Cosmo First Limited (COSMOFIRST) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Investor Call of Cosmo First Limited to Discuss the Q2 FY '23 Results. Today, we have with us from the management, Group CFO, Mr. Neeraj Jain. Starting off with the statutory declaration. Certain statements in the conference call maybe forward-looking. These statements are based on management's current expectation and are subject to uncertainties and changes in circumstances. These statements are not guarantees of future results. [Operator Instructions] Now may I request Mr. Neeraj Jain to take us through his opening remarks, subsequent to which, we can open the floor for the Q&A session.

Thank you, and very good afternoon, ladies and gentlemen. I'm Neeraj Jain, Group CFO at Cosmo First. My colleague, Mr. Pankaj Poddar, Group CEO at Cosmo First is today not able to join the call due to an emergency at his family. Our financial results for the September '22 quarter and investors presentation both are available on company's website. We'll start the call with a brief on the performance of the company, which may be followed by the questions. So first, starting with the flexible packaging business. During the quarter, flexible packaging industry in India experienced pressure on the margins due to commissioning of several new production lines during last 6 months. The bunching of capacity expansions caused by temporary imbalance in the demand and supply scenario. There has been subdued order flow from the overseas customers as well, largely due to geopolitical crisis, particularly in Europe, supply chain corrections and major currency fluctuations in some part of the world like Japan, Korea. This caused temporary disruption in the oral demand and supply scenario, which impacted of course the margins as well. BOPP film margin has been running close to INR 20 per kg during September '22 quarter as compared to INR 40 per kg in September '21 quarter. The impact on Cosmo although was minimal as our strong and growing portfolio of specialty film is least prone to competitive pressure. So backed by specialty films, company has outperformed the environment and competition during the quarter 2. Margins, we witnessed some pressure in the overseas subsidiaries as well, and there were 2 reasons primarily for this. One is increase in the raw material costs across the industry in India and weakening of foreign currencies against the U.S. dollar, particularly in Japan and Korea. We strongly feel the near-term outlook for the non-specialty film would be challenging. However, the company will continue to expand our specialty film growth. The demand and supply balance should get restored with the growing demand level in India. I mean, you might have noticed the industry has been growing double-digits from last more than a decade and returning of geopolitical normalcy, particularly in Europe. So basic factors behind the demand remains robust, I mean, whether you talk about the low packaged food penetration in India, rising personal disposable income, investment in the organized retail industry and change in the packed format from rigid to flexible. BOPET line of the company got commissioned 2 days before the end of the quarter 2. Like BOPP, our focus there will be very clear to expand the value-add specialty products. Coming to September '22 quarter financial results, the consolidated sales for the quarter is INR 778 crores, which is close to 3% up compared to September '21 quarter. The EBITDA for the quarter is INR 124 crores. This is compared to INR 152 crores of September '21 quarter. The EBITDA is lower due to lower BOPP film margin, although part of it got mitigated with increase in these specialty sales as well as the margins. Subsidiaries performance dropped due to lower margins for the reasons which we discussed. Despite now the drop in the earnings -- quarter earnings, our financials remains fairly strong. The ROCE on trailing 12 months basis comes to 25% and return on equity comes to 32%. This of course is one of the best in the industry. The company's net debt stand at INR 370 crores at the end of September '22. Even after a major part of the BOPET project CapEx has been done. This translates to 0.6x of net debt to EBITDA ratio and 0.3x net debt to EBITDA ratio. Moving to specialty films. In packaging business, we expect growth generally to continue with these specialty films. In fact, Cosmo has recently developed some unique products which will further enhance our specialty film growth. The specialty film sale has grown year-over-year from last 3 years by close to 19%. The company's specialty sales now stand at 64% in volume terms in September '22 quarter. We are in process of ordering several other value-add assets, which will further enhance our specialty product portfolio. As announced earlier, our target is to reach 80% volume terms by the end of the FY '24 specialty products. Some of the key products which will drive future specialty film growth will include synthetic paper, coated films, technical films, direct thermal printable and thermal lamination. As announced earlier, the company is going to launch heat control film for offices and homes by the end of the FY '23 which will have significant potential. Flexible packaging growth projects. The company is targeting to add close to 70% capacity in a phased manner in the next 3 years which will drive the growth projects. Capacity additions shall be for the specialized BOPET line, we just commenced the operation, BOPP line and CPP line. These 3 are the key growth drivers in flexible packaging business. Specialized BOPET line got commissioned in quarter 2 or rather late quarter 2 of FY '23. The line will add close to 16% to 18% capacity. The company is targeting complementary growth from specialized BOPET line in medium terms which includes shrink labels and other high end specialty products. This will partially substitute the imports happening in India today. Our work on BOPP and CPP line has already commenced. Both the lines have been ordered. And both the lines in fact will be world's largest production capacity lines and will increase company's production capacity by close to 50% to 52%. And of course, it will happen in a phased manner in the next 2 and a half years. The CPP line will promote in fact the sustainability as well, being monolayer structure along the BOPP films. This capacity addition means the specialized BOPET line, BOPP line and CPP line will allow the company to further expand its specialty films portfolio. Now moving to specialty chemicals. The company's subsidiary into specialty chemical has posted INR 42 crores of sales during September '22 quarter compared to almost half of the sales in the September '21 quarter. We have raised close to 75% to 80% capacity utilization of the first masterbatch line. The complementary enhancing for the packaging segment is planned to be launched in the second half of the financial year '23. The specialty chemical operation has been PAT positive in the first year of operation itself, which is FY '22. So of course, from here, it should grow only. The FY '23 and FY '24 will be the years for scaling up in specialty chemicals. Moving to petcare vertical, Zigly. The company's petcare vertical has launched under the brand name Zigly is progressing as per the plan. With Zigly, the company is targeting direct-to-consumer digital-first omnichannel presence in products and services in the industry. And of course, we know this industry has been growing more than 25% year-on-year. The company has already started 6 experience centers in Delhi NCR and plans to increase the same to 25 number by the end of FY '23. The company is first Indian industry to launch app in the petcare space during previous quarter. Zigly today has served more than 10,000 customers with 1/3 of them -- more than in fact 1/3 being repeat customers. We are looking at INR 15 crores of GMV to come from Zigly in FY '23. Broadly, we see Zigly is gaining rapid recognition and is on its way to become one of the leading brand in petcare industry in India. Now moving to CapEx plan of the company. The company is looking for about INR 650 crores of CapEx in the next 3 years, which will be largely on the value-add assets on the BOPET line, CPP line, BOPP line, some CapEx will be required in specialty chemicals and minor CapEx in Zigly. The financials are expected to remain strong even with this CapEx considering robust cash generation. Of course, the bottom line impact of this CapEx will come in years to come. So at a broad level, if I had to summarize, in coming years, we are looking growth coming from B2B as well as B2C segments. For B2B, focus shall be on specialty sales, specialized BOPET line commissioning, world's largest BOPP and CPP line commissioning, while the B2C growth will come from direct-to-consumer petcare business and very specific specialty chemicals which can be launched in B2C. I think these were a few updates on the quarter and the business performance. Now we would like to open the call for the questions, please.

