Cosmo First Limited (COSMOFIRST) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '22 Earnings Conference Call of Cosmo Films Limited. [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, Rutuja. Good afternoon, everyone. On behalf of Essential Technologies, I welcome you all to Cosmo Films Limited Q3 FY 2022 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 events. 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, Neeraj Ji.

Thank you, Bhavya. Very good afternoon, ladies and gentlemen. I'm Neeraj Jain, CFO at Cosmo Films and joined by my colleague, Mr. Pankaj Poddar, Group CEO at Cosmo Films. Our financial results for the December '21 quarter and investor presentation are already available on company's website. We will start the call with a brief on the performance of the company for the quarter, which may be followed by the questions. December '21 quarter, the company has posted record consolidated quarterly EBITDA of INR 161 crores. This is as against INR 152 crores in previous quarter and INR 101 crores last year, single quarter. With this quarter results, company has posted uptick performance continuously in a row from last 12 quarters now. In fact, this is the first quarter when the company has posted more than INR 100 crores quarterly PAT. In fact, the PAT was INR 104 crores for the quarter. Consolidated sales for the quarter is INR 771 crores, which is higher by 35% compared to December '20 quarter; couple of factors behind this, one is the higher speciality sales, which has been growing more than 20% year-on-year for us, higher overall volume by 4%, increased margins and the raw material price increase, which got passed on to the customers. EBITDA has increased to INR 161 crores during the quarter, which is 44% higher compared to December '20 quarter. Enhanced performance is only back of again a couple of quarters, higher speciality sales, better operating margins. In fact, the BOPP margins has been running close to INR 42 per kg during December '21 quarter compared to INR 40 in December '21 quarter and INR 30 per kg in December '20 quarter. Higher volume by 4%. An uptick performance by the subsidiaries taken together INR 29 crore EBITDA has been posted by the all subsidiaries during December '21 quarter. The corresponding figure in last year single quarter was INR 11 crores. Subsidiaries performance is better due to higher sales, speciality films growth and better margins. So to sum up, higher EBITDA is because of higher speciality, higher overall volume, better BOPP film margin and uptick performance by subsidiaries. And hence, EBITDA together with lower finance cost and lower effective tax rate led to increase in PAT by 65%. If you do recall, increase in EBITDA is 44%, against PAT increase is 65%. Increase in EPS is 75% which is higher than even the PAT increase due to impact of buyback of shares in December 2020. Now on a trailing 12-month basis, EPS stands at INR 203 per share, compared to INR 127 per share at the end of the FY '21. Based on trailing 12 months basis, again, now the ROCE of the company stand at 28%, and return on equity at 37%, which, in fact, is one of the best in the industry. The Board of Directors has declared second interim dividend of INR 10 per equity share for the FY '22 together with the first interim dividend of INR 25 per share. Now, total dividend for FY '22 stands at INR 35 per equity share compared to INR 25 during FY '21. Moving to balance sheet side, the net debt to EBITDA now stands at 0.6x and net debt to equity at 0.3x, which reaffirm strong financials of the company. The company is looking at for about INR 200 crores of CapEx during next 6 to 9 months and which will be largely on specialized BOPET line, value-add CapEx to further enhance our speciality films and on sustainability and speciality chemical division. The financials are expected to remain strong even with this CapEx, considering robust cash generation happening. The bottom line impact of this CapEx will start from FY '23, although full year impact will not be there in FY '23, which will be partial impact and full year will be in '24. During the quarter, the company has received sanction under PLI scheme for production of speciality films for using electronic products. Incentive under the scheme will be for 5 years on 100% production of new plant. In Phase 1, the company is planning to put 1,200 metric tons annual capacity with CapEx of about INR 32 crores. The CapEx is expected to generate 2x to 2.5x of asset turnover ratio. The company has published its first report on sustainability and ESG initiatives on its website. You are requested to refer the same. In fact, the company is working on its sustainability plan for the coming years, which shall further enhance and create favorable environmental impact besides cost optimization. Details of the plan will be announced very soon. I think these were the updates on the quarterly results. Now moving to speciality sales update. Speciality sales growth has been happening close to 20% year-on-year from last 3 years. In fact, YTD December '21 speciality has grown more than 20% and that too on a much wider base. The company is in the process of ordering several other value-add assets for further growth in the speciality sales, and we are looking for 80% volume run rate target from the speciality from the end of FY '23. Moving to growth projects. In coming years, I think very clearly, B2B segment and B2C segment will drive the growth. When we say B2B segment here, we are referring specialized BOPET line, which is expected to come into operation in quarter 2 of FY '23. And the BOPP line, the world's largest BOPP in fact, which we recently ordered. In B2C segment, pet care and specific speciality textile chemicals will drive the growth. Specialized BOPET line commissioning will start from quarter 2 of FY '23. The line will add close to 20% capacity. The company is targeting complementary growth in the specialized BOPET line, which is shrink labels and other high-end speciality. Will partially substitute imports and an excellent opportunity to convert non-recyclable PVC film market of about 30,000 metric tons in India. The company has placed order for the new BOPP line, which will be, as I said, one largest production capability line, and it will increase the production capability of the company by close to 1/3. The line is expected to commence operation from FY '25. Both the new capacity plant needs specialized BOPET line and BOPP line. This will allow the company to further expand its speciality sales in coming quarters and coming years. The silent launch of our pet care division under brand name Zigly has delivered much better than forecasted results. Now the company is looking forward to rolling out its digital-first omnichannel business model. In December '21, the company has launched its pet care division under the brand name, Zigly, with first store opening South of Delhi, in fact, parallel to this, we have also rolled out mobile van service in NCR and launch of e-commerce platform. The company is now planning to expand Zigly both in the digital and offline model over the coming quarters. which will obviously include the experience center, the stores, vans, et cetera. Now moving to textile chemicals, textile chemicals business, which was started in the quarter 2 of FY '22 has taken off very well. During the first 3 months, the company has commercialized 40-plus products and has started supplying to more than 40 customers. The company continues to conduct extensive trials with the customers and expect to further add more products in the coming months. I think these are the updates for the quarter. Now, we would like to open the call for the questions, please.

