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 Q3 and 9-month FY '24 results. Today, we have with us from the management, Group CEO, Mr. Pankaj Poddar; and Group CFO, Mr. Neeraj Jain. Starting off with the statutory declarations, 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 the circumstances. These statements are not guarantees of future results. [Operator Instructions] Please note that this conference is being record. I now -- may I request Mr. Neeraj Jain, CFO of Cosmo First Limited, to take us through his opening remarks, subsequent to which we can open the floor for Q&A. Thank you, and over to you, sir.

Thank you very much. Very good afternoon, ladies and gentlemen. I am Neeraj Jain, Group CFO at Cosmo First; along with my colleague, Mr. Pankaj Poddar, Group CEO at Cosmo First. Our financial results for December '23 quarter and investors presentation both are available on the company's website. You may like to review the same. We will start the call with a brief on the performance of the company, which may be followed by questions. First, talking about flexible packaging business. During December '23 quarter, the domestic margin, both on BOPP and BOPET films, shrank further due to desperate and below-cost selling resorted by the industry. The company could withstand the disorderly market movements and outperformed the industry at large on the strength of its Speciality Films portfolio. BOPP film margin has been running at close to INR 9 per kg during December '23 quarter as against INR 18 per kg during September '23 quarter. BOPET margins were running negative on commodity part of business. Overall, the margins remain historically lowest. The company could post 9% consolidated EBITDA, mainly on the back of the Speciality Film and outperformed, as we discussed. Consolidated sales for December '23 quarter is INR 625 crores, which is 6% lower compared to September '23 quarter, mainly due to lower volume. The company actually has kept about 5% of capacity under shutdown due to lower margins running in the industry. Out of the capacity shutdown in quarter 3, we partially -- company has restarted the sales from January '24 onwards. Coming to EBITDA. EBITDA for the quarter is INR 56 crores as compared to INR 72 crores in September '23 quarter. As indicated earlier, the EBITDA is lower due to further drop in domestic margin, both in BOPP and BOPET films. The near-term outlook for BOPP and BOPET margins is expected to remain subdued because of substantial capacity addition in the industry. At the same time, we are expecting some upcoming capacity to get deferred, which should help in normalization of margins in medium term, although it will be very difficult to time the same. The company's credit rating has been reaffirmed by CRISIL as AA-, along with a stable outlook in January 2024. During December '23 quarter, the company has commenced operations of 2 business verticals related to packaging industry: first, metallized capacitor film for electronic industry; second, rigid packaging under the brand name Plastech. The company is expecting to reach full capacity utilization of capacitor film metallizer in quarter 1 of FY '25. The capacitor metallizer is estimated to generate close to INR 40 crores of annual sales at full capacity utilization with double-digit EBITDA, which we expect from FY '25. The market size of capacitor films in India is about 15,000 metric tons. In Phase 1, Cosmo's capacity is 600 metric tons annually. Coming to Rigid Packaging business launched under the brand name Cosmo Plastech, this actually will manufacture in-wall containers and sheets for a wide range of FMCG products, particularly for food industry. It's a very large market of about INR 10,000 crores in India. Cosmo's capacity in Phase 1 will be close to 5,000 metric tons, which can generate between INR 75 crores to INR 80 crores of annual sales at full capacity utilization. The market response for Plastech launch has been very exciting, very good, and company expect to hit more than 80% capacity utilization in the next 2 to 3 quarters with, of course, contribution towards EBITDA. The company, if you recollect previous quarter, we announced some core specialization steps. And moving towards that, the initiatives are working fine as per plan, and we expect bottom line addition of cost rationalization initiatives from FY '25. We expect annual bottom line addition of between INR 45 crores to INR 50 crores from all these initiatives from FY '25. Moving to Speciality Films. BOPP Speciality Film sales is running close to 64% of total volume on December YTD basis compared to 63% last year. In BOPET as well, the company has started selling speciality for about 10% to 15% of volume. The company is working towards launch of sun control films, high-strength films and many other films to enhance speciality on BOPET lines as well. It should please be noted that even in such a challenging market, the company's Speciality margins broadly remained intact in line with the last year, except for some mix change impact and uneven orders from a Speciality export customer having high margins. As we discussed earlier, we expect these Speciality orders to inflow back from FY '25. Now I'll move to packaging growth projects. Work on our BOPP and CPP lines is progressing in line with the plan. Both the lines will be world's largest production capacity lines and will increase company's production capacity by close to 45% to 50% in a phased manner by March 2025. With high-speed lines and larger grid, it will rationalize cost of production between 3% to 5%, depending on product. Moving to company's subsidiary into Speciality Chemicals. The Speciality Chemicals subsidiary is progressing as per plan and at the cusp of delivering double-digit EBITDA with high teens rolling from FY '25. Coating Chemicals and Adhesives, along with Masterbatches, these 3 verticals within Speciality Chemicals will drive future growth for company's subsidiary. Moving to Petcare vertical, Zigly. Zigly has undergone revamping of its IT infrastructure, making it future-ready for harnessing the exponential growth expected in the industry. The marketing attrition has been improving with improvement in RoAS, which stands for return on advertising spends, and other key parameters. The current monthly revenue, which is GMV, is about INR 4 crores monthly. This is on the back of, of course, expanding retail footprints with 23 stores and increased online presence. With the exponential growth of the pet care industry in India, we are confident for Zigly to become a significant wealth creator. Moving to growth and balance sheet key indicators. The company is looking for close to INR 400 crores CapEx in the next 1.5 years, broadly on the BOPP and CPP lines from now onwards. Company's net debt at December '23 is close to INR 600 crores, which is 2.4x to EBITDA and 0.46x to equity, and financials remained strong. I think with this, I will take a pause and open the call for questions, please.