[Operator Instructions] We have the first question from the line of [ Amit Aggarwal ] from E&Y Investments.

Sir, there has been an announcement regarding single-use plastic packaging 3 months back, especially cigarette industry. Will this change the scenario for the demand of our products?

Well, frankly, very, very minimal impact. So if I have to look at, I mean, maybe less than 1% of consumption of BOPP and BOPET goes to those kind of the products which have been banned. So I would say, insignificant.

So is this domestically only or is this internationally, the same impact would be there across the board for the whole industry?

Well, this single-use plastic, the ban has been in India. But yes, you are right, in some of the other countries may also follow or might have already been implemented. But as we indicated, I mean, there's insignificant level of impact on the BOPP industry as such.

And my second question regarding shrink labels. So you said this is imports substitute. So is there any player right now -- Indian player right now in the market or we are the first one to enter the industry? And what is the capacity -- the whole -- what is the demand for the whole country as such?

Well, it will largely replace the non-recyclable PVC film market in India, which happened to be close to 30,000 metric tons industry in India. The high shrinkage film will be fully recyclable. And nowadays, as you are aware, brands are largely -- not only the brands, the government for that matter, is largely looking for recyclable film. So that's why we are fairly optimistic about its replacement.

Sir, if I'm wrong, but I thought shrink labels are being used in beverages industries, like Coco Cola, Pepsi. Are our shrink labels different from compared to what my thought process is?