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

Sir, I have 2 questions. So in the initial remarks, what you mentioned that our subsidiaries have been showing very healthy growth quarter-on-quarter, every quarter from last 3, 4 quarters, probably. So like from Q3 onwards, we have seen every quarter showing good numbers. So even if we compare FY '21 numbers with Q3 numbers, like entire FY '22 EBITDA is reported in Q3 of FY '22. So what has actually changed in last 4, 5 quarters where our EBITDA an absolute amount in percentage terms have been moving higher, so are the new products which we have introduced there? Or have we done some cost rationalization there? Or are we supplying the products here from India, keeping India as a manufacturing base. So what has actually changed from FY '21 till 9 months, which has really helped to show this improved performance? This is first question, sir.

We have been winning a lot of new businesses in the subsidiaries and majority of the new businesses that we are winning are of speciality where the margins are much better. And in general, we have also been able to keep our price tables at quite a strong level in these subsidiaries.

Okay. And sir, in terms of capacity utilization, do we have some leeway from the current level where we can further improve our sales or improve our utilization? Or are we planning some capacity expansions there to fund the future growth?

So we are fully utilized. In quarter 3, we had a planned shutdown during Diwali for the annual maintenance. So we do see some upswing in the volumes in quarter 4, but that will be hardly 3% to 5% of our total volumes. The growth now will come from the Polyester line, which will come in the quarter 2 of next financial year. And then the new BOPP line that we've announced. The volume growth will -- or let's say, the business growth will also come from the Cosmo speciality Chemicals, where quarter-on-quarter we are seeing growth in the numbers. And the adhesive business is also expected to start post the necessary government approvals in this quarter itself.

Okay. Okay. Sir, on the second question, what -- in the initial remarks, you mentioned that we have done -- or we will be doing a CapEx of INR 200 crores for next 6 to 8 months, where some of the CapEx would be for the speciality BOPET line. But also you mentioned that some of the CapEx would be going for expanding our speciality BOPP capacity. So how much of those CapEx would be for taking our sales from 62% to 80% for the speciality BOPP capacity and if you can also help us understanding at which category of speciality films would help us to take this turnover speciality from 62% to 80%?

Yes. So majority of the CapEx that has to happen is in speciality polyester. As far as speciality BOPP is concerned, there is not as much CapEx happening other than building some new barrier options for our customers. The growth is likely to happen in multiple segments of the company, whether it is a speciality packaging where our focus is on heat resistant and barriers, which help in being far more recyclable and sustainable for our customers. The growth is also happening on speciality label films. It is happening on synthetic paper. It is happening on high-end films in the lamination segment and it is also happening on the industrial films. So I will say that all our specialties in 5 segments continue to grow for us. And we see that all the work that we have done in last several years continue to pay rich dividend to Cosmo.