[Operator Instructions] And first question is from the line of Gaurav from Investec Enterprises.

My question to the management is that when the margins are shrinking like this, so the first thing as an investor we would like to seek is that, is there any prior incident when such kind of rock-bottom margins were last observed? And second thing, the kind of even expansion that we are taking up in the BOPP and the BOPET, right, so what is the rationale that when margins are shrinking like anything like this and we are expanding our capacity? So isn't this going to increase the supply in the market and further reduce the margins? Or how is it? So these are my 2 questions to the management.

Yes. So as far as BOPP is concerned, there is not so much of overcapacity, though margins have certainly shrunk. I would also like to tell that, see, though we have reported 9% EBITDA, but we are having close to 2% EBITDA losses from all our new businesses, largely coming from Zigly. And then close to 2% EBITDA loss is also happening on polyester business. So effectively, if we talk about BOPP, we are, in spite of such a tough market, we are running quite a healthy business. As far as the new capacity is coming, we are not coming up in any BOPET capacity. What we had come up was 1.5 years ago. And our clear target there is also to move into Speciality. We are happy to share that by December end, we have already reached 15% Speciality. And the January, the run rate has moved to 18%. We will continue to grow our Speciality business in BOPET also. And we expect that even when there are contribution losses at a variable cost, Cosmo will be able to break even and start making money in 3 to 4 quarters from now. So there's one capacity addition that we are doing in BOPP. We do expect that by the time a line comes, the demand and supply will be very nicely balanced, and the market will require a line. And obviously, what we can also say that what we are finding is that the current margins of BOPP are definitely not logical because they're hardly 5% to 10% overcapacity to the market. Unfortunately, some of our competition is not able to export enough, and they are following a policy of price reduction. But to me, this is personally not sustainable for too long.

Sir, within this, I asked a question that is there any prior incidents when we have observed such kind of a rock-bottom pricing? Is it in the history, last 1 decade, 2 decades, have you seen such kind of a low, rock-bottom margin?

I would say, at least even if you talk about since 2000 onwards, on 2, 3 occasions, it has happened that margins have remained subdued for close to a year or so. The good thing is in the past, whenever such things had happened, Cosmo also struggled to report profitable EBITDA. One change which we've been able to bring in the last few years is at BOPP on its stand-alone is making reasonable margins.

And any guidance on like what would be the maximum debt that we would be looking in a year or 2, considering we are at now at, I think, INR 600 crores and considering the expansion we are taking up, what would be the maximum top of debt that we would be looking, that we could sustainably service considering the margin that we are running now?

It's very difficult because if the markets improve, then the things look differently. And if the markets don't improve, things look differently. But we are going to take additional -- we are basically doing INR 400 crores more CapEx in the next 1.5 years. And after that, I mean, we have not gone ahead with more projects. So these were committed projects, which we had committed 2, 3 years back, which we are finishing them. And if the current situation prevails, then obviously, we will not further CapEx till the time the market improves. But what we feel is that if you're doing INR 400 crores and we are generating cash from operations, so I mean, we personally expect that the total debt level should stay around INR 900 crores, INR 950 crores, in those range. Yes, Neeraj can give more clarity.

And just to add to it, you see, even at the peak level of that also, we don't expect net debt to EBITDA to exceed 3x.

The next question is from the line of Amit Aggarwal from Leeway Investments.

My question is regarding how much money we have invested in Rigid Packaging line and the other line we started, that is capacitor films?

On the capacitor, we have created infrastructure for 2 lines. We have ordered one line, and we have invested close to INR 23 crores. The incremental CapEx for the second line should be INR 15 crores. So right now, it's INR 23 crores. And so effectively, the infrastructure is built for 2 lines. And as far as on the window film or the heat protection films, we have...