Those are the label only, but with a high shrinkage capability. But as you rightly noticed, these are used in the labeling of bottles, but may not be in the examples which you have given, many other kind of product examples.

And then more in the -- players in the industry or we're the only ones first to enter?

I'm sorry, you need to repeat again, please.

Is there any other player in the industry right now in India or we are the first one to enter the market?

Not in our knowledge.

So we are the first one?

Yes.

What turnover can we expect from this particular line?

Well, it will be little early to say, but the line will be -- will have the capacity to produce more than 22,000 metric tons. So let's see how it takes the shape. But the line of course will be able to cater to many other kind of the products, not only one product which we mentioned.

And my last question is regarding BOPET line. Sir, what percentage of capacity are we going to use in the next 2024 financial year?

If I got your person right, you want to know the '24 -- March '24 capacity utilization on BOPET line?

Yes.

Very broadly, we see, I mean, close to full capacity utilization by the end of the March '24.

And the turnover -- actual turnover INR 500 crores around about, if I'm correct?

It depends to a large extent on the raw material price. But yes, it can fetch between INR 450 crores to INR 500 crores at the current raw material price.

Mr. Aggarwal, does that answer all your questions?

Yes.

We will move to the next question from the line of Jiten Parmar from Aurum Capital.

Congratulations on a decent set of numbers in a challenging environment. My question is, what were our stats for Q2? I believe, commodity film spreads were quite low, but what were our spreads?

So as we mentioned at the beginning of the call, for plain vanilla BOPP film, which is known specialized film, it was running INR 20 gross margin, which of course, is after considering all variable costs, including raw metal, powers and others.

No, for -- but as with lot of specialty, right, 54% you mentioned specialty. So what was our spread?

Well, we have close to 2/3 of our product portfolio selling into specialty products, which will have a much superior margin compared to plain vanilla BOPP margin, which is getting reflected of course in the company's performance as well. The investors presentation which we uploaded on the company's website would have details about the -- what has been the margins in the specialty category, semi-specialty and the commodity part of the business.

Now currently -- I mean, in current quarter also, prices have reduced a bit. So is the raw material also reduced or the spread has reduced further?

Well, industry has broadly on a pass-through basis with respect to raw material changed. So each fortnight, in a general normal market, whatever change happened in the raw material price, that gets passed on to the customers. So coming to your question -- I mean, if there is a drop in the price, there may be a drop in the selling price, but not necessarily in the margin.

So I wanted to know a bit more on supply scenario. We are also doing CapEx. Are there any more plans coming industry-wide? Could that situation lead to ablate? What do you think about the scenario on supplies over the next 2 years?

Well, at the broad level, what we see is in BOPP maybe about 25% to 30% capacity addition may happen in next 3 years based on of course the number of lines for which order has been placed. And in BOPET side, maybe about 40%.

So I couldn't get the -- have you displayed the chemical and the PAT revenues separately in the results, I didn't see that? You did mention about some revenues. Can you repeat that, please?

See, at the end of the September, we have been into BOPP film only. And BOPP had 2 parts, specialty and non-specialty segment. The details available are for the BOPP only. BOPET, we have just kicked off from October onwards. So in future, detail will be available for the BOPET as well.

No, sir, I'm asking about the chemical and the PAT?

Those information may not be available in public domain as of now because the statutory requirement with respect to reporting is yet to kick off. But in future, you can expect those details to be available separately on the company's website.

You mentioned that chemical business is profitable, right?

The chemical business, as we mentioned, did INR 42 crores of sales in the quarter, which is double of the last year similar quarter sale.

And last question is, what would be our peak debt?

Well, at INR 622 crores, we are INR 370 crores of debt. And we announced CapEx of close to INR 650 crores to happen in next 3 years. We don't feel debt level to increase from here, maybe one or 2 quarters, I can't say. But at a broader horizon, we don't see CapEx -- debt level to increase further.

Because all those will be done through internal approval is what you are saying?

Largely. I mean, the current level of operations generate so much cash that it can be capped from there.

I'm sorry to interrupt. Mr. Parmar, can you hear me?

Yes, it is the same question I'm asking -- my first question, that's why please allow me. Regarding the spread, I'm still not clear on that answer, because there is no volume information or something. So it is very difficult to calculate the spread for the quarter -- blended spread. So if that could be made available. Previously in past quarters also you have made that available. So I would still request you to give that, if possible.