Next question is from the line of Vivek Ramakrishnan from DSP Mutual Fund.

Congrats on great numbers. I wanted to ask the question about your debt levels and consolidations and the upgrade of rating also. The slide is given, however, in September '18 was INR 759 crores in terms of net debt, and it's come down all the way in down INR 455 crores. Do you feel that the company has moved to the level where the debt levels will keep coming lower because the EBITDA has become -- the CapEx is becoming more self-sustaining with the cash flow? And what would be your financial policy given the fact that ratings have gone into the high category?

See, as you rightly said, net debt has come down significantly. The latest number is close to INR 350 crores is the net debt of the country. We do believe that the Cosmo will definitely remain focused on the growth. So some CapEx will keep on happening, while we do not believe that we will be at that stage immediately, but yes, cash generation is happening very fast. So to sum up for you while some debt levels will remain in the company, but the financials are expected to be well.

If I can just extend the question, if there's a good opportunity to expand capacity, what is the maximum, let's say, net debt to EBITDA that you go to in the future? And also that we can keep the rating also high?

See, so far, we have announced 2 large CapEx, specialized BOPET line and BOPP line. Considering these 2 CapEx and some CapEx will happen in the 100% subsidiary on the CSC side. So considering these CapEx, we expect net debt to EBITDA to remain quite robust. Would not change significantly from the current level. There is also some CapEx which is happening in the [indiscernible] business. But in spite of all this, the debt-to-EBITDA ratios are expected to stay well in control.

The next question is from the line of Sanjay Shah from KSA Securities.

Sir congratulations on good numbers. So my question was regarding rationale behind our optimism on specialized BOPET line where we are putting a large CapEx and you have been citing the future. Can you elaborate on that? What is the speciality side of the BOPET where we are a new entrant and what is the technology and what else we need to understand on that side?

Well, very frankly, while we will not be able to talk much about the technology at this stage. But broadly, what we are targeting is the specialized product in the BOPET line. And that, to a large extent, some of these will substitute the imports happening in India. Having said so, some -- it will also substitute some of the captive consumption because earlier we were buying some BOPET films from outside, which is a substitute. I think that should answer your question?

Yes. But -- we understood that, but since we are the new entrant and we see this type of business first time in India, I suppose, correct me if I'm wrong. So what was the lagging behind previously and what is the change in new things which is helping us to enter a big way to that business?

See many of these segments are similar to BOPET. And given that Cosmo's in top 3 in many speciality segments worldwide, we'll be able to take benefit of getting into these segments faster. The only effort that we were supposed to do is to work on the machine design, which we work along with the machine supplier for a good period of 1 year and second is to also work on the product facilities, which we have been working for last 2, 2.5 years, and we'll continue to work for another 2, 3 years to make sure that we supply the right products to the market. And obviously, we have enlarged our research team. We have hired some consultants to make sure that we are able to bring these innovative solutions to the market.

And in Slide #9 where you mentioned about partnering with some of the best global brands to offer structure rationalization. Will it be possible to elaborate on that, sir?

So we are working with some of the largest FMCG players in packaging to make -- to help them with the recyclable packaging. That has been the focus. And just to let you know that a lot of large brands have made commitments to their stakeholders that they will ship to recyclable packaging, either by 2025 or by 2030. So what it basically means is that a very large chunk of the packaging has to move into recyclable packaging over the coming years. And Cosmo has been always at the forefront in providing these innovative solutions. The market is obviously very, very large and therefore, these FMCG players are looking at very select players in the world who have the research capability to help them with these solutions. We were the first ones to come up with heat resistant films in the world. We were the first ones to come up with ultra-high barrier films in the world. And therefore, we are able to offer such solutions to the customer. There are a lot of other solutions where we were the first in the world. And we are providing those solutions to our customers to make recyclable packaging.

The next question is from the line of Abhishek Maheshwari from SkyRidge Wealth Management.

A couple of questions. My first question is regarding your speciality films that you will produce under PLI, so sir you'll be setting up a new facility for this or it's a brownfield expansion?

So we will set a new capacity actually in Maharashtra.

And sir, are these completely new films that we'll be producing or ramp-up of capacities of existing ones?

It will be a different kind of a film actually. So -- but it will be the same case within the same plant. So see, to begin with, the film will be largely imported. However, we are putting the value-add facility to begin with to provide to the electronic industry. As we learn more about this industry, we will be then evaluating whether we should put larger CapEx on this. Having said that, to begin with -- it's a value addition that we are going to do in Cosmo at Maharashtra and entering a new segment of customers.