No, sorry, I was asking about Rigid Packaging.

Yes, Rigid Packaging, the total CapEx is close to INR 100 crores.

We have already invested in that? Or are we supposed to invest further?

No, no, no, all put together, all put together.

All put. So are these lines adjustable to BOPP line or they are separate lines altogether?

Sorry?

Are this line -- or is this infrastructure totally separate to the existing lines of BOPP and BOPET?

Yes, yes, this is -- they're in the same premises, but the assets are under different halls. So we have basically 2 sheet lines, we have 12 injection molding lines and we have 2 thermoforming lines. These are the total investments we have done as a part of Rigid.

And in this next year, 2 to 5 years, we're expecting both the Rigid Packaging as well as capacitor films lines working more than 50% capacity, right?

Yes. We have just started this in September. But these businesses, we expect that capacity fill-up should happen faster. The beauty about these businesses is that it will help us to connect with the brands in a much bigger way because these are going to be sold directly to the business or to the brands where there's a cost-plus pricing. Unlike film, which get impacted so much by the market vagaries, in the Rigid business, you sell to the brands on a cost-plus model.

And my next question is regarding -- if I heard it right, you said BOPET line was shut down for -- because of lesser margins during the month of December. And it has started from the 1st of January, am I right?

The closure also happened, one is obviously the market conditions. But also typically, that's the Diwali time and Christmas time. And during the holiday time, typically, the demand dips. So one is anyways there's a pressure on -- pressure because of oversupply. And then there was a further impact because of Diwali and Christmas. So we decided, rather than to sell below our cost, it's better that we shut down a small capacity and which we have -- already, Neeraj has clarified that in January, most of that capacity -- I mean, it's just 5% and most of it has already been restarted in January.

So right now, the margins have improved compared to the last quarter?

I don't think so, no, not really. Till now, the margins have not improved.

So any reason that you have started that line again?

Yes, because now that -- there was a temporary blip in demand. So overall, with this additional volume, we will make some absolute -- I mean, slightly better absolute margin. But what I was trying to answer is that in the market at large, the markets -- the margins of the commodity films have not gone up. But certainly, we are trying to look for more exports.

Okay. And my last question is regarding exports only. Has the Red Sea -- because we are exporting our goods through -- must be through shipping only. So have the Red Sea problems created our export to slow down? Or have they hit the margins of exports?

Honestly, it has not impacted us much, barring the fact that the freight cost did go up in end of December until January. And we now hope that by March, the freight rates would come down. In majority of the cases, we were able to recover freight from the customers. But though there were some cases, because it was such a short window, that some customers didn't agree to pay. So I mean it's not a very major impact to our P&L. There is some impact to P&L, but it's not so significant.

The next question is from the line of Bhavesh Chauhan from IDBI Capital.

Sir, I just wanted to ask that we are also investing in Zigly and it also requires working capital apart from growth CapEx. So beyond that INR 400 crore CapEx that we are setting up, how much more -- how much cash will be -- is being allocated towards Zigly and even our Speciality Chemicals business?

Yes. So one of the things that we expect in the next year is that most of our new businesses will start earning money. So whether it's the Cosmo Speciality Chemical or Rigid Packaging, Cosmo Plastech, both these businesses will start earning money. Zigly right now is making losses full year at close to INR 30 crores at EBITDA level. And we do expect that next year also, we will be making -- though the budgets are not yet finalized, but we will be making closer to similar loss numbers. But month-on-month, we are growing on the revenue side, and it's a very high valuation accretion business. I'm sure the investors must be reading the valuations, which are being given to multiple players in the pet care industry. They are still small and getting very good valuations because the industry is expected to grow very significantly in the years to come. So Zigly, as such, doesn't require much of a working capital other than some inventories that we have to keep in retail because all these sales is on cash. So there's no receivables which gets involved, just the inventory per store that we have to add up and some inventory levels at the warehouse. But we do not expect any major movement on the working capital side. We will continue to incur some losses when it comes to Zigly business.

Okay. And sir, in terms of Zigly also, I mean, how are we competitively placed? And who are the largest players in this industry? And what is the competitive advantage that we are -- we have or we are trying to build in this business?

Yes. We are the only player which has built an ecosystem where we are providing veterinary services, we are giving diagnostics, we are giving grooming, we have training services and along with the product line, the entire range of product line, and we continue to build some of our own house brands within Zigly as such. It's just the beginning of the house brand, but we will continue to build more house brands in the times to come. So the best thing is that we have the entire ecosystem, which is available online and off-line both for the customers.

And sir, about peers, who are the -- our peers who are also doing similar kind of work?

