Cosmo First Ltd (COSMOFIRST) Q4 FY23 Earnings Concall Transcript

Cosmo First Ltd (NSE: COSMOFIRST) Q4 FY23 Earnings Concall dated May 30, 2023

Corporate Participants:

Neeraj Jain — Senior Vice President and Chief Financial Officer

Pankaj Poddar — Group Chief Executive Officer

Analysts:

Shubham Agarwal — Aequitas Investment Consultancy — Analyst

Sagar Shah — PhillipCapital DCG — Analyst

Amit Agarwal — Leeway Investments — Analyst

Harsh Mulchandani — Kriis Portfolio — Analyst

Nirav Savai — Abakkus Asset Management — Analyst

Harsh Sheth — HDFC Securities — Analyst

Vipul Shah — Sumangal Investments — Analyst

Jiten Parmar — Aurum Capital — Analyst

Anuj Salian — Individual Investor — Analyst

Varun Gupta — Augmenta Research — Analyst

Navneet Bhaiya — Individual Investor — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Investor Call of Cosmo First Limited to discuss the Q4 FY ’23 results. Today, we have with us from the management, Group CEO, Pankaj Poddar and Group CFO, Mr. Neeraj Jain.

Starting off with the statutory declaration, certain statements in the conference call may be forward-looking. These statements are based on management’s current expectation and are subject to uncertainties and changes in circumstances. These statements are not guarantees of future results. [Operator Instructions] Please note that this conference is being recorded.

Now, may I request Mr. Neeraj Jain to take us through his opening remarks, subsequent to which we can open the floor for the Q&A. Thank you and over to you Mr. Jain.

Neeraj Jain — Senior Vice President and Chief Financial Officer

Thank you very much. Very good afternoon, ladies and gentlemen. I’m Neeraj Jain, Group CFO at Cosmo First, along with my colleague Mr. Pankaj Poddar, Group CEO at Cosmo First. Both our financial results as well as the Investors Presentation are available on Company’s website, we hope you could go through these.

We’ll start the call with a brief on the performance of the Company for the quarter four, which may be followed by questions. So, first talking about the flexible packaging business, although quarter four was a fairly challenging quarter primarily for the commodity part of the business, our company could still post 10% EBITDA on the back of the specialty film portfolio. The results have clearly outperformed compared to the industry.

During the quarter, commodity films margins both on the BOPP and BOPET witnessed a further decline compared to the previous quarter, impairing the profitability of the entire industry. You will notice that from last couple of quarters BOPP and BOPET industry faced excess supply scenario caused due to bunching of several new production lines together.

Although demand side continues to grow, the bunching of supply caused margin drop and impacted everyone in the industry. Cosmo with over two-third of its revenue coming from the specialty film could withstand the margin pressure and clearly outperformed the industry once again in the quarter four. BOPP film margin has been running close to INR10 rupees per kg in March 2023 quarter compared to INR17 per kg in December ’22 quarter and INR50 per kg in March ’22 quarter. So, very significant gap in the commodity part of the business.

You would also notice that this margin of INR10 per kg is quite low compared to average historical margin this industry has been earning, which has been close to INR25 per kg. It may also be noted that in such a challenging market, the company’s specialty margins remain broadly intact in line with the last year. While the commodity margin has gone down to one-fifth of the last year margin, but specialty margins remained fairly flat. Semi specialty product category margins are also down by almost 40% compared to last year. All of these details are available in our investors presentation.

Coming to BOPET line which was commissioned in FY ’23, which continue to focus on the perfecting recipes, processes and quality parameter on various specialty and value-add films. This is in line with the company’s larger strategy to enter into the polyester film. There was about INR5 crore rupees of EBITDA loss in BOPET during the quarter. The company is working on the key specialty product on the BOPET line, which are expected to deliver results within FY ’24.

With objective to promote sustainability and rationalize cost, the company has entered into renewable power agreement to source 40% of fixed power requirement for its largest plant through renewable sources. The power has already started from May 2023 end. Of course, beside promoting sustainability, this will also rationalize cost in a material way. In medium-term, the company is looking to source almost 50% of its power requirement through renewable sources, which will serve twin purpose of sustainability as well as the cost specialization.

Moving to flexible packaging outlook for the coming months and the quarter. So the company expects the position to improve in the coming months, bringing an end to the quarter-to-quarter decline which has been happening from last three quarters continuously in a row. So there’s already a marginal uptick we have seen in May 2023 quarter — not quarter, month actually margins. So, beside its specialty sales, the Foundation clearly focus on cost rationalization measures in FY ’24.

The company has launched several new specialty film including shrink for packaging and non-packaging applications. Film — other specialty film for non-packaging applications are also in pipeline, which should hit the market in the coming quarters. All these would of course will strengthen the company’s position in the specialty film business. We’ll continue to build on specialty product portfolio to maintain the lead over the industry in the coming quarters as well.