Sir, and my second question is regarding your adhesive products which you're planning to introduce. Sir, are these adhesive films only? Or are you planning to introduce some Fevicol or glue sort of products also?

So we are entering B2B segments. There are 5 big segments that we are going to enter. 3 segments are related to our current business, which is packaging, lamination and labels. These are very large markets and some of these segments are very niche where very few players are there in India or [indiscernible]. So these are 3 segments. And then barring 2, there are 2 more adhesives, one is for automotive industry that we are planning to come, and second is for electronic industry. So there are 5 B2B solutions that were going to come up in the Phase I. Obviously, as we start getting larger, we'll certainly evaluate other segments because as we understand, adhesive itself is a very large industry, and we are making a humble beginning in the coming quarter.

So no brand creation here, only B2B for now?

In the Phase 1, yes, it will be largely a B2B, but in the B2B itself you can create brands. So I will not say we are not going to create brands, we will create a B2B brand. We'll create a niche space for Cosmo. And having said that, we'll evaluate as the progress happens.

Okay. And sir, my next question is regarding your chemicals business. So sir, a lot of textile chemicals that you have launched, they're in pilot stages, right? So how much CapEx do you think you will need to spend to take these capacities to commercial scale production or do you already have these capacities?

Well, as far as textile chemicals is concerned, we had put up our plant in September. We have started our pilot facility in February, March. So from February, March till September, we kept on doing trials with various customers. And the good part is that the moment we were able to start our facility we have started gaining customers. So until now, we have already, within the last 4 months, 3, 3.5 months of startup, we've already now commercially invoiced to 40 plus customers, and we have launched 40 plus products. This is a very speciality segment where you have to keep evolving a lot of new solutions, keep improving your solutions. Some of the larger players in the industry, they have close to 300 to 400 products when it comes to textile chemicals, but within the first year, we have already made a good progress by launching 40-plus chemicals. And next year, again, our efforts will be to launch another say, 30, 40 more chemicals. Having said that, we are also innovating some very unique solutions for our customers, which we have identified as unmet need. I cannot share too much details at this stage. And as and when we will launch this product, we'll let our investors know in terms of what is so unique about such products. The good part is that month-on-month, we are scaling up our textile chemical business.

The next question is from the line of Ravi Naredi from Naredi Investments.

Pankaj, again, thank you very much for nice results, you are doing -- you are giving. Sir, can you give buyback instead dividend?

This is a subject beyond myself to be honest. This has to be decided by the Chairman and the Board of Directors. This is something which they keep evaluating. One thing I can tell you for sure that our entire Board and Chairman is very sensitive towards making sure that the shareholders are rewarded handsomely. We'll certainly pass your message to them and -- well and we will continue to do that.

Because the buyback is always beneficial for our company in the long run, dividend once you paid and investor forget about that and no benefit will derive to company in future. So that is my request. Second, any such plans like animal care in your mind, which may start in next 6 months or 1 year?

We have already started Zigly which is for pet care. So I'm really not sure what extra you intend to...

I mean to say, other than animal care is any business in your mind, we can start in umbrella of Cosmo Films? That is my point.

Yes, as and when something we decide, we obviously share it with our investors. Right now, we intend to consolidate and build up our chemical business as well as Zigly business. And obviously, needless to say that our film business too.

And the last point, sir, how much top line growth we may expect in the next 3 to 5 years in the company? I do not want any future guidance, but top line? If you can give.

Post our BOPP line stabilization, we feel that we will be close to INR 5,000 crore company. So you can assume that the BOPP line will come in close to 3 years from now. And a year thereafter, we will be close to INR 5,000 crore company.

The next question is from the line of Manan Shah from Moneybee Securities.

Congratulations for a good set of numbers. In earlier calls, you've indicated that the speciality margins are in the range of INR 50 to INR 60. And now with the commodity margins nearing INR 40 to INR 42, do the speciality margin of INR 50 to INR 60 still hold or they are higher now?

So to be honest, speciality margins do not change upwards or downwards because of raw material. And to be honest, last quarter, the commodity margins as a percentage to sales, semi-speciality margins and speciality margins were all hovering at a very similar number, as a percentage to sales. The sales price for speciality was obviously much higher than commodity price. But its margins were very, very similar because commodity margin itself right now are at a very good level.

Okay. And our target of 80% of revenue in terms of speciality, this would be in terms of revenue. So what would be your volume target for the same?

