Cosmo First Ltd (COSMOFIRST) Q3 FY23 Earnings Concall Transcript

Cosmo First Ltd (NSE: COSMOFIRST) Q3 FY23 Earnings Concall dated Feb. 15, 2023

Corporate Participants:

Neeraj Jain — Senior Vice President (Chief Financial Officer)

Pankaj Poddar — Group Chief Executive Officer

Analysts:

Anshul Mittal — Care Portfolio Managers Private Limited — Analyst

Varun Gupta — Augmenta Research — Analyst

Yash Dantewadia — Dante Equity — Analyst

Anil Nahata — Individual Investor — Analyst

Nirav Savai — Abakkus Asset Management — Analyst

Jiten Parmar — Aurum Capital — Analyst

Vipul Kumar Shah — Sumangal Investment — Analyst

Rahil Shah — Individual Investor — Analyst

Amit Agarwal — Individual Investor — Analyst

Nayan Gala — Etica Wealth — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Investor Call of Cosmo First Limited to discuss the Q3 FY23 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 declaration. Certain statements in the conference call may be forward-looking. These statements are based on management’s current expectations, and are subject to uncertainties and changes in circumstances. These statements are not guarantees of future results. [Operator Instructions].

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

Neeraj Jain — Senior Vice President (Chief Financial Officer)

Well, 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. Our financial results for the December ’22 quarter and investor presentations are available on the company’s website.

And we will start the call with a brief on the performance of the company, which may be followed by the questions. But starting with the Flexible Packaging business. Well, from the offtake the quarter 3 numbers look lower compared to the previous quarters. However considering the industry scenario I think Cosmo has done quite well in quarter 3. The results could have been better, but of one off items the result got impacted by about INR32 crore. We are going to further discuss these items.

The results also include operating losses at BOPET line which got commissioned at the end of the September ’22 quarter as well as the operating losses of Pet Care division. From last couple of quarters the BOPP and BOPET industry faced excess supply caused due to bunching of fuel production line, as well as the temporary demand destruction in the overseas market. The domestic demand continues to grow. The bunching of the supply basically caused the margin drop, which actually impacted everyone in the industry. Although the impact on Cosmo got mitigated, partially because of the ramp in Specialty Film segment.

BOPP, the margins have been running at close to INR17 per kg during December ’22 quarter as against INR42 per kg figure of December 2021 quarter, and INR20 per kg during September ’22 quarter. This is lower than average historical margins, which has been ranging in this — above INR25 per kg. And this is in-spite of the fact that some costs have gone up in last couple of years.

It may please be noted that, even in such a challenging market, the company’s specialty margins remain intact, in-line with the last year close to INR70 per kg. While commodity margin has come down broadly to one-third of last year margin, there is no impact on specialty margins. Many specialty margins have come down by about 30% compared to last year. The margin’s further details are available in company’s investor’s presentation.

The BOPET line which was commissioned towards the end-of-the last quarter continued to focus on the perfecting recipes, processes and quality parameters for various specialty and value-added films. This is very broadly in-line with company’s larger strategy to enter into specialty segment in polyester films. There was EBITDA loss of close to INR4 crore from the BOPET line during the quarter. The company is working on couple of the specialty products on the BOPET line, which are expected to deliver results from FY24.

The margins were also under pressure in the overseas subsidiaries from last year, primarily for two reasons. One is, reduced gap between the India Raw Material Price Index and US Raw Material Price Index. And second is weakening of foreign currencies against the US dollar, particularly in Japan and Korea. The margin pressure in the US is due to lower gap between the two price index, which we mentioned. It has already started easing out from the quarter four onwards.

Now despite all these challenges and abnormalities, the company could post-close to 12% EBITDA, which is very clearly better than the industry for the December ’22 quarter. And all of this is on the back of largely the specialty film portfolio. While the near term outlook for both BOPP and BOPET film is expected to be challenging, however, as many production lines are not expected in FY24, there’s a good possibility of upward margin correction in FY24. The downturn is temporary and is driven by supply side. The demand side continues to grow. The company is confident for its specialty film portfolio and shall continue to focus on the same.