Now I’m going to move to March 2023 quarter financial results. So the consolidated sales for the March ’23 quarter is INR715 crore, which is lower by about 2% compared to December ’22 quarter, although volume is higher by about 4%. This drop is mainly due to lower commodity margins and mix change. EBITDA for the March 2023 quarter is INR74 crore, compared to INR86 crore in December ’22 quarter and INR165 crore in March ’22 quarter.

The EBITDA is largely lower because of the margin which we already discussed. The results also include operating losses of the pet care division. Despite drop in the quarter earnings, our financial remains fairly strong, with annualized ROCE of 16% and return-on-equity of 20%, which is of course on the leading side in the entire industry.

Now we are going to move the specialty film update. Well if you notice, specialty film sale has been growing for us from last four year almost with 13% CAGR growth rate. The specialty growth remained broadly flat in FY ’23 and that did got slightly impacted in second half of FY ’23, mainly due to inventory correction in some export markets, primarily in the Europe and the U.S. The company expect its specialty to improve and recover in FY ’24. And of course, we are targeting double-digit in specialty from sales growth in FY ’24.

On BOPET side also, the company is in process of launching serval new specialty products, including heat control film, security film and PET-G films. Heat control film is scheduled to be in market in second half of current financial year. The film will go through the various certification processes and parallelly completion, create a distribution network of dealers. And in the Phase one, we will focus primarily on the Tier 1 cities.

Now we are moving towards flexible packaging growth projects, where the company is working. So as we discussed in the past, work on BOPP and CPP line is progressing in-line with the plan. Both the lines are world’s largest production capacity lines and will increase company’s existing capacity by almost 45% in a phased manner by March 2025.

With high speed large decline, it will rationalize cost of production between 3% to 5% compared to current cost of production, depending on the products. So CPP line and BOPP line, of course beside adding the capacity significantly, it will also promote sustainability, because as both the lines will offer mono-layered structure.

Moving to subsidiary, on specialty chemical side, the company’s subsidiary into specialty chemical posted INR35 crore of sales during March ’23 quarter, which is 17% higher compared to similar quarter last year. During FY ’23, specialty chemicals subsidiary has done overall INR159 crore of sales, which is 75% higher compared to last year. The Company could reach almost 75% capacity utilization on its masterbatch line, and of course, beside this, complementary adhesive business for the packaging segment is all set to grow in current financial.

Moving to pet care division, the Company’s direct-to-consumer vertical which was launched under brand Zigly in September 2021 is progressing in line with the plan. The Company has already started 15 experience centers at March ’23 end and this is of course beside the sales through online portal and online app. The current monthly GMV for the Zigly is close to INR2 crore, which we are targeting to be 10 times growth in next couple of years. FY ’23 GMV for Zigly division is INR13 crore, which is of course nine times compared to last year sales.

Zigly so far has served more than 23,000 customers already. And of course, we have one-third of the repeat customers. The Company’s focus for Zigly shall continue to be to grow it multiple times in next couple of years. Beside organic growth, the Company is also looking for inorganic growth in — for Zigly. So an acquisition opportunity in online pet care space is almost at the final stage and we expect it to close soon. This would further accelerate the Company’s growth in the pet care vertical. We will be able to share more detail about it once we freeze on the agreement in due course. So overall for Zigly, it’s all set to make a substantial impact in India’s Pet Care industry.

Now we move to growth and debt level in the Company. Company is looking to almost INR500 crore to INR550 crores of capex in a phased manner by March 2025, which will be largely only value-add capex on the BOPET line, CPP line and BOPP line. The current net debt of the Company is INR433 crores at March ’23 end, which is 0.3 times of net debt-to-equity and 1 time of net-debt-to-EBITDA, so fairly healthy financial.

Now of course, in the last but not the least, moving to corporate announcements. The Board of Directors has recommended INR5 per equity share dividend for financial year ’23. This of course is subject to approval of shareholders in upcoming Annual General Meeting. This dividend coupled with 1:2 bonus given in June 2022, along with the buyback of shares done in February 2023, reaffirms Company’s commitment to provide regular return and share prosperity with the stakeholders.

So, I think those were the updates for the quarter. Now, we would like to open the call for questions please.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Shubham Agarwal from Aequitas Investment Consultancy. Please go ahead.

Shubham Agarwal — Aequitas Investment Consultancy — Analyst

Yeah. Thank you. Thank you for the opportunity. Sir, my first question is related to the spread, you mentioned that last quarter it was INR10. So I just wanted to understand what is the current trend, given that you mentioned that there is some recovery. So what is the current spreads trending and how do we look at the spread for the rest of the year?

Neeraj Jain — Senior Vice President and Chief Financial Officer

Well actually, Shubham, we are not very sure, since it’s a forward-looking statement, whether we should be able to share the current margins trend. All we can also add here is, there is a margins uptick we have seen in the May 2023 performance from the last quarter.

Shubham Agarwal — Aequitas Investment Consultancy — Analyst

Okay, but any — like directionally, how do you see it, given that this year there are two new lines and next year there are five more lines expected to come up. Given the current demand scenario, if you can just help us understand how do we look at this industry?