Volume target is difficult to guess, neither we share in the past and we have to understand that the company is entering newer businesses. You're asking for the speciality then as we have said earlier, within the next 15 months, we are targeting to have 50% of our volumes coming from speciality.

You mean volume or revenue? That's where I'm very confused...

As far as revenue is concerned, we are hovering between 75% to 80%.

Okay. Got it. My next question is on our targets about speciality chemicals and masterbatches contributing about 10%, 10% of revenue. Would we need to do any further CapEx to achieve these goals or we would -- or the present capacity would...

The beauty about chemical businesses, it's more about innovation than CapEx. But yes, you are right, we'll have to invest another INR 50 crores, INR 60 crores in our chemical business over a period of a [indiscernible] but it is not going to be significant as such.

Okay. Another question I had was, I believe, for our CapEx in Aurangabad, we are entitled to some tax benefits. So if you can just highlight what are they? And when should we expect them to start flowing?

They will start to come once the polyester line is commissioned. And put up our investment application under mega scheme, certain amount, we will get the entire investment back over a period of 20 years.

Okay. So this should start once the polyester line commences?

That's right.

Okay. And lastly, on the -- our animal, pet care business. So wanted to understand on our online side, would this be more of a marketplace? Or would we be stocking the inventory that we are going to sell over here? And our priority is going to be whether on scaling on this online first and then through the data that we gain -- we had data to increase our off-line presence in the target cities? Or if you can just highlight little bit on that side as well?

There are 2 things. As far as the products are concerned, we will have a model of stock and sell. But when it comes to services online, we are going to follow market base model. And one of those companies, which are doing an omnichannel growth at the same time. So we are going to scale up both online as well as off-line at the same time. So from a revenue perspective, we are going to be online. We are going to be on our experience center. And we will also evaluate whether we should scale up our van business because we've also taken 1 van to begin with, doing a pilot launch with the first van. And if we find that we are able to do the van also simultaneously, then we'll be getting up van that is yet to be concluded. But as far as the experience centers are concerned, and online business is concerned, we are already in the phase of scaling up because the pilot launch has been really successful.

Just to follow-up on that. You said that for the service will be a marketplace. So you mean to say that the existing pet stores that are there they will be listing their services on our platform and maybe generating lead for them? Is that understanding, right?

Not really. We are going to, let's say, follow kind of an UrbanClap model. Standalone trainer and groomers. And the booking can be done only through our app. Like parents can book the services of a groomer or a trainer on our app, and these are certified Zigly trainers who have gone through rigorous training and a standardized method of training, and they will then visit the pet parents and take the services, if any of you are from Delhi you can already start using these services at your residence and you can very well feel that difference in terms of how professionally we have done this. Till now, all our customers have given us 5-on-5 rating. There are more than a few thousand customers who have already tried us, and all of them have been giving 5 on 5 rating to Zigly.

Okay. And lastly, you mentioned in your presentation that you plan to demerge this business in the medium term. So are we looking at any fundraising in the near term for this business so that we can accelerate the pace of our growth?

So that is something that is continuously evaluated. At the right time, we'll certainly evaluate it and see whether we need to take investment from outside. But more than investments, we have to also understand that some of these investors, they bring in a lot of wealth of knowledge. They are able to bring the best of the practices all over the world. So more than investments, we would like to have the right partner at the right time who can share the best practices who can help us grow faster and so on and so forth.

The next question is from the line of Nikhil Chandak from JM Financial.

Yes, Mr. Pankaj my first question was are -- is the company overdiversifying like what I'm just thinking is from a films company to chemicals and textile chemicals and now to a pet business. Now there is no correlation beyond the limit between the 3 businesses. So first is, is the company diversifying far too much into varied segments. The second one was today almost 100% revenue is from speciality films or films segment, but if you take a 3-year view, what could be the segmental breakup across the 3 businesses, which is films, chemicals and pet care from a top line and EBITDA perspective, just rough sense, just to figure out 3 years out, what is the composition of the P&L basically?

So to be honest, we intend to be a large Indian conglomerate, and we realized that just being in films it may not be possible, and therefore, we decided to diversify. All our diversification definitely are not unrelated. Some are related and some are unrelated. So like I said the masterbatches are related to us while being into Zigly business and textile chemicals to some extent are unrelated. Having said that, you asked me in terms of revenue composition, we have to understand that film itself will become close to INR 4,500 crores to INR 5,000 crores business in 3 years from now. And therefore, chemical -- will have to literally see chemical, maybe perhaps anywhere between 10% to 15% is what we will intend to achieve by then. Zigly being a consumer business, it will be lesser than 10% in 3 years, but we definitely intend to grow both the businesses at a faster pace.