So partially, the information is available on the investors -- in investors presentation. So we'll definitely request you to look at that. If any unanswered question, we will be open to look at it.

We have the next question from the line of Devvrat Himatsingka from Augmenta Research.

Sir, I would like to congratulate you. The numbers are quite commendable in the scenario that we are in today globally. So we've actually pulled off quite a good set of numbers despite all the uncertainties around us. Sir, I had one question, I wanted to understand. So you have specialty and then you have BOPP as a commodity. So in the specialty, I believe your margins were at roughly INR 65. Would that be a fair assumption?

Yes, broadly that range only. You are absolutely right, Mr. Himatsingka.

And sir, so my follow-up question would be, if the commodity margins are coming down, why the specialty margin is not coming down? And another follow-up question to that would be, in your specialty margins, could you give the break-up between specialty and semi-specialty and how are they affected? How is the semi-specialty affected?

So of course, I mean, we again try to deal this perspective in our investors presentation. But you might have noticed that there is a clubbing of specialty and semi-specialty taken together. Broadly, you can see 50% of this is specialty and 50% is semi-specialty. The margins of semi-specialty would always have additional delta over the commodity pricing. And in an increasing as well as the drop scenario, they are more rigid to change compared to commodity part of the business. So for example, if let's say, I mean, there is an increase of INR 10 in the commodity price or vice versa, drop, change in the semi-specialty maybe INR 2.5, INR 3, but in specialty it will not change altogether because those are largely the raw material pass kind of the contract for the specialty. Semi-specialty also, to a large extent, the pricing is fairly rigid compared to commodity part of the business.

And sir, how long -- so if we -- if say competition were to come in out there and do what we are doing, then how long would it take for someone to setup such a plant? And how do you see the demand and supply metrics, specifically in the specialty and semi-specialty, because that remains the key area of focus today?

Well, of course, it all depends on the research and development. It's not one day process. So of course, you need to do a lot of research, you need to have full set of R&D. Like currently, we have more than 30 polymer scientists attached with the company. So that way, this is lot of patience-driven business. Even after that also you need to get qualified your new products with different brands across the globe. So I would say not that easy.

So sir, basically, then what I understood was like even if say the commodity margins -- I'm just throwing this out there. Even if say they were supposed to go to zero hypothetically, then our specialty margins would still be intact and we would still be able to post a healthy profit. Am I understanding this correctly?

Yes, you're right.

[Operator Instructions] We have the next question from the line of Abhishek Maheshwari from SkyRidge Wealth Management.

Sir, you did an EPS of about 27 this quarter. And now with the commencement of new specialty BOPET line, do you think you can do a better EPS for Q3 because -- or the demand is tarred and the margins are still in pressure? Any views on that?

So frankly, I mean, it's difficult for me to comment specifically for the Q3 EPS, because in principal, company do not provide any forward-looking projection. But all I can share is the factors with respect to demand and supply in the quarter 3. As of now, it has not changed much from the quarter 2. Of course, the company's endeavor will be to further enhance the specialty part of the business and stabilize the BOPET line, which commissioned from the beginning of the quarter. So that ways, I think those are the things to be looked at in the current quarter.

And sir, secondly, the stock had fallen significantly on the expectation of the bad result. Now results came, results were not very bad and stock is still taking a beating. So any feelings on this? What can the management team do from their end to boost the investor confidence? Because, it's a great business and they're doing very well. But relative to peers, we are falling more and more. Can you explain any filings on that?

This we will request rather to this group only to consider. See, what all is there in management hand is to improve the company's performance and the results. On this, definitely, rigorously, we are working. That much I can assure you. And there's a very clear growth plan attached with each of the businesses we are into. So it's more the investors to look at with respect to the share price. We would not be able to comment there.

And lastly, sir, regarding Cosmo Global Enterprises Limited, a private company you've incorporated. What kind of assets are you thinking of investing in here? Are these for inorganic acquisitions or what is this company for?

It will be organic only. So future manufacturing assets will be part of this stuff actually.

But in the same business verticals or a new business particularly?

Not necessarily. I mean, at this point of time, we are not phased on any kind of the specific projects to be taken in this subsidiary. But yes, at the right time, we'll definitely come back and advise to you.

We have the next question from the line of Rohit Sinha from Sunidhi Securities.