Yes. So there are 2, 3 players which have now become prominent because a lot of investments have come from key players in them. So one is Heads Up For Tails, which I think 1, 1.5 years back was, if I recollect correctly, on a INR 75 crore revenue, they were valued for INR 750 crores. Second is Supertails, which got a valuation yesterday only. I think for a small stake, they got $15 million capital. Apparently, their valuation has been done for INR 1,500 crores to INR 2,000 crores. And third is JUSTDOGS, which is largely into retail. But obviously, we are the only player who has built the entire ecosystem as such. But these 3 players are emerging players, and there are a lot of other small players also, and most of them are getting valuations because this industry will be a growth-oriented industry in the times to come.

Okay. And sir, lastly, what would be our sales of Zigly on a quarterly basis?

Yes. So the monthly run rate has now increased to roughly INR 3 crores on a net revenue basis. On a gross level basis, we are close to INR 4 crores.

The next question is from the line of Jinal from Emkay Global Financial Services.

Sir, I have a few questions. First question is, how do we define our Speciality, Semi-Speciality and Commodity business? It would be helpful if you can put more color on this.

Yes. So Speciality is defined as there are either no competitors or there are just 2, 3 competitors around the world, where we have stable margins and most of the business is MOU-oriented. Semi-Speciality is something which is where the margins are linked to commodity, but normally you end up getting some better margins on those products versus commodity products. And Commodity is which is completely linked to the market, domestic market where if the margins go up, you earn more; and if the margins go down, you earn less.

Okay. Second question is, so what -- in the total sales, how much percentage is contracted sales in 2023? And in the contracts, do we do it on financial year basis or calendar year basis?

We operate on, obviously, on a financial year basis. And most of our export sales is MOU-driven. And as far as Speciality is concerned, on a year-to-date, last year, we did 63%; and this year, we have hovered at 64%. Obviously, there was a decline last year from September till June of this year. And now for the last 5, 6 months, we are seeing an upswing in the Speciality business.

Okay. And these product sales, would it be on higher prices? And is there any revision of the contract for 2024? Does company expect less margins in this business?

Not really. Not really.

Not really, okay. Okay. And so I just want to understand the profitability and volume of coating and thermal lamination films and this specific business. How is...

These are specific details which we do not divulge.

Pardon?

These are specific details which we do not divulge.

Got you. Okay. And what is the current debt level of the company? And how company is trying to stay the same as we could see that EBITDA is going down?

Yes. So we are sitting at 2.4x EBITDA. So it's not -- we are in quite comfortable situation. And we have a treasury of INR 400 crores, so I don't see that to be of any concern as such.

And just to add to it, you will also notice, you see at the end of the December, some of the capacity is not at full utilization. And on the top of it, some of the CapEx has already been done on the CPP and BOPP lines, which is yet to generate the revenue in the bottom line. So that is with the time to come, once the full capacity is operational, these numbers will further get rationalized.

The next question is from the line of Sarvesh Gupta from Maximum (sic) [ Maximal ] Capital.

Sir, just wanted some more color on your Speciality and Semi-Speciality business. See, I mean, it is somewhat counterintuitive that despite having a very high share of these businesses, our margins overall are falling like a commodity company itself. So I mean, what is causing such high fall in the margin despite you claiming that 2/3 of the business is coming from Speciality? Because mathematically, if you run the numbers, it shouldn't have fallen so much.

See, first of all, as stated in the beginning of the call that we have reported 9%, but you have to also understand that we have incurred close to 2% EBITDA loss in our new businesses, especially Zigly. And then we have also incurred close to 2% EBITDA losses in polyester, where the business is still largely commodity, only 15% in December we could reach to Speciality numbers. So BOPP business still is at a very healthy level. The second thing is that you have to also see vis-à-vis competition results in terms of how they are performing. I would not like to name any of them. Investors can check in terms of the -- what is the industry profitability and what value Cosmo is able to bring in such tough conditions.

Understood, sir. And...

We never said that we will totally be not impacted by what's going on in the industry because we still have close to 35% commodity business and close to 25% of Semi-Speciality business, which does get impacted by the commodity margins. So we will have that impact. In good times, obviously, those businesses will earn more; and bad times, we will get impacted. But what we can clearly show that is that, obviously, how the industry is performing and how Cosmo is performing.

So I request you to refer [ to the presentation ], which has been recently updated, which has a slide very clearly indicating separately the margins for the Speciality, Semi-Speciality and the Commodity part of business. And you will see a dip there very clearly in the Commodity part of business, but Speciality is largely not going through these ups and downs. Semi-Speciality obviously had some impact, but obviously very low compared to the Commodity part of the business.

Understood. And is there any part of the business which was previously considered as Speciality, but is now understood to be more commoditized, given how some of the fall in the margin has happened? So have we also changed any classification between these 3 buckets of products pursuant to this fall in the margins?