Understood. And one more follow-up on the Zigly business. I didn't follow why would you not do a marketplace model for the inventory, why would you have inventory on your books and take the inventory risk, and why not do a marketplace model? That is one. And the second, like that's a simple Google online you do for pet food and stuff like that. There are several players already which are there. So there are at least 5, 6 options, which come up plus you have Amazon and Flipkart, which one has an option always to go for these products. So just from a potential perspective, I understand it's a small segment. It is growing very fast in India. But is there already enough competition in the segment from existing online players?

I think partially, you answered your question yourself. First of all, this market is already close to INR 6,000 crores. And there is hardly any large player in this segment. All the players that are there are unorganized until now. There's only one company which is already being valued at INR 750 crores, while as per the unofficial sources, their turnover was still less than INR 100 crores. So you can understand the kind of interest which the segment is having in this sector. There are a couple of other very, very small players who have already got a few million dollars of investment from the P funds. This segment is expected to cross INR 10,000 crores within the next 3 to 4 years. Now to answer your question, why are we not selecting a marketplace model for products. See marketplace model is already there with Amazon and Flipkart as you yourself said. We are right now trying to create a niche for ourselves where we will be doing both online and offline create a very large sales, start commanding the purchase power with the suppliers and also create a brand name for ourselves. At the right time, in the right segments, we might also see whether we need to build our own brands, but it's too early to comment anything on that side. Our initial focus is to start scaling up both our online presence and our experience centers. And we want to give a very, very differentiated unique experience to our customers, which we have already started proving in the initial pilot scale startup that we've done. And I can really clearly tell the investors that this will be already the fastest-growing first year growth for any new business who has got into pet care.

That's interesting. Understood. And in terms of the CapEx, which you do, I saw in the presentation, you put figure INR 15 crores, but would that be the only number you think the investment in this business kind of grows up for the pet business?

This is only the first estimate that we had made earlier for the next year. Given our success, we are evaluating whether we should scale up faster. But even if this changes, it is not going to change from INR 15 crores to say INR 100 crores, it can change from INR 15 crores to INR 25 crores because we are largely operating on a lease model, where all the new experience centers are on lease. So our investment is limited to the leasehold improvements that we do in any new site. As far as online is concerned, we have already built up our -- I mean, again, on a lease model, built up our warehouse, set up the supply chain, has already started our website. So majority of the investments on the online, I would say 40%, 50% of investments have already happened. So majority of our new investments will largely be happening on the scale up of experience centers.

The next question is from the line of Avinash Nahata from Parami Financial. As the participant left the queue, we'll move to the next question, which is from the line of Anil -- Vipul Shah from Sumangal Investment.

Congratulations for very good set of numbers. I have a few questions. So I'm a little confused. So what is the difference between BOPET and BOPP films? Why we are undertaking this BOPET expansion. So is it to cater to any particular industry?

As we said, I mean, BOPET is very complementary product with the BOPP. So while for the specialized BOPET line, we are looking for very specific kind of a specialized products, but it will happen over a period of time. So in the initial stage, we made BOPET film also and we'll make a specialized product also. I mean, this will also enhance Cosmo's capability to cater to customer portfolio in a complete way.

Still not understood. So is this for a particular set of industry or customer, this BOPET line?

The BOPET line will give us opportunity to complete our product basket with respect to most of the FMCG players. Because when you pack a food, let us say, you need BOPP film also, you need BOPET film also for a specific properties purpose, like the BOPP is an excellent moisture barrier, BOPET is an excellent oxygen barrier. So to complete the product basket with the FMCG player, you need both.

So what is the capacity of our this BOPET line and CapEx is around INR 400 crores, if I remember correctly.

Including some value-add assets, which we are looking to enhance some of the capabilities with respect to coming out with the specialized product on the BOPET line. Including that CapEx, it's about INR 400 crores, it should produce close to 25,000 metric tons annually.

Okay. And sir, can you share the financials of Masterbatches business till date, if it is possible? I mean what is the top line and what is the EBITDA contribution?

The Masterbatches business, we are doing 100% subsidiary. In any case, at the end of the year, separate results will be available on the company's website. But very broadly, we have done INR 60 crores of sale for the CSC, which is our 100% subsidiary till date.