Neeraj Jain — Senior Vice President and Chief Financial Officer

So, you see — I mean there is already an industry base which has been growing close to 10% year-on-year. So in any case, industry needs two production lines minimum each year just to sustain the new growth. So, from that perspective FY ’24 new two lines should not be — should not impact much. But of course you know if bunching of line happens in FY ’25, this may create some pressure temporary for couple of quarters. But other than this, we see over a period of time, a balanced demand-supply scenario to come back.

Shubham Agarwal — Aequitas Investment Consultancy — Analyst

So, given that the margins have remained so low, have you seen any closure of inefficient plants in India?

Neeraj Jain — Senior Vice President and Chief Financial Officer

Well, Cosmo’s all lines are running full. So, we are — except the maintenance shutdown, we have been able to run all the lines fully during the quarter.

Shubham Agarwal — Aequitas Investment Consultancy — Analyst

No, I’m talking about the industry level, if you have any idea?

Neeraj Jain — Senior Vice President and Chief Financial Officer

Well, there will be some closure at the end-of-the industry. But so far, Cosmo has been able to run our lines fully.

Shubham Agarwal — Aequitas Investment Consultancy — Analyst

Got it, got it. And secondly, on the specialty sales. So for FY ’23, we did some 62% in terms of specialty. Now, this also includes semi-specialty, right? So what is the percentage of actual specialty in this 62%?

Neeraj Jain — Senior Vice President and Chief Financial Officer

So, very broadly it’s one-third, one-third, one-third; one-third is specialty, one-third semi-specialty, and one-third commodity part of it.

Shubham Agarwal — Aequitas Investment Consultancy — Analyst

Okay. And would it be possible for you to share the finished specialty spread for the current quarter compared to last quarter?

Neeraj Jain — Senior Vice President and Chief Financial Officer

That should be available in our investor presentation.

Shubham Agarwal — Aequitas Investment Consultancy — Analyst

Okay. No — so, in the investor presentation, it is given year-wise. So, it is close to 40% compared to last 50%. I wanted to understand Q-on-Q.

Neeraj Jain — Senior Vice President and Chief Financial Officer

We can share separately, but you know will be little difficult to reconcile on the con-call.

Shubham Agarwal — Aequitas Investment Consultancy — Analyst

No problem. And lastly, on the demand side on specialty, how do you expect it to grow for the current year given that last year we were flattish?

Neeraj Jain — Senior Vice President and Chief Financial Officer

There are very exciting products in pipeline on the specialty side. So, company is quite optimistic about the specialty growth in current financial year.

Shubham Agarwal — Aequitas Investment Consultancy — Analyst

Okay. So, double-digit is something you are mentioning?

Neeraj Jain — Senior Vice President and Chief Financial Officer

Say again please.

Shubham Agarwal — Aequitas Investment Consultancy — Analyst

No, it’s okay. And lastly on the pet care business. On the acquisition side, you said that something is on the pipeline. So, what is the total amount earmarked for acquisitions in the current year?

Neeraj Jain — Senior Vice President and Chief Financial Officer

So it will not be very substantial amount from the pay-out perspective. But what we are looking for more strategic segment and that adds value. So our acquisition strategy for the Zigly, you will notice, in alignment to these key parameters. But from the pay-out perspective, it will not be very significant amount. We will of course share much more detail once we sign the final agreement.

Shubham Agarwal — Aequitas Investment Consultancy — Analyst

Got it. But what is the specific capabilities that we are trying to address with this acquisition?

Neeraj Jain — Senior Vice President and Chief Financial Officer

If you notice, I mean, the channel which we are trying to create in the Zigly is through the retail distribution as well as the online sales. So in either of these two, a good fitment which accelerate the overall growth, with a higher kind of the volume. So that’s the primary strategy we’re looking for within this group.

Shubham Agarwal — Aequitas Investment Consultancy — Analyst

Okay, fair enough, sir. Thank you, I’ll come back in the queue.

Operator

Thank you. The next question is from the line of Sagar Shah from PhillipCapital DCG. Please go ahead.

Sagar Shah — PhillipCapital DCG — Analyst

Hello sir. Good afternoon. I had just couple of questions. My first question is, can you give the volume numbers for this quarter.

Operator

[Speech Overlap] disturbance that is coming from your line sir, from the background.

Sagar Shah — PhillipCapital DCG — Analyst

Yeah, sure. Better?

Operator

Yeah.

Sagar Shah — PhillipCapital DCG — Analyst

So, basically, can you give us the volume numbers for this quarter for specialty films and for the commodity films?

Neeraj Jain — Senior Vice President and Chief Financial Officer

Yeah, in percentage terms, so that is also available in our investor presentation. As I said, it’s broadly one-third, one-third, one-third kind of the portfolio. There may be some up or down in a specific quarter, but very broadly that’s the count.

Sagar Shah — PhillipCapital DCG — Analyst

Okay sir. Okay, and just secondly, I wanted to understand on the demand front, is the demand right now improving, especially from the FMCG sector?

