunity in the U.S. So do we have a presence there? And do we supply these films to Avery Dennison because they have a portfolio for these films?

As of now, we do not make heat control films. But in the future, we will be coming in that segment.

For automobile specifically or residential market?

I cannot share so many details at this stage, sorry.

Right. All right. Sir, my second question is that another listed player claims a very high market share in the shrink label films. So what is the market like and what kind of presence do we have? And they claim like more than 80%, 90% market share. So just understanding from you what our presence is?

Yes. So right now, again, this is one segment which we are going to come in the next year. And you are right that only 1 player has majority of the market. And Indian market is, again, still very small from the global parallels. And once we come, we do intend to become a big player. Just to remind the investors that we are coming with the largest line in the world for shrink labels, which is the most cost efficient. And therefore, we see that we have a very large opportunity because it's the most cost-efficient line, which will produce one of the best quality of shrink film in the world. And therefore, we do see that we'll be able to capture quite a bit of market over the next 2 to 4 years.

That's good to know, sir. So sir, just a follow-up on my first question. So if a very large customer then, what kind of things would we be supplying to them, if you can share that detail?

Which films are you talking about?

I'm just asking you that if Avery Dennison is a customer, then what kind of films are we supplying to them? If you can share that detail.

We cannot share so many details on this one.

We'll take a next question from the line of [ Anil Nahata ], an individual investor.

Congratulations for the last few quarters, the results have been very impressive and the growth has been steady. So I mean, this is a very, very good sign. My questions are around Zigly. I'm like super excited with this opportunity that we are pursuing. And I would like if you can give some more color around like what has been the experience in the last 1 or 2 months of the store launch as well as the website launch in terms of a bit of quantification is that what kind of website visits, what kind of footfall in the store or -- I mean, something that can be slightly more quantified with? That is the first question, please?

So see, till now, 120 customers have given us feedback, out of which 85% have given us 10 on 10, and remaining 15% has given 8 on 10 or 9 on 10. And most customers have written as a feedback that is the best pet store they have seen in the world and especially offering almost the entire ecosystem at one place. Having said that, our model has -- our business model has 4 different businesses as such, of which there is retail model, there's a marketplace for services, there's an e-commerce and there's private labeling, okay? So we have just made the beginning with the first store and the website. The website offers services as well as products. And as we speak, we continue to expand with more services. The beauty is not just about providing all this, but the beauty is the way we have provided is virtually loved by the customers. There is so much of training that we had given to our people that they are able to service the need of the customer in a far more professional manner. And that is the reason that customers are loving it. And there is so much a word-of-mouth publicity that we have already started getting with the launch of the brand.

Absolutely. And that is visible in the website, the care that has been designed with. So my question is, have we been, let's say, able to hit like INR 5 crores of revenue on this segment or still we are away from it? I mean some kind of quantification just to give us idea, that's about it.

But it is only 45 days of launch of brand, only 1 store and the website. And unlike start-ups who throw a lot of money just to buy sales, we are not doing any of those funny things. We are going in a very systematic manner. But just to let you know that, already, we have -- on some good days at the store, we have even touched sales of INR 70,000, INR 75,000; and bad days, we do INR 25,000, INR 30,000 sales. But average sales is coming quite well. It is more than what we had initially expected.

So that's quite heartening. My second question is around the masterbatch. If I remember from one of the earlier presentations that the masterbatch was supposed to cater to 75% in-house consumption and 25% was supposed to be same outside customers. So have we started outside sales? And I understand the capacity lies at 50% to 60%, that's per your earlier remarks. So started outside sales? And what kind of a revenue is this building into us?

Yes. So we have already started 15% sales outside. And I won't be able to recall the number, but from the overall volume perspective, 15% product is selling outside.

Our next question is from the line of Amit Doshi from Care PMS.

No. I think my questions have been answered. Just one thing, this segment that others, is it the Petcare revenue figures I've said? Or...

Yes, yes. The daily sales that I shared was for Zigly, which is Petcare.

No, no, no. I'm saying the current financial -- this quarter financial statement that has been issued, there is a segmental bifurcation. So there is packaging films and there is others. So the others comprises of this Petcare business?

Not as yet. We'll start supporting Zigly numbers when it is sizable in the overall scheme of things. This is still the old classification that we give, which is equipment and machinery for lamination, which we had been giving for many years till now.

Next question is from the line of Miraj Shah from Dalal & Broacha Stock Broking.

Sir, my question is regarding your margin's front that this time, we've seen some significant decrease in -- anywhere between 50 to 100 basis points decrease in employee costs and other expenses. And that is something you've seen that it is coming down consistently for the past 3 to 4 quarters. I just wanted to understand that where we are currently, where we stand currently, are these margins sustainable for employee costs and other expenses?

I didn't understand your question. Can you be brief in terms of what do you want to ask?

Right. Our employee cost is currently somewhere between -- somewhere approximately 7% of our sales and other expenses are roughly 12% of our sales. They've been coming down from 8% in employee costs and 13% in other expenses. I just wanted to understand this decrease. Can you sustain this decrease in -- that we are currently running at?