Just wanted to understand that in this sustainable product environment where everyone is talking about sustainable product [ assessment ] thing. So what type of demand change we have seen in our products? And how we are looking at this scenario going forward maybe after 3, 4 years?

Well, of course, sustainability is the future. We have no doubt about this. So future flexible packaging structure need to be fully recyclable in nature. So that's a clear mandate, both from the government side, the large brand side. So that's where we are working on. So you might have noticed company has announced world's largest CPP line to start operations in India. And key rationale behind this line is to promote sustainability. Why? Because what happens with CPP line, the raw material family, which is polypropylene, remains the same along with the BOPP family. So if you put one layer of, let us say, on chips packing, one layer of BOPP and one layer of CPP, it remains the fully recyclable structure as against the current structure, which may not be fully recyclable. So to coming back to your question, of course, I mean, there is a very clear focus on sustainability. And packaging structures in India will also evolve around this only in future.

So on the CPP, what was our overall CapEx dedicated?

As we announced and indicated in investors presentation, it is INR 140 crores. And the line is expected to commence operation by the end of March '24.

And what kind of asset turn would be expected?

That will be more than 2x asset turnover.

And just to understand the -- I mean, obviously, everyone is talking about some kind of slowdown or subduedness in the global demand environment. So how we are seeing second half of this FY '23? And also, are we seeing any softening in the power cost for us?

See, your question has 2 parts. Demand side, I think we don't feel any major issue, frankly. In fact, we see clearly higher demand levels in India compared to previous year. The only margin pressure has happened because of the multiple lines coming within the short time gap, that is the last 6 months, multiple capacity has come in India. The demand continues to grow. So that ways, I think there is no issue at all in India. We expect further to demand to increase only. Demand level temporarily is impacted from one of the regions abroad, which is Europe, and for which I need not to explain the reason. So I mean -- but we feel that once the geopolitical situation improves in the region, that region will also -- I mean, the order flow will -- should normalize from that region also. Having said so, Cosmo today exports to more than 80 countries actually. So it's a very diversified portfolio which we run with single country exposure, maybe about 6% of the top-line. So that ways, I think it's fairly addressed.

And on that power cost thing.

Power cost, there has been withdrawal of, I would say, temporary withdrawal of subsidy in one of the regions in which we operate the plant. The government has withdrawn the subsidy for some period. So once that period is done, then I mean, it should come back.

And one last question if I may squeeze in regarding our exposure towards the textile industry. So how has been -- I mean, the overall revenue contribution from that segment? And as people are talking about some -- again, the slowdown in the textile space for a short-term, maybe, so what kind of revenue contribution is there? And how we are seeing the demand recovering or we are still seeing a decent demand in that industry?

We will see. I mean, we do supply to textile industry various flexible packaging film, but it's not much in terms of the revenue. If I have to try to quantify it, maybe about 6%, 7% of the flexible packaging business. But having said so, so far, we have not seen any kind of the order slowness from the textile industry as such. So so far, orders are fairly fine.

We have the next question from the line of Anshul Mittal from Care Portfolio Management Services.

Actually, I wanted to ask for the spreads for commodities segment has fallen to close to INR 20 per kg. So do we feel that these are near bottom based on a historical data? And also, can we call current margins of 15% to 16% as sustainable based on this fact that we expect specialty segment to reach 80% in next couple of years?

See, I mean, as I was trying to explain, it's very difficult actually to predict margins in the non-specialty kind of the businesses. It will largely depend on the -- how the supply comes, whether bunching of supply happens or it comes in a scattered way. Demand side, we are fairly optimist. So that may continue to improve only. But having said so, I think as a company, we are more looking at specialty growth which has been working well in favor of the company. So I think whole endeavor will be to further expand our specialty portfolio. I mean, one or 2 quarters because of the disruption or imbalance in the demand supply scenario may disturb the non-specialty part of the business in terms of the margins. But still, the -- I mean, company is running at close to full capacity utilization.

And sir, what will be the sustainable margin consider for new BOPET plant, considering the weak BOPET spread and the considerable fall recently and as well as introduction to specialty products in BOPET segment as well?