Neeraj Jain — Senior Vice President and Chief Financial Officer

I mean, see a large part of our films goes to consumption-driven kind of industries including FMCG, tape sector, textile sector. So, demand-side we do not see any kind of issue. The whole of the commodity part of the business got impacted largely because of the supply-side came with a short-time distance, so bunching happened over there, which we see, since the demand side has been growing close to 10% year-on-year, so we see that temporarily gap should get mitigated over the coming quarters of the year.

Sagar Shah — PhillipCapital DCG — Analyst

Okay, sir. Okay. That’s all from me. Thank you so much.

Operator

Thank you. The next question is from the line of Amit Agarwal from Leeway Investments. Please go ahead.

Amit Agarwal — Leeway Investments — Analyst

Good afternoon. Sir, my first question is regarding — sir, specialty products. Since 60% of products are specialty products and they’re priced at cost of raw material plus fixed margin. Is it fair to assume that higher margins are only possible if oil prices rise from current levels?

Neeraj Jain — Senior Vice President and Chief Financial Officer

Sorry, you need to repeat your last part of your question?

Amit Agarwal — Leeway Investments — Analyst

Sir, is it fair to assume that higher margin is only possible when oil prices rise from current levels?

Neeraj Jain — Senior Vice President and Chief Financial Officer

Not actually, because you know — as you know for the — even for the commodity part of business also, there is a price reset mechanism available in the whole of the industry. Each 15 days basis, the raw material price get reset, and on the same day, we also revise our selling price to the customer. So in a normal balanced market there is already identified price — raw material price passing mechanism available. So, the issue these days is more because of the excess supply, but industry from the raw-material commodity perspective, it is all fairly in a mitigated way.

Amit Agarwal — Leeway Investments — Analyst

Sir no, if the oil prices are above 100 plus, should that — that will either pass on to the raw-material costs and that will be passed on — that we have pass on to our target product also, that there is a higher turnover as well as higher margins?

Neeraj Jain — Senior Vice President and Chief Financial Officer

That’s true for a balanced supply scenario. The passage of the raw material cost is possible and that has been happening.

Amit Agarwal — Leeway Investments — Analyst

Okay. And my second question is, sir, for last two month, we haven’t open a new Zigly store. So are we able to meet our original planning to meet our target of 30 to 40 stores by the end of this year?

Neeraj Jain — Senior Vice President and Chief Financial Officer

So, we announced for FY ’23-end we should be having close to 15 new stores, which is the number we targeted and we achieved also. For the current financial year, of course, we are looking for a steady growth again in terms of the both the retail presence as well as the online sale. So, we should be able to almost double the number of the stores in current financial.

Amit Agarwal — Leeway Investments — Analyst

Earlier we were targeting for around 40 stores, if I’m not wrong?

Neeraj Jain — Senior Vice President and Chief Financial Officer

That will happen over a period of time, not for the current financial year.

Amit Agarwal — Leeway Investments — Analyst

Okay, and my last question is, sir how much has been the loss in this quarter related to pet car business, in this last quarter?

Neeraj Jain — Senior Vice President and Chief Financial Officer

Sorry, again, you need to repeat your question?

Amit Agarwal — Leeway Investments — Analyst

Sir, how much has been the loss of pet care business in this last quarter?

Neeraj Jain — Senior Vice President and Chief Financial Officer

You’ll refer, if our segmental reporting, all of it has you know quarter-wise and year-wise numbers. So primarily the segment of others indicate the — in terms of the profitability, the pet care division.

Amit Agarwal — Leeway Investments — Analyst

So won’t like to give the — last time you gave that like — you know this much loss, last time you were able to give us the amount.

Neeraj Jain — Senior Vice President and Chief Financial Officer

No, I’m sorry, not able to understand your question.

Amit Agarwal — Leeway Investments — Analyst

Last quarter you were able to give the exact amount, how much we lost in the third quarter in pet care business. So is it possible to give it right now.

Neeraj Jain — Senior Vice President and Chief Financial Officer

[Speech Overlap] That number is available in the segmental reporting. It should have been closer to INR7 crores.

Amit Agarwal — Leeway Investments — Analyst

Okay, thank you. That’s it. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Harsh Mulchandani from Kriis Portfolio. Please go ahead.

Harsh Mulchandani — Kriis Portfolio — Analyst

Thank you for the opportunity. I wanted to understand how do we plan to utilize the upcoming capex? Like for example, heat control films or shirk pads. I think there are already competitors who are into this stream already. So, how do we plan to take market share from them and do we have any contracts in place or what strategy will be going-forward to make sure that your lines are able to run at optimum utilization? That’s my first question and then I’ll come to the second one.

Neeraj Jain — Senior Vice President and Chief Financial Officer

Yeah, Window films is a consumer product, and it does take time to scale it up. We have spent good three years to do lot of research to make some very innovative films, when it comes to window films, there are already six-seven different category of products. We are expected to launch this in quarter two. And as I said, consumer products do take time. It’s not about capacity utilization, it’s more about building sales. As we have said earlier, this is a high-margin product category. But building sales is the main, I would say challenge along with building the right products. So we have already surpassed the right product. Important is to build-up sales and educate consumers in terms of the benefit of window films.