For 9 months?

Yes.

And what should be the EBITDA in terms of percentage, sir?

See, it is first year of operation, but we are EBITDA positive.

EBITDA positive. And sir, lastly, yes, this lamination, label and industrial films, they fall under speciality category and packaging films, our commodity films is that understanding correct?

Not all of them. So for a detailed overview, you can look at our presentation, investor presentation.

Yes, I went through it, but I could not understand. That's why I asked you, sir.

Color classification on one of the slides in the investor's presentation, which category wise indicate what is speciality, and what is non-speciality.

The next question is from the line of Anil Nahata Individual Investor.

Good afternoon. My question -- the first question is on the area of the speciality chemicals. Just like you said right now that we are at INR 60 crore run rate for the first 9 months. So assuming the INR 100 crores kind of a ballpark figure for this financial year, and taking cue from that we want to grow it to 10% to 15% of our business over the next 3 to 4 years. So typically, that means a ramp up to INR 500 crores to INR 700 crores, depending on what is the 3- to 4-year revenue from now onwards? So what kind of a CapEx you see happening? And what kind of ramp-up we see happening year-on-year to reach that INR 500 crores, INR 600 crores in speciality chemical including masterbatches?

As we just discussed, actually, it's not a CapEx-centric business. The asset turnover in this business is very good. So we believe we may need another INR 50 crores to INR 60 crores to be spent on CapEx in the next 3 years.

Okay. And that will help us to reach all the way to INR 500 crores, INR 600 crores kind of turnover on this segment?

Yes, close to INR 400 crores to INR 500 crores.

Okay. So my next question is on the speciality composition for our films business. On the presentation for the last quarter, we are maintaining a single-digit figure of 62%. Each quarter, we are seeing the same number happening as a percentage, I mean is it really a 62% that is happening or it is a range. I mean I'm not able to get an understanding because for the last 4 quarters, you are giving the same number.

You must have noticed that this specific number is for FY '21. So since we are updating this number on annual basis. This is why you will have latest number at the end of this year. But to answer your question, we have grown close to 20% year-on-year for more than 3 years now. Currently, year YTD growth is, in fact, more than 20% compared to last year.

So I mean, can you give a ballpark idea where the 62% would now be assuming that was Q4 when you first reported it in FY '21. So 3 quarters have passed, it is in the 66% range 69%. I mean, I don't know, just a ballpark idea?

Currently, it should be close to 65%, which we intend to increase to 80% in volume terms by the end of FY '22.

The next question is from the line of Manan Shah from Moneybee Securities.

I just had a question on how the company goes about its R&D research and narrowing down on which product, mainly in the chemical and the speciality chemicals, I mean, do we first identify a problem and then try and find a solution for that? Or do we get some lead from a customer or something that we are facing this particular problem and then we try and find a solution? If you can just throw some light on how we go over on research in developing the products?

So we actually did our market research to begin with to understand the entire market. And then we identified certain segments where we saw that there is more growth and at the same time, customers have a lot of unmet needs. So initial work happened around that and obviously during that phase a lot of customers interviews were also taken to understand the market better. Now as we have our own set of R&D team and sales team, as we go to different customers, first question always to them is what are their unmet needs and we try to see whether is this large enough for us to do research upon. So wherever we find that there is any attractive product, we try and make that. Having said that, textile chemical is one area, where we have to make a bouquet of products to the customers. So let's say, if we intend to get into cotton and cotton itself has many subsegments, we have to understand that what is the entire bouquet of products to be on cotton side. So to begin with majority of the products that we initially produced were on cotton side, now we've started moving on the polyester side. So one of the critical things that initially when we did the research was come out clearly is that this industry consumes a lot of power and water. And therefore, our initial research efforts are how can we reduce their power consumption and water consumption and we came out with a lot of innovative products, which helped them doing. So to answer, majority of the things that we are trying to do is to meet the unmet needs of consumers.

Okay. So just based on this answer. So in that case, we would already have a readymade customer available for these products, right? So when can we start seeing these products scaling up?

So see, we started production in September. And already within a quarter, we had 40-plus customers to whom we have done commercial sales, and we've already launched 40 products.

Okay. And what would be the opportunity size in terms of these products that we've developed. Any ballpark numbers you can give?

You see, the Indian textile chemical market is more than INR 10,000 crores. Very large part of this is currently serviced by multinational players. While a lot of small players specially in Gujrat would also being part of this market. We feel that we will be within top 5 players in this segment within for 3 to 5 years.