See, BOPET commodity, if you make the commodity on the BOPET line today, it may not be viable. So our endeavor is more to look at the value-add products which we conceived with the specialty -- specialized BOPET line. Some of those products may come in quarter 3, some of those products may come in quarter 4. But I think in the next 6 to 9 months, we should be able to make our portfolio for specialty products to be launched on specialized BOPET line. So I mean, difficult to say on the commodity part of the business, but yes, very clearly, we are looking at again there to increase the specialty only.

So sir, do we already have the demand in place for this new BOPET value-added products as we are expecting full utilization in next 2 years or we are trying to kind of capture any other market?

See, the space where we are looking for, the kind of the products we are going to launch, as I have given one example of substitution of imports happening in India. So that space is always available. Only thing is you need to do more research. You need to come up with the right products. And you need to price it right.

And sir, coming to chemicals segment. So since last year, we have been very aggressive in this segment, but the growth has not been as per as expectation. It's taken time -- more longer time than anticipated. So are we facing any pressure in this segment or we have been conservative over here?

So sir, this year FY '23, we should be able to do between INR 180 crores to INR 200 crores of top-line from specialty chemicals. You might have noticed our investors presentation where we indicated we are looking for INR 400 crores to INR 500 crores of sales from this vertical in 4 to 5 years' period. So this FY '23, in fact, is second year of operation only. So I think we are running well with our targets.

We have the next question from the line of Subham Agarwal from Aequitas Investment.

Sir, most of my questions have already been answered. I just had one last question. So if you basis the numbers that have been provided in the presentation, if we see the proportion of specialty, which was 69% last quarter, has fallen down to 64% this quarter, almost a drop of 5%. So what were the key reasons for such a sharp fall?

Subham, it's very difficult to enhance a particular segment quarter-over-quarter. There could be various supply chain disruption, order flow gap or many, many factors, seasonality aspects. So my humble request is to look at on a year-to-year basis. One or 2 quarters up or down would always happen.

But sir, if we see almost 35% to 40% of our sales is export. And earlier in the call, you mentioned that only Europe is impacted. So I just wanted to understand whether this fall in specialty is because of decreased demand from our export?

So that's true. Subdued demand from Europe region impacted specialty volume partly for the quarter 2.

And what would be our total contribution from entire Eurozone?

Well, Eurozone may be about 8% to 10% of sales.

And rest of the world, the demand is not impacted even from U.S. is what you are trying to say?

Absolutely. But for this, I think we try to have a very diversified kind of the portfolio. So as a single largest country, maybe the U.S. actually, may have about 6%, 7% of our top-line. But as a region, maybe Europe region may be close to 8% or so.

We have the next question from the line of Riddhesh Gandhi from Discovery Capital.

Given you are indicating that the overall capacity being added to BOPP and BOPET, it is 30% to 40% incremental. Actually, were you referring to the amount we are increasing or the industry is increasing capacity by 30% to 40%?

So you want to know for the future capacity or the [ fetch ] capacity which got added already?

No, I've got the capacity and announced capacity additions which have happened in the industry. Did you indicate that there's a 30% to 40% incremental capacity...

So that's for the future endeavor for the next 3 years based on the projected capacity which is -- which may happen to kick off the operation. And of course, from the various players in the industry, not Cosmo alone. Cosmo is also coming up with the BOPP capacity and CPP capacity. And as we mentioned, specialized BOPET line has already kicked in the operation.

But then if there is such a large increase in the capacity in the industry, and I'm assuming given we are also providing internationally, that growth rates would be in single-digit growth rates overall. This would take a really long time to get actually absorbed, right, incremental capacity?

Well, it may not be necessarily because the industry size as such in India is fairly significant now. So after China, India today has probably second largest capacity. Second, if we look at the growth rate of Indian flexible packaging industry, that has been double-digits maybe from last decade or so. And there is a basic reason behind this because flexible packaging penetration has been low in India. And particularly, post-COVID, people are getting more conscious about the hygiene of the or the packaging of the products. So that way, we feel there is a much more scope for flexible packaging to further grow. So even if we take earlier single-digit growth, let's say, 11%, 12% kind of the growth year-on-year, still I think if capacity of 30% is to kick in in next 3 years and demand may also be on the similar lines only, so overall, it may be a balanced scenario. But having said so, there may be few quarters if the supply comes in a cushioned manner, so there may be few quarters when the supply may be higher or vice versa. So that's something to me to be seen.