Now coming to December ’22 quarterly results, the consolidated sales for the quarter is INR730 crore, which is lower by 5% from December ’21 quarter. This drop was primarily due to lower sales volume caused by planned maintenance shutdowns, besides some other impact due to sales mix change. The EBITDA for the quarter is INR86 crore compared to INR124 crore in September ’22 quarter, and INR161 crore in December ’21 quarter.

The lower EBITDA is primarily for three reasons. Number one, the one-off non-repetitive items of close to INR32 crore. This include one-time inventory loss on the raw material and finished goods, close to INR14 crore; scheduled maintenance of some of the production line, which caused close to 10% drop in BOPP volume. Generally, as a company, we prefer doing such maintenance activity during the low margin period. And of course, the lower specialty film sale, but mainly due to inventory correction in Europe and US.

We feel it’s fairly temporary and already see from the quarter four normalization has started to happen. Besides the one off items, there are two more reasons for lower EBITDA. The BOPP film margin, which we mentioned, INR17 per kg compared to INR20 per kg of September ’22 quarter and INR42 per kg of last year similar quarter, and lower margin in the overseas subsidiaries for the reasons we already discussed.

Now [Technical Issues] our financial remain fairly strong. The annualized ROCE of the company stands at 20% and return on equity close to 25%. These in facts are one of the best in the industry. Company’s net debt stands at INR355 crore at December ’22 end. It translates to 0.7 times of net debt to EBITDA and 0.3 times to net-debt to equity.

Moving to specialty films, the specialty film sales have grown year-on year if you look at from more than last three year-by about 19%. It’s a temporary drop as we discussed in the specialty film sale. Specialty film for the December ’22 quarter stands 57% of our volume, as against 64% in the previous quarter. And as we mentioned, this is primarily due to inventory correction in Europe and US. We expect specialty growth to be broadly flat in FY23. And is looking for double-digit, specialty growth in FY24.

On BOPET line as well the company is looking to kick-off few specialty products from the quarter one of ’24 which include window film, security film, FATG film and many others.

Moving to growth projects in flexible packaging, work on BOPP and CPP line 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 50%. Of course, it will happen in a phased manner. CPP and BOPP line will promote sustainability, as it will offer monolayer structure.

The capacity addition that is BOPET line, the specialized BOPET line which we did in September ’22 end, the proposed line and CPP line will allow company to further expand its specialty film portfolio.

Moving to the Specialty Chemicals, the company’s subsidiary into specialty chemicals has posted INR34 crore of sales during December ’22 quarter, which is close to 31% higher compared to December ’21 quarter. We expect FY22 to close between INR160 crores to INR170 crore of sales, with positive EBITDA. Beside inventory loss in quarter three specialty chemical subsidiary should post full-year profit for the FY23. The company has reached close to 75% capacity utilization on masterbatch film line. And of course the complementary adhesive business for the packaging segment is planned to be launched in-quarter four of FY23. This of course is going to add to topline, bottom line from the next year.

Moving to petcare division, Zigly, company’s direct-to-consumer petcare vertical, which was launched in September ’21, named Zigly is progressing as per the plan. The company has opened 11 experience centers. At the end of the quarter 3 besides sales-through the online channels, online portal as well as the online app. We have planned experience centers to increase to 15 numbers by the end of the March ’23.

The current monthly GMV generated is INR1.3 crore, which is targeted for 10 times growth in next 2 to 2.5 year. Zigly so far has served more than 10,000 customers with almost one-third repeat customers. Zigly is a valuation driven business which should create value for shareholders in coming years. Currently, quarterly EBITDA loss for petcare division is about INR4 crore. That because largely because of the higher growth. The unit level positive EBITDA for Zigly the company is looking in next 2 to 2.5 year.

Now moving to company’s growth plan and net debt position. The company is looking for close to INR500 crore to INR550 crore of CapEx by March 2025 mainly related to value-add CapEx from the BOPET line, CPP line, BOPP line, specialty chemicals and some in Zigly. The net debt stand at INR355 crore. We are expecting without even considering any bottom line addition from the new CapEx, the net-debt to EBITDA should remain between one to two times even at the peak level of it. That’s because of these expansion.