It has nothing to do with the fall in the margins. We do this exercise every 6 months. And if we find that any segment is gradually becoming Semi-Speciality or from Semi-Speciality to Commodity, that is reclassified on a 6-monthly basis. Good market, bad market, we do this analysis 6-monthly. And wherever there is a shift in the Speciality categorization or Semi-Speciality categorization, we do that.

Understood. So that's what I wanted to understand that, let's say, you are having 65% under this category, let's say, 1/3, 1/3, 1/3, so going forward, let's say, in another couple of years, what portion of these Speciality and Semi-Speciality would slip to the Commodity segment? And how do we plan to sort of mitigate that?

We have a very big pipeline of new products. And if you see our last 5 years, every year, we have grown on the Speciality numbers. Only when last year, because of post-COVID, there were supply chain corrections that we had a small dip. I mean it was a reasonable dip, it was not a small dip for 6, 7 months or, let's say, 9 months. But beyond that, for 5 years, we continued to grow. There are some segments which, during the years, might have come down on margins and categorized from one level to second level and then to third level. But overall, we have grown. So we have a very strong product line where we will continue to push this and continue to grow our Speciality and Semi-Speciality business.

Understood, sir. And sir, from a capital allocation perspective now, again, I think most of the money is going to be spent on the BOPP lines, et cetera, which will have a similar nature. And while we are investing in the adjacent business like the Rigid Plastics and all that, do we see that a major chunk of our allocation of capital going forward can be into the adjacent area rather than the core area? Or how do we see the overall opportunities that we have?

Yes. So after this new BOPP line, I don't think so for the next few years we are going to invest in any of these film lines. If you really see, even our last BOPP line came in 2017. And after '17, the next BOPP line is coming in 2025. So that way, we have kept a very good gap between the BOPP. The polyester line was meant for Speciality. And as I said in the last call that because our shrink film line had certain initial issues, which got sorted out only in December end, which we are going to scale up very significantly in next 2 to 3 years, so polyester line was actually not supposed to compete on the commodity products, but we had to go that route because of delay in our PET-G capability part, which is now fully sorted out. So we are not going to invest in these BOPP, BOPET lines for the next few years. And the new allocations would actually be done in all the new businesses, whether these are window film businesses, whether it's the Rigid Packaging, chemical business or Zigly. These are the 4 businesses where we will be investing more in the times to come. In the film business, our investments will go more on the value addition part. So it could be some kind of coatings or any special kind of metallization and things like that. Those are the areas which we would like to invest. This is one of the reasons that last 3, 4 years, we are looking at areas beyond film. And therefore, you have seen that we have invested in capacitors, window films. These are all very unique areas. But the challenge in these areas is that if you invest in new areas, you have to -- it takes some time to start yielding results. And as I said, Rigid business is expected to start yielding results much faster. And so is the chemical now, it should start yielding quite decent results from next year. So there's always a 2-, 3-year lag when you start some of these new businesses. But good thing is that in the good times, we have invested in these new businesses, and this will help us to continue growth in the coming years.

And these adjacencies, are they sort of big enough for you -- yes?

Sorry to interrupt, sir. We request you to return to the [ follow-up ], please. The next question is from the line of [ Vipul Kumar Shah ] from Sumangal Investment.

Sir, my question is what is our cumulative CapEx for Petcare vertical?

See, Petcare vertical is not CapEx-centric, except some CapEx needs to be done while you open these stores. There is no significant CapEx as such. So it's largely OpEx-centric. And as Pankaj said, we are close to INR 30 crores of negative EBITDA in the current financial year for the Zigly.

But the good thing is, in Zigly, the percentage losses on revenue are continuously coming down, and they will continue to come down before we reach a point of start making money in that business.

So can you quantify what is our current EBITDA loss as percentage of revenue for the latest month?

Latest month, we are still hovering close to 90% to -- I mean roughly close to 80% to 90%, somewhere in that range.

But you see, that's a business which we should see in a different way because a large part of the OpEx or the CapEx -- sorry, the structure on the cost is committed now. With the revenue growth, which we expect in the years to come, so those cost as a percentage to revenue will get rationalized. And over a period of time, you will see it making the positive EBITDA.

Sir, my second question is, in light of substantially reduced cash flows in our core film business, are we reviewing any of our capital-intensive projects like BOPET line where we are spending roughly INR 350 crores? Are we rescheduling it or postponing it? So what is the management's thinking?

You see, as we said, from now onwards, we have a commitment of close to INR 400 crores of CapEx, largely on the BOPP line and CPP line. So besides these, currently, we are not reviewing any other major project. So I do not see any major CapEx having in the next 2 years', 3 years' time.