And then just to understand effectively on the specialty angle of things, I think someone else had also asked the question and certainly need to understand the industry. In terms of specialty, we would earn an incremental limit delta over and above the commodity spreads. So in the event like commodities actually spreads are also lower, our specialty spreads are also be lower?

Well, spreads may not get impacted actually. So it's a largely pass-through. But yes, if raw material price changes, it may impact the selling price, but may not necessarily the margins.

No, no, I guess that is effectively in a delta, which is the revenue actually in a less your cost of goods sold which is I think in a delta to your spread, you would expect to remain the same, is it?

Broadly in the same range in the specialty part of the business.

We have the next question from the line of [ Vipul Kumar Shah ] from Sumangal Investments.

So what will be the asset churn in BOPET line? And what was the CapEx for this BOPET line? And this BOPET is 100% specialty, sir?

So BOPET line, we did actually a lot of customization on this line. CapEx was about INR 350 crores. And what was your second part of question?

So what was the asset churn? And is it 100% specialty?

Well, not necessarily from the day one it will make specialty. So as we are trying to explain on the call, in the initial phase, it will make both commodity and specialty. But in the medium to long-term, we are looking at this line to make largely these specialties.

Over medium term means over the next 2, 3 years?

Yes, it will take that kind of time.

And sir, what about the asset churn there?

Sorry, say again, please.

Asset turn in BOPET lines?

You mean asset turnover, is it?

Yes.

So asset turnover depend on the, again, product portfolio. If you make commodity part of the business, I mean, it may be close to 2x. If you make specialties, it maybe 1.5x in that range.

Specialty, it should be higher, because in specialty, we get higher realization?

Post down the line. So I mean, the production will be higher if you make commodity and vice versa.

And sir, you mentioned INR 42 crores from specialty chemical turnover. So that is external sales or is it including internal sales also?

It includes internal sales also.

Including internal sales. But right now, what percentage of that INR 42 crores we are selling as external?

Broadly 75% internal sales, 25% external sales.

We have the next question from the line of [ Yash from Dante Equity ].

I just want to clarify something. First thing I want to clarify is, in the new line that you set-up for INR 350 crore CapEx, by when do you expect it to reach a 90% capacity utilization with the current demand trend?

See, in FY '24, we expect that kind of capacity utilization to happen.

And what kind of turnover would you expect at 90% utilization?

So it should provide between 1.5x to 2x of asset turnover ratio.

So that's approximately INR 450 crores to INR 500 crores at 90%?

Maybe a little higher. It also depends on the raw material prices, but broadly, you can take INR 500 crores.

With the crude oil prices coming down, have you not seen the raw material prices pull down at the same pace?

That's true. That's happening.

So from the last quarter to this quarter, what percentage the raw material pricing come down by?

Well, the number, I may not have a ready number. But yes, there has been...

Any approximate number.

I mean, you can see top-line broadly 8%, 10%.

And how do you see the demand trend going ahead? Can you give some sort of approximation or guidance with the volume?

So as we try to indicate, the demand from India continues to grow. So we do not see any kind of the demand pressure coming in Indian industry. The margin pressure is largely because of the supply side -- demand side. Was that your question?

Yes. Also, you said something about the demand being same as last quarter, right? But due to the festival season or anything, haven't you seen the demand pick up yet?

So the industry -- generally, this industry you have good level of demand coming in quarter 4, followed by the quarter 1 and quarter 2. And quarter 3 is generally weak because of Christmas and Diwali festivals. But otherwise, I mean, that impact is also not much actually. The seasonality aspect because most part of the output goes to food sector or the pharma sector for that matter. So I mean, of course, have a consistent kind of the demand level. So that ways, there's not much seasonality attached with this investment, but there may be 3 percentages in quarter 3 and quarter 4 is generally the best quarter.

You didn't you talk a lot about Zigly. Could you talk more about the new business in terms of how it's panning out? Would love to hear more about Zigly.

We will actually. So we planned for about 15 stores by the end of the FY '23. So at the end of September '22, we already opened 6. And the current plan basically indicate to achieve that number. So besides the offline stores, we are looking for assertive growth online business. And this caters to, of course, the services as well as the products. Some of the very renowned international tie-ups we are looking in this business. If those materialized, that will definitely give a value-add to this business. So I think things are moving good overall. I mean, it's -- Zigly is getting a fair amount of recognition across the industry. So in time, I think to further look at this business.