Okay. So are 40 products would also have an opportunity beside of this INR 10,000 crores? Or this is just the entire textile chemical market that you're talking about?

That is the entire textile chemical market of INR 10,000 crores. Obviously, much smaller. Nylon, there's rayon, there is silk, there is wool, there is cotton, there is polyester, I mean so many different substrates are there. And again, for different substrates, there are different subprocesses. So for each type of -- and there are different types of printing methods, there are different type of dying methods and therefore the chemicals keep differentiating for each one of them. And within every process itself, there are 10 to 12 chemicals being used. And therefore, the number of chemicals being used for this industry are close to 400 to 500 and they continue to evolve because every company or let's say the good players continue to research in terms of providing better solutions to the customers.

Okay. So then going by that, then these products will be very niche, right? So the opportunity size over here would not be that big. Is that a fair understanding or?

Yes. These are speciality segments. So you are right. See, within this INR 10,000 crores, let's say, a large chunk is coming from dyes and we haven't entered into the dye segment. So we take only non-dye segment that would not be more than, let's say, INR 4,000 crores, INR 5,000 crores. And within that, yes, cotton chemicals may be, let's say, INR 1,500 crores, polyester chemical maybe INR 1,000 crores, so on and so forth. So to begin with the 40 chemical segment is niche and market for them, I do not have an estimate to be honest, but it will be a few INR 100 crores only.

The next question is from the line of Avinash Nahata from Parami Financial.

Okay. My first question is regarding spreads and margins. So it's a very pointed question. Let's say, over the top cycle and peak cycles what has been -- if I were to say that there are only 2 grades of films, one is the basic grade and one is a speciality grade, hypothetically, you might have a lot of grades. So what has been the lowest spreads or lowest margin per tonne and what has been the highest? So this is just to have a sense and build our profit forecast. And second question is, as far as supply side dynamics are considered in the current context, what is China's role which leads to contraction and expansion of these spreads?

So see the speciality segment typically on an average, they are around INR 50, INR 60 a kg, while the commodity segment hover between INR 10 to INR 25, INR 30. While in last few quarters, we have seen this going even to INR 40 per kg, okay?

So you're saying the range is INR 10 and INR 40. I mean just last -- if I were to ask you last 2 cycles range, for a commodity grade film conversion, between INR 10 and INR 40, went as low as INR 10 and as high as INR 40, is that the correct understanding?

Historically, we were always used to say INR 10 to INR 30 to INR 33, but this time it has gone to INR 40. And on an average, we always used to say that they are around INR 25.

Okay. And speciality?

Speciality, on an average remains around INR 50 to INR 60. As we see, given that we continue to launch more sophisticated products, this also going up by, I would say, INR 3 to INR 4 every year.

So this is irrespective of the price of the basic thing or the polypropylene price?

This we are saying over and above the all the variable cost.

Okay. Understood. And your comments on the China's role which leads to this contraction and expansion?

China is -- doesn't affect in the Indian market because there is a 10% custom duty and therefore China doesn't export anything to India when it comes to films. In the international market, they are largely there in some commodity segments, like tape is one segment where China is very strong. But again, we see that China is largely producing for their own consumption than to export as much.

Okay. So right now, what is the kind of things which gets imported into our country, not necessary from China?

Very little, very little. Whatever films India is not yet able to produce, only those films are imported into the country.

Okay. I have not seen the slide, small question. Regarding classification and reclassification of speciality. So what is the basis, if you can just explain in the next 30 seconds. That's all from my side.

Speciality anything where there is not a presence of more than 3 to 4 suppliers worldwide and where the minimum contribution that we expect is INR 50 per kg. And semi-speciality is anything where, again, it would partially linked to commodity, but again, the margins always stay about INR 30 per kg.

Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to the management for closing comments.

Well, thank you. I think to summarize, company is taking all steps required to transform into a speciality packaging and speciality chemical company, the B2B and B2C segment in coming years. Specialized polyester line, a new BOPP line to be commissioned in FY '23 and FY '25, respectively. Focus on our growing speciality sales, diversification into speciality chemicals and pet care would drive the growth in the coming years. The company's focus will continue on improving its speciality films, research and development and sustainability, which would yield results in coming years. These actions would continue to improve margins and would contribute in the long-term sustainable growth. In the last just repeating the cautionary statement, certain statements in the con call may be forward-looking statements. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. These statements are not guarantees of the future results. Thank you very much. Thank you for your time.

On behalf of Essential Technologies, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.