No, question was, are we rescheduling this line also?

Not really. One is, it's already too late. And second is, as I said earlier, that we understand that BOPP margins are so low, but we also said that BOPP oversupply is not so bad. So right now, some of the players perhaps intentionally have cut down their prices, which is, to us, is not logical. Better sense will prevail in this market. And we do expect that in 12 months of time, the demand and supply should be pretty balanced and margins, in any case, should go up. So I don't see that as a huge concern as such. Though obviously, then our line will come up, and we will see at that point in time. And by that time, we also expect that Speciality will continue to grow. But to answer your question, we are not expecting to delay this process. That will be more, I would say, problematic in the sense that we have already done a major part of the CapEx. So that is not going to help really to defer that CapEx. We will start earning money on that BOPP line irrespective given the wide variety of products that Cosmo makes when it comes to BOPP films.

And sir, my last question is regarding share of Speciality and Semi-Speciality, it is hovering around 63%, 64% since last 1.5 to 2 years, means we are not able to move that percentage higher. So does it mean that our new products are not gaining market acceptance? So what is your view on that, sir?

No, actually, the European market was quite subdued. Actually, it went down, as I said earlier. In fact, in last year, one of the months, it exceeded 70%, when the going was going very well. Though the quarter numbers were still at 66%, 67%, but 1 month, we touched 70-plus percentage. And then all of a sudden, supply chain corrections happened and it went down to 57%. It has gone up again to 67% in the last month. And one of the segments where we are present, there, the supply chain corrections, as per the customer, is still not completed. And therefore, that segment numbers are not coming, which otherwise was quite reasonable to us. So if that segment had been operating now, we would have crossed or we would have been close to 70% again. So we are growing. It's just that the supply chain corrections hurted us in between. And now we are seeing a new state of growth coming in the Speciality.

The next question is from the line of [ S. B. Bhaiya ], an individual investor.

Sir, my question is only one. Pankaj-ji, you just now said that, right, you have seen these sort of cycles twice since the year 2000. So what is your experience, sir, actually how long it continues, 12 months, 18 months or whatever? And right, this particular cycle, what we are seeing right now, when it started, if you can just throw light on that?

So typically, what we have seen in these cycles remain from a year to 2 years. When it comes to BOPET, it's already been 18 months now. But to be honest, in BOPET, we never have seen so much of overcapacity. Right now, when I talk about BOPET films, there is close to 30% over capacity, which is quite a difficult scenario. So it's very difficult to project that when the BOPET margins will become positive. As a company, when it comes to BOPET, our focus remains on creating Speciality portfolio. As I said that December, we touched 15%; January, we touched close to 18%. So we are putting a lot of efforts on increasing Speciality in the BOPET business. And as I said earlier that in the next 3 to 4 quarters, we expect that in such a worst market, we'll start to break even and start making some money even in the BOPET business side. Coming to BOPP, there is not so much of overcapacity, but some players are resorting to price reductions just to make sure their lines are running. To me, that's not so logical, honestly, but we have to live with the market realities. We do hope that in the next 12 months, demand and supply should be more balanced and BOPP should perform better. But to answer you, in the past, we have seen that these are linked for 20, 24 months.

And when this cycle -- the present cycle has started, in your opinion?

I wish that only God can tell. On a rational basis, BOPP should not take so much time. On a rational basis, BOPET, there is a lot of overcapacity. So that can take time. But typically, what we have seen is even last time when it happened in BOPET in '17, '18, what we saw is one major player globally busted and then immediately, the margins improved. So these are situations where something has to change. And it all depends who has how much capability to literally deal with it. And then something happens, either the raw material starts falling short or something happens with somebody or the other, and the demand keeps growing and then the margins get corrected. So there's a cycle in the commodity cycle, and we have to live with it. So as far as projections are concerned, I can give you a rational projection, but at times, it does not go completely with the logic as well.

The next question is from the line of Miraj from Arihant Capital.

Just wanted to ask you to -- if you could just mention the contribution margins that you answered in the previous question, I missed that part. How have they moved in Q3 till date in BOPET and BOPP both? Hello?

See, in Q3, there was a drop very clearly in the both businesses, BOPP and BOPET. You asked Q3 versus Q2 or you asked Q3 versus Q4?

No, no, sir. From Q3 till date, so in the month of Jan and just the start of Feb, it's 1st week of Feb, if you could just highlight how margins have moved. So are they on the improving trend or are the same? Or have they gone down?

So far, the margins is, I mean, broadly in line with the Q3.

Understood. Okay. And sir, by when do you expect the recovery in these margins? Is it still a 6-month theme? Or do you think it's more of an extended period beyond that as well?