A quick update on the buyback. In December 2022 company announced buyback of shares from all — from shareholders, via the tender route with a total outlay of close to INR108 crore. The offer ended on 9 of February 2023, and payment issue do by 28 of February 2023.

I think with these updates now we would like the call to open for questions please.

Questions and Answers:

Operator

Thank you very much, sir [Operator Instructions]. The first question is from the line of Anshul Mittal from Care Portfolio Managers Private Limited. Please go-ahead.

Anshul Mittal — Care Portfolio Managers Private Limited — Analyst

Hello. Am I audible?

Operator

Yes.

Anshul Mittal — Care Portfolio Managers Private Limited — Analyst

Hi, sir, my first question is that, can you please explain the rationale behind holding high inventory during this period? And also, has it been fully accounted in this quarter or, there’ll be some more impact in following quarters.

Neeraj Jain — Senior Vice President (Chief Financial Officer)

Yeah, so during the last quarter, well, let’s say, especially from January till July everything was in shortage and the supply chains taking much more time during the transit. So for all the imported items, we had to keep higher inventory. And 4 July the supply chain started getting corrected. And even the raw-material prices started coming down. So we started correcting the inventory situation from September timeframe.

I would say, 70%, 80% of things have been cleared. Still 20%, 25%, 30% at best is still yet to get cleared, which should get here in the quarter 4.

Anshul Mittal — Care Portfolio Managers Private Limited — Analyst

So going forward also sir, we will be maintaining high level of inventory or considering the easing supply chain we are going to previous status?

Neeraj Jain — Senior Vice President (Chief Financial Officer)

Now there is no need. And in fact if you see the overall inventory, the inventory numbers have come down in this quarter versus the last quarter.

Anshul Mittal — Care Portfolio Managers Private Limited — Analyst

Okay, understood. Sir, during your presentation, you mentioned that the decrease in spread was due to slowdown in export demand and also an increase in supply. So sir, can you please elaborate on which of these factors had a greater impact. And in our previous call also, sir, you mentioned that only 25% of new capacity will be added in next three years of time. So how are we witnessing such a bigger impact in such a near-term?

Neeraj Jain — Senior Vice President (Chief Financial Officer)

There are two impacts. One is just the way we bought more material from January to July. Our export customers also did the same. And they started correcting their inventory again from September-October and therefore in the quarter 3 this year they bought much less than what they were buying earlier in the normal — in the past.

Your second question was largely that on the demand situation in India. The demand in India is quite strong, but there is bunching of capacities, especially in last 1 year, 1, 1.5 half years, 9 polyester lines have been added. Then last 1, 1.5 year around 4 BOPP lines have got added. Though the demand is quite strong but there is bunching and therefore supply became more than the demand.

In polyester now till ’25 there are only two new lines expected to come. And therefore the pressure will gradually get released from the polyester film business. As far as the BOPP is concerned, there are still some more lines to be added in next two years till ’25. In the next financial year there are only two lines. But after the next financial year, which is FY25 there are. I think 5 or 6 lines, I don’t remember the exact number. But there are more number of lines coming in FY25 in BOPP.

Anshul Mittal — Care Portfolio Managers Private Limited — Analyst

Okay, sir. So considering the spread, which has fallen to historically lower level, so do we see a bottom happening over here or will it stay over here for some time considering the increase in supply going forward?

Neeraj Jain — Senior Vice President (Chief Financial Officer)

I guess we can forecast that, but apparently polyester is suffering now for good five months, five to six months. And BOPP also, the margins have come down. So it’s a matter of time before some correction happens. The larger correction will obviously happen once the demand supply capacities get better. But in the short term, some improvements should certainly happen.

Now whether that happens in February or March or April, is anybody’s guess.

Anshul Mittal — Care Portfolio Managers Private Limited — Analyst

Okay, sir. So sir, considering the current economic slowdown, so as we discussed previously that our target to achieve specialty mix to 80% was by FY24. So are we still on that target, or will it get delayed?