By when do you expect this business to be positive?

Mr. Yash, I'm sorry to interrupt. Please make this as your last question.

By when do you expect this business to be EBITDA positive, sir?

Well, it's very early, Yash, frankly, to comment on this. But yes, I mean, with the some volume of business -- business to be positive, EBITDA and the PAT number. But at least for the FY '24 and FY '25, it may not happen. But as we announced earlier, the right time, we will demerge this part of the business into a different subsidiary. And probably, we'll also look at right kind of investors for this business.

We have the next question from the line of [ Vishal Prasad from VP Capital ].

I have few questions from our upcoming capacitor business. So sir, could you help me understand about our upcoming capacitor film business? What is the target sectors, geographies and how is the competitive scenario in our target markets?

You want to know for Zigly or for the flexible packaging?

So capacity -- I mean, last call, you had mentioned that we are getting into capacitors and the metallization line that we are putting up. So I would like to understand your thoughts behind we getting into capacitor business. The target markets and your target industries and how is the competitive scenario in those markets?

No, that is very early to say actually. So marketing have been fairly large. So we are looking at FY '24 to kick off that kind of the operation. So capacity is yet to come. So little early to say about the margins. But yes, when we evaluated the business, it was very exciting.

So I mean, I understand from Jindal that they have been trying to get into capacitor for long. And they have struggled to get the right quality of films. And Exploring India is the only player which -- I mean, they have been able to do it pretty consistently. So I understand -- I mean, we have a very strong technical setup. So what gives us the confidence that we will be able to come up with the requisite quality and we will be to sell in the market?

So our R&D has already made this product actually on the pilot lines and all. That ways, we are fairly confident about the product.

So what's the micron that we are looking at generally? I mean, usually it is 2.5 to 60. So the machine that we have ordered, if you could just help me understand the EBIT that we will be looking at?

No, I would not be able to at this stage further comment on this.

We have the next question from the line of [ Anil Nahata ], an investor.

My first question is on the EBIT. We are having very good cash flows and the stock price is very much down. Though I understand buybacks are always a decision of the Board of Directors, but has the management actively considered doing a buyback or is in the process of actively considering?

So sir, that is outside my preview. So that is board to decide, frankly. So I mean -- but I'm sure that board consider all the facts before taking on any appropriate action this year.

And the question there was, you had announced at one point of time some INR 30 crore investment on a PLI scheme for some electronic film manufacture. I didn't see a commentary on that in the entire presentation. Can you just give us some commentary on that?

So that business will be, I mean, a fairly exciting business. But as we just said in the previous discussion, that will be in FY '24, which is yet to kick in the operation, but the CapEx size will be -- comparative basis will be low. But we are looking forward for that business I think.

So that is what was the capacity business that the earlier gentleman was talking about?

Yes, that's true.

So in terms of this present quarter, though I don't want any extrapolation numbers, now we would be -- have been selling our BOPET products for one, one and a half months now. What are the current margins we are seeing in the BOPET, the commodity margins basically?

So the margins are not running all that great, which you must have seen in the numbers of many of the BOPET manufacturers in India. Cosmo margin will also be in the similar range only, the results which you have seen for the others, unless we do specialty products. And as we indicated, some of the specialty products should kick in from quarter 3, some may be from quarter 4. But our endeavor is to run primarily the specialty product on this line in medium term. Medium term to me, that is in 3 years.

Could you just also have an estimate of the inventory losses that we might have taken this quarter?

So there has been a drop in the raw material price, but the inventory loss has not been all that significant. Few crores.

Few crores only. Fair enough.

Ladies and gentlemen, that was the last question for today's conference. I now hand the conference back to the management for closing comments.

So I think as an outset, company is taking all the steps required to transform into a specialty packaging and specialty chemical company with of course very clearly 2 broad segments, B2B and B2C in years to come. While on the full side specialty polyester line, BOPP line, CPP line, these will drive the growth. And our focus will continue to be on improving further the specialty films, research and sustainability. On the other hand, I think diversification into specialty chemicals and Zigly may drive other part of the growth. At the end of the call, I would like to repeat the statutory declaration. Certain statements in this 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 future results. Thank you very much for joining.

Thank you, Mr. Jain. Ladies and gentlemen, on behalf of Cosmo First Limited, that concludes this conference call. Thank you for joining us. And you may now disconnect your lines.