Harsh Mulchandani — Kriis Portfolio — Analyst

Got it, got it. So you’re trying — so, in a nutshell, your product is at par or better than the competitors. And then it will take, is it fair to assume, couple of years to scale up the sales because it’ll be more on the retail side?

Neeraj Jain — Senior Vice President and Chief Financial Officer

Yeah, we do feel that every year there should be ramp-up in sales. Right now, important thing is, in a country like India, very few customers take the advantage of window film. And it can reduce the room temperature anywhere between 4 degree Celsius to 18 degrees Celsius, depending on the film that is being used. So first important task is to educate the customers so that you know they get aware and they get interested in buying this kind of a product.

Today, most homes in India, do not use — homes or offices or factories, do not use window films and the penetration is far lesser versus America. I mean America today, we know is a much colder country than India, and the way the Indian temperatures are there, I feel every home, every office, every factory should have a window film, which unfortunately is not the case. So with proper education, we feel that the market can expand many, many fold.

Harsh Mulchandani — Kriis Portfolio — Analyst

Fair, fair, fair. And similarly, like in the other specialty products also which you are building what I heard from the initial opening remarks was I think into shrink pad products and shrink films and I think one more product you mentioned. So again, similar strategy that even those will take some time to ramp — like breakthrough and as of today, there is no breakthrough as such in terms of getting sales. Is that understanding correct?

Neeraj Jain — Senior Vice President and Chief Financial Officer

For shrink, already sales have started coming. And lot of our products which we were already having expertise in BOPP, we are able to have sales for them in BOPET. We’ve also developed a very innovative product for microwave oven. That product also we have recently launched and I mean, as per our internal studies, it has come out very well. So, we continue to bring new products to the market and build our specialty portfolio.

Harsh Mulchandani — Kriis Portfolio — Analyst

Got it. Just last one question, where do we see ourselves five years down the line with respect to specialty percentage of sales? Like right now, it’s around one third. So, do we expect it to be more than half of our sales, say five years down or that is challenging to achieve?

Neeraj Jain — Senior Vice President and Chief Financial Officer

Yeah, we always combine specialty and semi-specialty because even in semi-specialty, we earn more margins. See, as we had earlier said that we intend to take this number to 80% on a run rate and 75% for the full-year basis. You know what will really happen is in another two years’ time, we’re adding lot of capacity in terms of BOPP, CPP. And again, we’ll have to start building sales for that. So it’s an ongoing task. We intend to bring every new line once the existing capacity largely move to specialty products. So five years from now, it will be fair to say that we’ll be sitting somewhere close to 60%, 70% of overall specialty plus semi-specialty sales.

Harsh Mulchandani — Kriis Portfolio — Analyst

Got it, got it. So mix would be more or less similar even from here, going forward, because you’ll add capacities across the spectrum.

Neeraj Jain — Senior Vice President and Chief Financial Officer

Yes, yeah.

Harsh Mulchandani — Kriis Portfolio — Analyst

Got it. Fair. Thank you so much. Thank you.

Operator

Thank you. We have the next question from the line of Nirav Savai from Abakkus Asset Management. Please go ahead.

Nirav Savai — Abakkus Asset Management — Analyst

Hi, sir. Actually just missed your initial remarks on the spread. You said it’s about INR10 for the quarter and what was it in the previous quarter and last year Q4?

Neeraj Jain — Senior Vice President and Chief Financial Officer

For the previous quarter, it was INR17 per kg and last year similar quarter it was INR50 per kg.

Nirav Savai — Abakkus Asset Management — Analyst

Right, right. So, with the kind of new capacities coming in, you said there are two new lines which are going to come in FY ’24. So what is the base case which you all are assuming internally. What can be the possible margins? Any guidance if you can provide?

Neeraj Jain — Senior Vice President and Chief Financial Officer

So, again — first of all, we do not provide any future guidance. All I can share here is March ’23 quarter looks it bottomed out because you know margins have been running closer to the EBITDA breakeven even for the BOPP part of the business. For the corporate part of the business, it was negative EBTIDA. You might have noticed in some of the peer group results, there is a very clear evidence to what we are saying. So to sum up, we did see already it has bottomed out. It should — there should be uptick in the margins, which we witnessed very recently, marginal uptick, will be May 2023 per-tax.

Nirav Savai — Abakkus Asset Management — Analyst

Understood sir. And second thing was you said commodity margins were one-fifth of specialty margin this quarter, is it right? For average of margins?

Neeraj Jain — Senior Vice President and Chief Financial Officer

So compared to last year similar quarter, commodity margins were running one-fifth of the margins.

Nirav Savai — Abakkus Asset Management — Analyst

Right. Right, right. And sir shrink film, any number if you can provide, what is the size of the opportunity in India and what can be the potential revenue which we can get in that business in the next two, three years or maybe just the overall size of industry in India for shrink films?

Neeraj Jain — Senior Vice President and Chief Financial Officer

It can become a very large market. You see there is a market of 30,000 metric ton PVC films, which we feel shirk film over a period of time should largely replace because there are recyclability related issues in the PVC film, which with high shrink Pet-G film should be able to address much more.