Neeraj Jain — Senior Vice President (Chief Financial Officer)

As of now looks like that the run rate will reach to 80%. Obviously we have got a jolt in this quarter. We certainly expect to achieve the run rate within next financial year. What we are targeting is that can we reach to 80% for the full year volumes. But run rate is certainly expected even with this last quarter impact that we had, because any which ways, this is a temporary impact. It’s not a permanent impact.

Anshul Mittal — Care Portfolio Managers Private Limited — Analyst

Okay, sir. Understood. Sir, can you please share the figures of volume growth in both the segments, specialty and commodity for both sequential and annual periods?

Neeraj Jain — Senior Vice President (Chief Financial Officer)

Yeah, so we have already stated earlier that this year the specialty volume will remain flat, because what happened is last year we had substantial growth and part of it was because people bought more during last financial year. So this year, we’re not expecting a growth in the specialty looking at the current scenario it will be 2% to 3% plus, minus. As far as the quarter-to-quarter comparison, we had a de-growth in the last quarter, because of the inventory corrections that customers did.

Anshul Mittal — Care Portfolio Managers Private Limited — Analyst

Okay, sir. How much de-growth would be there — would that be?

Neeraj Jain — Senior Vice President (Chief Financial Officer)

Yeah, so a quarter before we were at 64%, 65%, while in the last quarter, we are at 57%.

Anshul Mittal — Care Portfolio Managers Private Limited — Analyst

So that is volume terms, right.

Neeraj Jain — Senior Vice President (Chief Financial Officer)

Yeah.

Anshul Mittal — Care Portfolio Managers Private Limited — Analyst

Okay, sir and also in commodity segment can you provide the same for annually?

Neeraj Jain — Senior Vice President (Chief Financial Officer)

I mean commodity there is — I mean, obviously whatever balance is left is commodity. So it’s a simple calculation.

Anshul Mittal — Care Portfolio Managers Private Limited — Analyst

Okay, that is right. Lastly sir, on Zigly front, given the economic slowdown, could you speak to whether we plan to continue with an aggressive approach in Petcare business going forward? And as Neeraj ji, mentioned that breakeven will take another two years going forward. Am I correct in that?

Pankaj Poddar — Group Chief Executive Officer

We do not see any slowdown in Zigly or even otherwise in India. In fact the Petcare business is going very strong and we will continue to invest in this business. These kind of businesses do take three to four years before it turns into profitability. And that is the forecast — or not even the forecast I would say. That’s how we feel today that next 2, 2.5 years we should be able to start breaking even, and then start making money.

Anshul Mittal — Care Portfolio Managers Private Limited — Analyst

Okay sir. Understood. That’s it for now. Thank you.

Operator

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

Varun Gupta — Augmenta Research — Analyst

Yeah, good afternoon, sir. Thank you for the opportunity. So first question, I would like to ask is, how have the commodity spreads moved in month of January and February?

Neeraj Jain — Senior Vice President (Chief Financial Officer)

They are running at similar level to quarter three as of now. There is no improvement. But obviously, as I said earlier that it’s already been six months — six, seven months since the time polyester is impacted and one quarter for BOPP, four, five months actually for BOPP now. So we do hope some better sense will prevail sooner than later.

Varun Gupta — Augmenta Research — Analyst

Okay, understood. One clarity, I would like on the inventory side is how much inventory of finished goods are we carrying as we exit Q3?

Neeraj Jain — Senior Vice President (Chief Financial Officer)

In terms of days in India we are roughly carrying what — yeah, roughly 15 days of inventory.

Varun Gupta — Augmenta Research — Analyst

15 days of inventory of finished goods.

Neeraj Jain — Senior Vice President (Chief Financial Officer)

That’s right.

Varun Gupta — Augmenta Research — Analyst

Yeah. Sir, you have mentioned that a lot of lines are going to be commissioned on the BOPP side and some lines are going to be commissioned on the BOPET side. So in your experience, when you see the supply demand balance to restore both for BOPP and BOPET?