So I think Pankaj just tried to explain this in previous question, very difficult to time it. But definitely, in the medium term, we see margin to get normalized.

Understood. Lastly, sir, if you could just let me know the guidance going ahead for FY '25 and '26?

Sorry, we do not provide any guidance.

The next question is from the line of [ Deep Chitalia ] from [ Nine Lace AQ Research ].

Sir, my question to you is, what will be the sales mix in FY '25 in terms of various kinds of films?

FY '25, it's very difficult because it's linked to raw material prices and the margins on assets and commodities. This year, there is a volume growth, still the revenue numbers are coming down. So very difficult to share these numbers. Broadly, it will stay, I mean, close to INR 3,000 crores plus/minus some percentage.

And just to add to it, you see, in FY '25 company's new capacities getting kicked in, in terms of CPP line, which has nameplate capacity of close to 25,000 metric tons. So this will be a significant addition. And some of the capacities which we started during the current financial year, like the thermoforming capacitor metallizers, those will -- those we expect to run close to full capacity utilization next year. So those will provide further support to top line growth.

Okay, sir. Got it. Sir, my follow-up question is the excess capacity, is it only due to domestic markets? Or is it due to higher imports or dumping?

So there's no import. I mean if you see the import/export data for India as well, there's no significant imports happening in flexible packaging industry in India. So that is largely the additional capacity in the domestic industry.

The next question is from the line of [ Marshall ], an Individual Investor.

Hello?

Please go ahead. We can hear you.

Hello?

The next question is from the line of Sarvesh Gupta from Maximum (sic) [ Maximal ] Capital.

Sir, just to continue on the previous question. So see, we are now investing more and more capital in the adjacent business. So I mean, are there opportunities meaningful enough to drive meaningful growth for the overall company? Because -- I mean, while these opportunities are there, but still they look to be of a small sort of size compared to our overall level of the sales and EBITDA.

Yes. So these industries, I mean, whether you talk about window films globally, they are close to $2.5 billion market, expected to become a $4 billion market by 2032. Rigid Packaging is again a very big market in India. Chemicals is a huge market in India, whether it's adhesives or coatings or masterbatches. And Zigly, again, is expected to grow very significantly in the years to come. We have invested in growth industries. Obviously, on day 1 in a new segment, you would not like to invest huge money. You have to go step by step, and that's what we are doing. We are going step by step. As we see more momentum in these areas, we will scale up and grow. But you do not end up creating INR 3,000 crores company in a short period. These things take time. So we are, of course, trying to make sure that we are making a decent entry. And then once we do that, we will certainly scale them up. All these are scalable. There's no doubt to their scalability as such.

And what do we bring on to the table? Is it like selling to the same customers? Or anything else that we bring on to the table, which will put a certain advantage vis-à-vis anyone else who is trying to enter into these new segments, which are still subscale?

Yes, every business has its own niche. If I talk about chemicals business, that's a technology business. If you are able to give better properties to the customer, then customer is ready to work with you. And obviously, we have the credibility and goodwill with the customers. When you talk about Rigid Packaging, that helps you work greatly with the brands, which is what any company wants because then you are ready to become a Tier 1 supplier. And there, unfortunately, there are not many organized players. You see only a couple of players in that. One is Mold-Tek that you know, which is there in Rigid Packaging. Then second is your Manjushree, which was later on acquired by a PE firm. So there aren't many organized players, and therefore, brands are looking forward to work with bigger players. And that is the reason that already a couple of very large brands have signed up with us. When you talk about window films, it's a global business. You know already one of our competitors do make window films, and you know about their financials as well. And there also, it's about bringing unique products that itself is a complete business in itself with several solutions which we provide to the customer. So all these -- and Zigly, again, there a host of services and products. So there are a lot of unique value propositions that you have in each one of them, and all of them are scalable. And we intend to invest step by step in all of them. And as I said earlier in the call that we have right now invested quite a bit in the films. But in the times to come, we will be investing more in these new businesses.

Understood. And on Zigly, so what kind of capital is required to sustain this sort of a level? So let's say, we are at INR 35 crores, INR 36 crores net revenue business right now, so what kind of capital we have invested in? And incrementally for every unit of sale, how much of capital do we need to deploy? So that is apart from the P&L losses, which I understand that maybe in 12 to 24 months, we might reach breakeven. But what kind of capital is needed in addition to the losses to support this business?

In the last 2, 2.5 years, we've invested close to INR 55 crores in Zigly. And over the next 2 years, we expect that we'll be investing another INR 80 crores to INR 100 crores. And for sure, for the next 2 to 3 years, we will -- we do expect that we will become profitable. And irrespective, we will also carve out in a separate company within the next 2 years, which we also announced to the market earlier.