Nirav Savai — Abakkus Asset Management — Analyst

Okay, but any number, if you can provide, any — what would be the current size right now, which is our principal market?

Neeraj Jain — Senior Vice President and Chief Financial Officer

Our market is 150,000 tons for Pet-G shrink films.

Nirav Savai — Abakkus Asset Management — Analyst

So about 150,000 tons. And in terms of value, if you can provide any data?

Neeraj Jain — Senior Vice President and Chief Financial Officer

Yeah, if you largely multiply it by INR300, INR350, you will get the market.

Nirav Savai — Abakkus Asset Management — Analyst

Right, I got it. Perfect. That’s it from my side. Thank you very much.

Operator

Thank you. [Operator Instructions] The next question is from the line of Harsh Sheth from HDFC Securities. Please go ahead.

Harsh Sheth — HDFC Securities — Analyst

Yeah, thanks for the opportunity. Just one question…

Operator

Sir, sorry to interrupt, but the volume for you is very low. We request you to please speak closer to the mike.

Harsh Sheth — HDFC Securities — Analyst

Yeah, hi. So, I just wanted to understand what is the current breakup of exports and domestic sales and which are the geographies we are planning to expand in the next year. That’s my first question.

Neeraj Jain — Senior Vice President and Chief Financial Officer

Yeah, export and domestic is close to 50:50. Our biggest target market is Americas.

Harsh Sheth — HDFC Securities — Analyst

Thank you. And sir you did mention about working with certain FMCG companies on introducing or you know — on introducing certain kind of products, you’ve been — your R&D team has been working closely with large FMCG players. So, just wanted to know where do we stand in product approval stage. What kind of products are we planning to come out with. And then, when can we expect that to roll-out. If you could throw some light on that and the opportunities?

Neeraj Jain — Senior Vice President and Chief Financial Officer

We’re also working with the largest FMCG player in the country. We have been very successful in signing the contract for the next year. We have already developed eight to nine products for them and continue to develop more products, many of them are really very-very innovative, done for the first time in the world. Similarly, for another very large FMCG player, we have again done development and they are now expecting a next level of development, which is also in the pipeline. Barring this, again for some of the very large brands, five or six other brands, there is lot of work which has happened in the past and more work is still in the pipeline.

Harsh Sheth — HDFC Securities — Analyst

Right. That’s it from my side.

Operator

Thank you. [Operator Instructions] The next question is from the line of Vipul Shah from Sumangal Investments. Please go ahead.

Vipul Shah — Sumangal Investments — Analyst

Hi sir. So, this BOPP line and CPP line, which we are planning to complete in 2025, so what type of capacity addition will we see from those lines?

Neeraj Jain — Senior Vice President and Chief Financial Officer

Yeah, both put together should be close to 80,000 tons.

Vipul Shah — Sumangal Investments — Analyst

Both put together, 80,000 tons?

Neeraj Jain — Senior Vice President and Chief Financial Officer

Yeah.

Vipul Shah — Sumangal Investments — Analyst

Okay, and what type of ROE and ROCE we can expect from that line, sir?

Neeraj Jain — Senior Vice President and Chief Financial Officer

So see, in a normal market, the payback period should be close to four years.

Vipul Shah — Sumangal Investments — Analyst

In a normal market? Okay. And sir, what will be the capex for chemical business and this pet care business for next two, three years?

Neeraj Jain — Senior Vice President and Chief Financial Officer

Zigly business will entail anywhere between INR100 crores to INR150 crores. As far as chemical business is concerned, we still can — close to double the revenue from the existing capex. So there may not be any major capex involved, until we achieve 80% utilization.

Vipul Shah — Sumangal Investments — Analyst

Okay, so only pet care division will have a capex of INR100 crores around?

Neeraj Jain — Senior Vice President and Chief Financial Officer

Yeah, INR100 crores to INR150 crores, not necessarily capex, it includes operational losses as well.

Vipul Shah — Sumangal Investments — Analyst

So, put all three divisions together, what should be our peak debt, because right now the cash flows are impacted due to the market?

Neeraj Jain — Senior Vice President and Chief Financial Officer

Yeah, we are still sitting at a very healthy position of 1:1 debt-to-EBITDA position and that do not seem to be a concern for us now.

Vipul Shah — Sumangal Investments — Analyst

Okay. And sir, your capex for BOPET line is INR100 crores or INR450 crores because in two different slides, two different figures are given, so, please clarify.

Neeraj Jain — Senior Vice President and Chief Financial Officer

Both cost and the balance capex is already done. So all put together, it is INR450 crores.

Vipul Shah — Sumangal Investments — Analyst

For BOPET line?

Neeraj Jain — Senior Vice President and Chief Financial Officer

Yeah, BOPET line including all the value-added assets that we’ve put along with it.

Vipul Shah — Sumangal Investments — Analyst

Okay. Okay, sir. Thank you very much and all the best.

Neeraj Jain — Senior Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Jiten Parmar from Aurum Capital. Please go ahead.