Neeraj Jain — Senior Vice President (Chief Financial Officer)

See obviously, that depends on lot of factors. As such it’s very difficult to predict properly. But we feel that polyester given that only two lines will come up in next three years, so we feel polyester will largely get balanced in a year’s time at best. BOPP next year, there will be only two lines of BOPP. There will not be so much extra capacity next year. But FY25 we do see some extra capacity happening there.

Obviously. I do expect that the industry players will start exporting more, because some players in the past have not exported as much as the way Cosmo does it. So we feel better sense will prevail and there’ll be more exports, and therefore there’ll be faster rationalization of demand and supply. But polyester largely one year and BOPP next year should be largely balanced. A year thereafter there’ll be little bit of extra supply and FY26 BOPP will again be rationalized.

Varun Gupta — Augmenta Research — Analyst

Okay, so what are the spreads that are lagging on the BOPET side that we experienced in Q3 and what are they now?

Neeraj Jain — Senior Vice President (Chief Financial Officer)

As I said, there are no changes. The spreads are fluctuating anywhere between INR11 to INR13, INR14 and obviously they are barely enough to even cover the variable cost as of today.

Varun Gupta — Augmenta Research — Analyst

Okay, understood, sir. That’s it from my side. Thank you.

Operator

Thank you. The next question is from the line of Yash Dantewadia from Dante Equity Research. Please go ahead.

Yash Dantewadia — Dante Equity — Analyst

Hello, hi. Congratulations on a good set of numbers in a difficult environment. My question is refer to page number 14 of your investor presentation. Actually you have put specialty and semi-specialty volumes in one set, and you put commodity volumes in another set. But the difference between your semi-specialty margins and your specialty margins is almost 40% and 80%. So it’s a lot of difference. Would you be able to separate specialty and semi-specialty volumes with that data?

Neeraj Jain — Senior Vice President (Chief Financial Officer)

I mean, already we have disclosed quite a bit of information in our investor presentation. Anything beyond at this stage looks difficult.

Yash Dantewadia — Dante Equity — Analyst

Okay, and you said how are the export volumes just now, for this quarter? Are they picking up, Europe and US as well?

Pankaj Poddar — Group Chief Executive Officer

Yes, we did see an improvement from January. It has still not reached to the earlier levels. But definitely there is an improvement from January and February is even better.

Yash Dantewadia — Dante Equity — Analyst

And what was your capacity utilization for this quarter?

Neeraj Jain — Senior Vice President (Chief Financial Officer)

Capacity utilization in the current quarter is running full.

Yash Dantewadia — Dante Equity — Analyst

Is running full. And the last quarter?

Neeraj Jain — Senior Vice President (Chief Financial Officer)

Yeah I saying the current quarter means the last quarter only, which is quarter 4.

Yash Dantewadia — Dante Equity — Analyst

Okay, okay. Thank you so much.

Operator

Thank you. The next question is from the line of Anil Nahata, an Individual Investor. Please go ahead.

Anil Nahata — Individual Investor — Analyst

Yeah. Good evening. To start with I would like to understand, I believe we are by and large on the plans we envisage for FY23. What kind of a rollout we are looking forward to in ’24?

Pankaj Poddar — Group Chief Executive Officer

Yes, so we will continue to scale up digital through opening more warehouses, so that we can give faster delivery all over the country. Similarly, we will also increase our retail presence. Right now, our retail presence is only in Delhi NCR, and Chandigarh. We will scale it up. Now we are in the process of scaling it up to Bangalore and after Bangalore to Hyderabad and Mumbai. So in both the areas we will continue to scale up to become a pan-India player.

Anil Nahata — Individual Investor — Analyst

In terms of slightly more quantification, would it be a fair assumption to make that by the end of FY24 the store count will be in the range of something around 45, 50.

Pankaj Poddar — Group Chief Executive Officer

I don’t think so, that we will touch that number as of now. We are looking at aggressive expansion, but not as much aggressive that we end up doing lot of mistakes. So I feel that this year we have opened around 15 stores and next year, we will look at opening anywhere like 20 to 25 stores and not beyond.