You see other expenses actually have 2 components. One is the fixed costs other than the employee cost. And second, of course, the variable costs, including packing, et cetera. So a lot of it depends on the variable cost, how it moves, like the globally, nowadays packing cost has increased substantially. So accordingly, the other expenses might have increased. So I think that's more a function of the how the variable cost related to packing, et cetera, moves.

Right. And sir, in terms of cost rationalization, I think we were on track to do cost rationalization worth of INR 100 crores. And we've achieved -- if I'm not wrong, you received INR 70 crores to INR 75 crores from that. That was, I think, in the last quarter. Can we -- do we know where we stand right now? Can we know where we stand right now in those terms?

Those projects, actually, in fact, we started some time back, maybe 2.5 years back or so. And as we indicated earlier, I mean, majority part of this has been achieved. And that is consistent in nature because once the cost is achieved, unless you give, the cost increases do not wipe away. So yes, I mean, those hold good even for today's market.

Okay. So could be still at INR 75 crores roughly, right?

Yes. [ Total to banking ].

[Operator Instructions] Our next question is from the line of [ Bala Vinod Kumar ], retail investor.

First of all, congratulations for very good numbers. But my question is regarding the management remuneration. I have been following from past 3 years, the management remuneration is very high compared to -- from past 3 years. It is almost [ 13% ] of the PAT. Can you throw some light on those?

Part of the management remuneration is linked to the profit.

Correct. The commission, right?

Yes.

And the second thing is regarding the Zigly and Fabritizer. Do you have any like the expectation numbers went coming up -- I mean, coming 1 or 2 years. This was the sales we are targeting?

Well, it's very difficult at this stage to pinpoint a number. But what we just said on the call is, we are looking for a fair amount of growth for the Petcare particularly. The industry has been growing very well. Our setup has come out very well. Our initial experience has been very good. So yes, we are looking for growth for the Petcare in the coming quarters. You will see much more from us in the coming quarters on this.

The follow-up question is actually the Petcare as what we have seen is when we compare to the core business, it is very different. What is the main objective to do this business?

Well, it's -- all we can say is it's -- we saw a substantial opportunity there. There's no meaningful players than India level currently in the pet care, although industry has been fairly good. Industry growth has been, in pre-COVID, we are close to 25% and post-COVID has further increased. So there was a very clear business opportunity we saw there. Accordingly, we formed the business plan, which we are trying to implement. So it may not complement the existing line of business, but yes, I mean it's an excellent opportunity to create shareholder value.

Our next question is from the line of [ Shanti Patel from Shanti Patel Investment Advisors ].

My simple question is, what will be the return on capital employed and return on equity as on 31st March 2022?

Well, various event, we do not provide any projection as such. But as I indicated at the beginning of the call, it's running close to 32% return on equity and 24% ROCE up to the September '21. And we see no reason why it should go down. It should be really healthy only.

So meaning thereby, the trend is not downside. It will be equal or it may go up, right?

Right. It's supposed to be -- it should go well. It's running well.

We'll take our next question. It's a follow-up from [ Anil Nahata ] from -- an individual investor.

One question I have is around -- just to understand that as we are moving more to speciality, I just wanted to understand what is the ballpark per kg or per ton you mentioned between a speciality and a commodity kind of a film. If you can please give some light on that.

Well, we indicated in the current quarter, BOPP margin has been running INR 40 per kg. In speciality, of course, is a much better number, which broadly remains consistent over the last few years.

Sir, is more on the sales price. I mean what is the first basic kind of a price realization for speciality? And what is the per kg kind of price realization for commodity? A ballpark would be good enough for me.

Well, realization actually, as you know, in this industry, to a large extent, depends on the raw material price. Let's say, if INR 100 per kg is the raw material price, for a base commodity product, if I have to indicate, it would be about INR 160.

Okay. And speciality, it could go up to 2x that or somewhere in that region?

Sure.

As there are no further questions, I would now like to hand the conference over to the management for closing comments. Over to you, sir.

Well, thank you. So I think the company is taking all right steps required to transform increased specialty packaging and specialty chemical company, with years to come, B2B segment and B2C segment separately. Company's uptick performance reaffirms the company's strategy is working in the right direction. The specialized polyester line, new BOPP line expected to commence in the first quarter of '23 and FY '25, respectively, which will actually -- not only the specialty growth, the overall capacity addition. Company's diversification projects into specialty chemicals, Petcare driving further growth. So company's focus shall continue to be on improving the specialty film R&D, particularly on the sustainability side of R&D, which should yield further results in the coming years. These actions will continue to improve margins and would contribute in the long-term sustainable growth. I'll just, at the end of the call, repeat the statutory declarations. Certain statements in this con call may be forward-looking statements. These statements are based on the management's current expectations and are subject to uncertainty and changes in the circumstances. These statements are not guarantees of the future results. Many thanks for joining the call. Wish you a very, very happy Diwali.

Thank you, members of the management. Ladies and gentlemen, on behalf of Essential Technologies, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.