Jiten Parmar — Aurum Capital — Analyst

Good afternoon. Congratulations on a decent set of numbers in a very tough environment. My question is more on, you know can you throw some light on what were the volumes, because prices have been fluctuating. So it is, we’ll be getting a better sense if we can get to know the volumes on all the three sides, basically semi-specialty, specialty and commodity.

Pankaj Poddar — Group Chief Executive Officer

As Neeraj has already stated, they’re all in the ratio of around one-third, one-third, one-third.

Jiten Parmar — Aurum Capital — Analyst

Yeah. So, but I’m saying, any volume last year and what is this year. Is there any change or what — if we can get the volume growth that would be great.

Pankaj Poddar — Group Chief Executive Officer

Yeah, from last year, the volume growth is 7%.

Jiten Parmar — Aurum Capital — Analyst

Okay, okay. That’s all. That’s all I had. Thank you.

Operator

Thank you. The next question is from the line of Anuj Salian from — sorry Anuj Salian is an Individual Investor. Please go-ahead.

Anuj Salian — Individual Investor — Analyst

Yes, hi, thank you for the chance. I have few questions. First, could you tell me what kind of revenue and margins we expect from the masterbatches segment and who are the competitors in this segment, as like there are lot of small players in this and there are big players competing. So, could you tell me about the margins and revenue.

Neeraj Jain — Senior Vice President and Chief Financial Officer

Yeah, we are largely in a film related masterbatch as of now where there are two multinational competitors and there are three local competitors, but largely the market is dominated by multinational competitors. And out of our total revenue in CSC, close to 70% revenue is coming from masterbatch.

Anuj Salian — Individual Investor — Analyst

Okay. Okay, are we expecting anymore industry-wise capacity additions for the next couple of years?

Neeraj Jain — Senior Vice President and Chief Financial Officer

In which business are you saying?

Anuj Salian — Individual Investor — Analyst

I mean just margins in the packaging business.

Neeraj Jain — Senior Vice President and Chief Financial Officer

Yeah. So, see as far as polyester is concerned, there will be some lines which are coming up in ’23 and ’24. And then after that, there are no further announcements. In BOPP, there are not many lines until ’24, I think only two lines more are coming. But in ’25 there are, I think at least six lines. But what we continue to hear is that lot of players are sensibly delaying their projects to ’26 and ’27.

Anuj Salian — Individual Investor — Analyst

Okay, understood. And one last question on the heat control film, will this be a B2C products? And like will it be an in-house brands? Could you like to throw some light on this?

Neeraj Jain — Senior Vice President and Chief Financial Officer

Yeah, we have already kept the brand name of Cosmos Sunshield. And it will be a consumer product for the Indian market. In the exports, we’ll treat it as a B2B product.

Anuj Salian — Individual Investor — Analyst

Okay, understood. Okay, yes, thank you. That was helpful and all the best.

Neeraj Jain — Senior Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Varun Gupta from Augmenta Research. Please go ahead.

Varun Gupta — Augmenta Research — Analyst

Hi, thank you, sir, for the opportunity. First, I have two small question. The first question would be on the BOPET line right now, we’ll be only producing commodity films, right?

Neeraj Jain — Senior Vice President and Chief Financial Officer

Yeah, our line is actually a string of label and some specialty product lines. It has the feature to run commodity products today. You are right, we are largely producing commodity products. But as we have said earlier that within three years we intend to take roughly 60% of our sales from this line to specialty products.

Varun Gupta — Augmenta Research — Analyst

Okay, understood. And could you tell me the margins on the commodity BOPET line that we saw in Q4?

Neeraj Jain — Senior Vice President and Chief Financial Officer

They were negative. At EBITDA level, it had made losses.

Varun Gupta — Augmenta Research — Analyst

Okay. And one last question on the specialty side, you mentioned that there was some inventory correction in H2 that happened. So are we done with the inventory correction or can we expect some more inventory correction will happen in Q1?

Neeraj Jain — Senior Vice President and Chief Financial Officer

Majority of the corrections happened in quarter three and remaining correction happened in quarter four. So next quarter, we do not foresee any inventory corrections.

Varun Gupta — Augmenta Research — Analyst

Okay, understood sir. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Navneet Bhaiya, an Individual Investor. Please go ahead.

Navneet Bhaiya — Individual Investor — Analyst

Hi Neeraj and hi Pankaj. So my question was again on the BOPET, are you operating at full utilization of the BOPET line, because I believe in Q3, you were holding back the utilization because of the poor market conditions?

Neeraj Jain — Senior Vice President and Chief Financial Officer

Sorry, come back again.

Navneet Bhaiya — Individual Investor — Analyst

In your BOPET line, are you operating at full utilization now, because I believe in Q3, you were going a little slow on the utilization, given the poor market conditions? So, are you operating 100% now on the BOPET line?

Neeraj Jain — Senior Vice President and Chief Financial Officer

Even in quarter four, we were not operating at full capacity. We were largely at 60%, 65%, because we are right now making lot of new products. So we are taking them from lab level to commercial level. So, I mean no, not really, utilization is 65% and even in quarter one, we don’t expect to utilize fully.