Anil Nahata — Individual Investor — Analyst

Okay. Got that. And today what I would like to understand is that the ratio of sales between the stores and online. Is it something like 75%-25% or it is slightly different from that?

Pankaj Poddar — Group Chief Executive Officer

It is 75%, 25%. It was earlier lesser. Last two months the digital has started picking up, in spite of the fact that we have opened more stores. So our business strategy is now shaping up very well, with the app has been launched, the website has — lots of improvements have happened in that. And it’s our ongoing journey because website and app we are the first company to have an app for Petcare in India and we continue to do a lot of improvements to make really a wow experience for our customers.

So that’s an ongoing process, but every month we are seeing digital is growing actually faster than retail, in spite of the fact that retail also, we are opening lots of stores. So digital is going through a very, very good growth right now. And obviously the numbers are still small. So normally to that extent, the percentage growth is looking better.

Anil Nahata — Individual Investor — Analyst

Okay, and Pankaj ji, if you can basically have some data around — or rather expectation around.

Pankaj Poddar — Group Chief Executive Officer

We think our store should breakeven. Yeah, breakeven, we said that we at this stage we expect 2, 2.5 years.

Anil Nahata — Individual Investor — Analyst

No, no, I’m asking at a store level. Typically, what is the kind of a timeframe, you would look for a typical store to breakeven.

Pankaj Poddar — Group Chief Executive Officer

Yeah, that clearly depends on store to store. Some stores may become profitable in 1, 1.5 years’ time. While some stores may even take three years. So it is a lot dependent on that. And we are also right now experimenting with different sized stores with different services at different stores. So there a lot of work going on in the background to understand the customer behavior in different parts of the geography.

And so this is a learning curve for us, and I would say anywhere between 1, 1-5 years to 3 years is what we feel that each store will start getting profitable.

Anil Nahata — Individual Investor — Analyst

Okay. And previously we had also spoken about some exclusive tie-ups with some brands and all that. Can you give some idea about that? How is it progressing?

Pankaj Poddar — Group Chief Executive Officer

Yes, so that’s an ongoing journey. We — obviously as we scale up, see, right now, the challenge is that for many customers — many suppliers, especially outside India, or even within India, we cannot give them a full container load or a full truckload. As we continue to scale up the business we will keep adding many more partners. As of now, we’ve already added some partners who are exclusive to Zigly. And as we — as the brand becomes — I mean, I tell you the best thing is now suppliers from all over the world have started writing to Zigly. Recently suppliers from Japan wrote to us.

So the noise is going everywhere. And I’m sure as we scale up and as we become capable enough on our own to buy container loads, many more suppliers around the world would like to tie-up with us.

Anil Nahata — Individual Investor — Analyst

Fair enough. And we are looking forward to Zigly coming into Mumbai also where I stay. So and moving on from Zigly — sorry?

Pankaj Poddar — Group Chief Executive Officer

I’m saying, you will hear news from us within next few months.

Anil Nahata — Individual Investor — Analyst

Great. On the BOPP — sorry BOPET front, when we spoke that this line is primarily for specialty products. I think this financial year we are not going to see any specialty products, but from FY24 when you start looking at specialty product, I mean, how quick a ramp-up of specialty can happen on an approximate basis?

Pankaj Poddar — Group Chief Executive Officer

See, we should expect that every year anywhere between 10% to 15% volumes will get converted into specialty. And as each year passes that run rate will get faster for next 3, 4 years. So maybe first year you have 10% 15%. Second year, we may have 15%, 20%. Third year 20% to 25% because as we gain customers’ confidence than we normally see that more customers gets added.

And the other beauty is that people know us in BOPP specialty, so for some customers, this should ideally be a faster switch. And I can tell you honestly, that the film quality that Cosmo is giving is really one of the best in the country. Customers have really loved it. The first batch is going to any customer and is absolutely lacking the quality which Cosmo is giving. It is definitely different from what is available in the market today.

Anil Nahata — Individual Investor — Analyst

So you mean to say even at a commodity level you should be able to demand a slight premium?