And that would be -- so in the next 2 years, maybe we were targeting maybe around INR 200 crores or something thereabouts in terms of the net revenue, GMV, net revenue value?

Net revenue, I don't think so because we are right now running at INR 3 crores run rate, so reaching to INR 200 crores may be too optimistic. But we will certainly try and target somewhere -- I mean, it's again giving projections, and we don't see any reasons of giving too many projections. But for sure, I mean we feel we will be in the range of INR 125 crores to INR 175 crores, somewhere in between.

The next question is from the line of Gaurav from Invesco Enterprises.

So sir, these new businesses that we have launched in the last 2 years, specifically right from Zigly and then to this metallized capacitor film and now in the Plastech segment, right, that is a Rigid Packaging films, right? So what is our expectation that in, let's say, next 2 to 3 years, these can add, in terms of percentage, to our top line? So will it be 10% of our top line, 15% of our top line? So what is your expectation on this?

If films business would not be growing, then I would have said that they will reach 15%, 20%. But the fact is the film business will also continue to grow quite a bit. So right, overall, we feel that they should be close to 10% with the way even the film business is expected to grow.

Okay. And in terms of the, sir, EBITDA margin in these new products, so Zigly, we know that it is an e-commerce platform kind of an offering, but in the Rigid Packaging or the capacitor -- metallized capacitor films or, I would say, sun protection films also, is the EBITDA margin is going to be somewhat higher or it is going to be on the same lines that we are earning in our traditional business?

See, film business is a fluctuating margin business, while all other businesses will have a much more stable business. We do expect that next year, Cosmo Chemicals, Capacitor and Rigid Packaging will start to make money. We do expect in 3 to 4 quarters, even in this worst market, polyester will start to break even. Windows film will take at least 1 year, 1.5 years to turn profitable because that also is a consumer business. And Zigly will continue to make losses for another 2, 2.5 years.

Sir, last question from my side, if you can help me. I'm not sure if I heard correctly during this call, but in the Rigid Packaging, are you competing with Mold-Tek Packaging in some way, in some of the product segments that you have launched?

Yes. The IML containers are competing with Mold-Tek. And we're also making thermoform containers and trays, which is competing with Rajshree.

That's it. And sir, in sun protection films that you did, are you competing with Garware in that segment in the export market or in domestic? Is that correct understanding or I'm having a wrong impression in that segment?

Yes, Garware is the producer of these films. But as you may be aware, Garware, as of now doesn't sell much in the domestic market, though, obviously now they're also trying to increase their domestic market presence. But yes, they're the other competitors in India. And globally, if -- there are close to 4 to 5 established players in this segment. Though in China, there are multiple producers for everything, and so is the case for window films. But as far as established players are concerned, globally, there are close to 4, 5 players.

That's it. And our focus in this particular segment is going to be domestic or export?

Both.

The next question is from the line of Urmi Khania from RoboCapital.

I have one question about the CPP and the BOPP expansion in FY '25 and '26. What do you see the revenue's contribution from this expansion and realization?

See, CPP will be added up in '24, '25, and BOPP will start from FY '25, '26 first quarter. So both will start from first quarter of the respective year. As far as both put together, they will add up to close to INR 1,000 crores on reaching full capacity. But we don't expect that within the first year itself, they'll reach full capacity; they may take some time.

Okay, sir. And also on the margins front, what do you expect it to be?

See, to be honest, first year, we would be largely dealing with commodities. So we'll be linked with commodity margins on these new capacities. But here also, the target is that we are working with different, different segment customers and build speciality. When I talk about CPP, we're already working with so many different brands to give them very unique solutions. We have made -- already made 4, 5 very innovative products that we're in the process of launching with our existing CPP lines. So there, the focus will remain on Speciality. But in the first 2, 3 years, commodity business will be more. And gradually, it will get converted into Speciality business. Commodity business is very difficult to comment on any margins because they keep fluctuating. But BOPP, as we said, there is largely -- at least it's going to be balanced by the time our line comes. So we have to see how the commodity margins play out.

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

So from the closing comments perspective, I have 2 key messages. One is on the margin side for the flexible packaging. So we feel near-term outlook for the BOPP and BOPET films is expected to remain challenging. However, we should get normalized in the medium term. The company's strong Speciality films portfolio shall continue to help this during this period and which, in any case, we are further expanding like sun control films. Second is, among the new business verticals as well, whether you name CSC, which is speciality chemicals, capacitor metallizers or the rigid plastic under the brand name Plastech, all are expected to earn decent EBITDA from the FY '25. While Zigly may take some time to become profitable, however, it should be a significant value creator. So with this, I will take it off and would like to thank you all for joining the call. At the end of the call, I would like to further repeat the statuary 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 for joining.

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