Navneet Bhaiya — Individual Investor — Analyst

Okay, so you’ll utilize it fully only once you get…

Operator

Sorry to interrupt, by the line for you is a little muffled.

Navneet Bhaiya — Individual Investor — Analyst

Is it better now?

Operator

Yes, this is much better sir, please go-ahead.

Navneet Bhaiya — Individual Investor — Analyst

Yeah, sorry. So you intend to utilize it fully only once your specialty BOPET films are ready. So which may take a couple of years. Is that…

Neeraj Jain — Senior Vice President and Chief Financial Officer

Unless film margins really get much better, we could still evaluate you know, running higher capacity. But our focus has been more of specialty products. So as you rightly pointed out, we may not useful full capacity for some time.

Navneet Bhaiya — Individual Investor — Analyst

Understood. Can you also tell me about your masterbatches, adhesives and your chemicals utilization? Are you operating those businesses at full utilization right now or are they sub-optimal or lower than 100%?

Neeraj Jain — Senior Vice President and Chief Financial Officer

I mean, these are new businesses, we are just at 50% right now.

Navneet Bhaiya — Individual Investor — Analyst

All three of them roughly at 50%. Hello?

Neeraj Jain — Senior Vice President and Chief Financial Officer

Yeah, yeah, you are right 50%.

Navneet Bhaiya — Individual Investor — Analyst

So do you expect these to get to 100% this year or next year. When are we seeing the upside in these businesses in terms of utilization?

Neeraj Jain — Senior Vice President and Chief Financial Officer

I think earliest will be ’24, ’25.

Navneet Bhaiya — Individual Investor — Analyst

Understood. And my last question on Zigly. So you had — you mentioned you had a INR7 crore EBITDA loss [Technical Issues]. And breakeven is expected three years hence. So, what is our peak loss expected from this business? Is it annualized INR7 crores or it can go higher from here?

Neeraj Jain — Senior Vice President and Chief Financial Officer

It may still go higher from here. And only once we have a larger pie, then it will start coming down. So next year, it will continue to go higher. What we feel is that it can pass INR10 crores, INR12 crores per quarter. And then after that, it will start coming down.

Navneet Bhaiya — Individual Investor — Analyst

Right. So FY ’24 could be the peak loss year, and then maybe FY ’25 it might get better.

Neeraj Jain — Senior Vice President and Chief Financial Officer

That is what we project as well.

Navneet Bhaiya — Individual Investor — Analyst

Okay, fair enough. Thank you so much and all the best.

Neeraj Jain — Senior Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Vipul Shah from Sumangal Investments. Please go ahead.

Vipul Shah — Sumangal Investments — Analyst

Sir, just a little clarification, you said your BOPET line capex is INR100 crores, but in presentation you have mentioned it as INR590 crores, so can you clarify what I am missing here, sir?

Neeraj Jain — Senior Vice President and Chief Financial Officer

So, the INR590 crore numbers includes the remaining capex on the BOPP line, CPP line and value-add assets on the BOPET line. So, all taken together is INR590 crore. You will also notice in investors presentation, there is a comment mentioned along with it, that close to INR100 crore out of it, we have already spent in March ’23 balance sheet.

Vipul Shah — Sumangal Investments — Analyst

Okay. So, upon completion of this INR590 crore capex that line will be 100% specialty line.

Neeraj Jain — Senior Vice President and Chief Financial Officer

So, I will repeat it for you. You see, we had done close to INR800 crore of capex on BOPP line, BOPET line and CPP line. Out of this, BOPP line and CPP line, major capex is yet to be done, which is largely representing in INR590 crore figure. On BOPET side, larger part of the capex has already been done in March ’23 balance sheet. Only some part of value-add asset capex is pending, which is being done in the current quarter.

Vipul Shah — Sumangal Investments — Analyst

So can you quantify what will be the value-add capex for BOPET line, remaining capex?

Neeraj Jain — Senior Vice President and Chief Financial Officer

It should be close — remaining capex, it should be closer to INR50 crore.

Vipul Shah — Sumangal Investments — Analyst

That pertains just to — just for BOPP line, right — BOPET line, sorry?

Neeraj Jain — Senior Vice President and Chief Financial Officer

Yeah, value-add asset on the BOPET line.

Vipul Shah — Sumangal Investments — Analyst

Okay sir, thank you very much, yeah.

Neeraj Jain — Senior Vice President and Chief Financial Officer

Thank you.

Operator

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

Neeraj Jain — Senior Vice President and Chief Financial Officer

Thank you. We hope that we could address your questions appropriately. If I have to sum up, we’re pleased the strong Specialty film portfolio should continue to deliver superior returns. Although in the near-term outlook for the BOPP and BOPET films maybe little challenging. We are working parallelly on several cost rationalization and R&D projects, which should add value in coming quarters and year. Zigly is rapidly becoming well-known among the pet parents, benefiting all pet lovers and company’s stakeholders. Both for specialty side — specialty chemical side, the subsidiary should double its revenue in coming years with the launch of their new products.

Now at the end, I would like to mention the statutory declaration once again. 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 figures. Thank you very much for joining.

Operator

[Operator Closing Remarks]