Pankaj Poddar — Group Chief Executive Officer

I feel so. Till now we have not taken that premium. But personally the way the quality is coming, even the large customers the first order itself they are gaining lot of confidence, and the next order is much bigger from them. It’s very clear that they are liking our quality. And at some point in time, we will be able to charge a premium.

Right now, we have to make sure that the line is fully utilized, even in our — even in a overcrowded market and the best part is even in an overcrowded market, we were able to run the line at full, almost close to full capacity last month.

Anil Nahata — Individual Investor — Analyst

Great. And sir, as the specialty products particularly the heat control films and all, will it be a B2B play or a B2C play?

Pankaj Poddar — Group Chief Executive Officer

Yeah, it will be a B2C play. Globally it will be a B2B play.

Anil Nahata — Individual Investor — Analyst

So are we in the process of setting up the distributor network and branding and everything associated with it?

Pankaj Poddar — Group Chief Executive Officer

It is a bit early right now because the product launch will happen in May as such. And it’s a very, very technical product. There’s lot of different SKUs. We will start this. We are in the process of hiring sales team right now. We have hired a couple of people. And first is the confidence building. And there also we feel that we’ll be able to provide a very good product to the customers, because all our assets, right from day one been planned to do this.

So we will be able to give an excellent quality, but it will take time and we’ll — first we would like to have few distributors, let them check the quality, give them their feedback and based on the learnings then we will continue to scale up. So I feel that by March ’24 only we will have reasonable number of distributors across the country.

Anil Nahata — Individual Investor — Analyst

So March ’24 correct, one year from now. And you’re also going to explore this? So it will be a B2B.

Operator

Mr. Nahata, I would request you to kindly rejoin the queue sir. There are many on the line.

Anil Nahata — Individual Investor — Analyst

Will do.

Operator

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

Nirav Savai — Abakkus Asset Management — Analyst

Hello sir. Thanks for the opportunity. I just missed out on the new capacity in BOPP and BOPET which is going to come in ’24 and ’25. Can you please repeat the same?

Pankaj Poddar — Group Chief Executive Officer

Till ’25 BOPET as of now, there are only two lines to come up. In BOPP put together I think there are seven or eight lines, which have to come up in the next — till ’25.

Nirav Savai — Abakkus Asset Management — Analyst

Okay, so you said about ’24 you’ll have two lines, followed by some five lines in ’25, right of BOPP?

Pankaj Poddar — Group Chief Executive Officer

’24 two lines and till December ’25 five lines.

Nirav Savai — Abakkus Asset Management — Analyst

Okay, and if we were to see in terms of the new capacity which is coming in from the existing capacity, how much would it translate into, this seven lines in BOPP, compared to what the capacity currently is?

Pankaj Poddar — Group Chief Executive Officer

Some are smaller lines and some are larger lines. But put together it should be to close to, I would say 250,000, 300,000 tons.

Nirav Savai — Abakkus Asset Management — Analyst

About 200,000, 250,000. 250,000 to 300,000 tons. Okay, and what would be for BOPET?

Pankaj Poddar — Group Chief Executive Officer

BOPET should not be much. It would be 50,000 to 60,000 tons.

Nirav Savai — Abakkus Asset Management — Analyst

All right. And then, sir, you said that this specialty film business would be largely be a B2C kind of a business. And I mean in your internal assessment, how much time will it take to scale-up, because initially it would be pure commoditized. Will it take two to three years at least to reach a certain size and scale in this B2C kind of a business?

Pankaj Poddar — Group Chief Executive Officer

Yeah, these kind of security window film solutions does take time. It does not scale up overnight. You have to market the product nicely, you need to have a strong customer base. And the other important thing is, lot of customers today do not have any knowledge about technicalities of window film. Still many customers do not know why they should have window films. And even if they know they do not know why there are so many varieties in window film.

So people tend to use whatever their applicator says and I personally have seen many applicators also do not have enough knowledge to guide the customer properly. That is the thing that we want to really change in the country where every applicator is educated enough so that they can guide the customers properly. These films can make a lot of difference to the customers. But unfortunately given the lack of knowledge the market for this product is still not as big as the potential is.

I feel that the total market is not even 5% of what it should be. So it will require many years of knowledge transfer to the customers, advertising it well marketing it well. Build new customers for the Indian market. So yeah, it will be a medium term journey from that perspective.

Nirav Savai — Abakkus Asset Management — Analyst

And so initial growth on the specialty side in BOPET, would it be purely led from exports or where we would be B2B and would that amount to be much faster compared to setting up the entire distribution network, creating a market in India?

Pankaj Poddar — Group Chief Executive Officer

Yeah, so see window film is one of the specialties we are talking about. Shrink levels is again, a very large segment for us. And that itself will help scale up, both in India and globally. And similarly, there are lot of other things which are very parallel to our BOPP business like thermal lamination film, made out of polyester, cable films made out of polyester.

So there are industries where we already have a presence. And it is just that we have to enter with our BOPET film. We’ll be able to — there even synthetic paper for that matter. So there are certain clear voids where Cosmo can play a part.

Nirav Savai — Abakkus Asset Management — Analyst

Right, right. So this would be more or less continuing scaling up the existing products with the newer products will take time to ramp up.

Pankaj Poddar — Group Chief Executive Officer

So then, the other thing should still be scaling up faster. B2C obviously is a journey, which every company takes some years to achieve scale.

Nirav Savai — Abakkus Asset Management — Analyst

Right, right. Got it, sir. That’s it from me. Thank you.

Operator

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

Jiten Parmar — Aurum Capital — Analyst

Yeah, good afternoon. My question is on the mix of specialty versus commodity. Since last couple of quarters the share of specialty and semi-specialty has come down from 69% to 55%. But presentation still mentions or maintains that we are targeting 80% by 2024. So just wanted to know what are your thoughts on that?? I mean, is that still achievable or it will be some more time for that to happen?

Pankaj Poddar — Group Chief Executive Officer

See, obviously, we are not changing that target for us internally. Obviously this is temporary blip which has come because of the inventory corrections which our customers have done. So we are definitely working towards achieving our targets. I had earlier said that from a run rate perspective, we do see we should be able to do it next year. But whether the full-year average will be 80%, at this stage it is indeed a very challenging target. But the management team is working out overnight to try and get this done.

Jiten Parmar — Aurum Capital — Analyst

Okay, and what about industry-wide capacity additions which are scheduled for the next couple of years. Is it — is there a —

Pankaj Poddar — Group Chief Executive Officer

Yeah, we have answered it. You can see in the commentary later.

Jiten Parmar — Aurum Capital — Analyst

Okay, okay, thank you. Thanks. That’s all. That’s all. Thanks, bye.

Operator

Thank you. [Operator Instructions]. We have the next question from the line of Vipul Kumar Shah from Sumangal Investment. Please go-ahead.

Vipul Kumar Shah — Sumangal Investment — Analyst

Hi, sir. What is the cumulative investment in date in the film vertical? And have you — have we appointed any CEO for that vertical, sir?

Pankaj Poddar — Group Chief Executive Officer

There is clearly a business head for this vertical, who is managing it from day one. And obviously he is a specialist in this category. As far as investments are concerned till now we have invested INR50 crores, including investment in infrastructure and all the losses that we’ve incurred in this business.

Vipul Kumar Shah — Sumangal Investment — Analyst

So what will be the cumulative losses, sir? Hello?

Neeraj Jain — Senior Vice President (Chief Financial Officer)

It is anywhere between INR30 crores, INR35 crores.

Vipul Kumar Shah — Sumangal Investment — Analyst

INR30 crores, INR35 crores. Okay, and can you share the investment which you plan to make for next financial year in this vertical?

Pankaj Poddar — Group Chief Executive Officer

Yes, sir, what we expect is over next two years this INR50 crores can say become roughly INR150 crores, and then we are expecting that within next 2, 2.5 years business should start to breakeven.

Vipul Kumar Shah — Sumangal Investment — Analyst

And sir, last, you have mentioned this contribution margin. So it is contribution margin means, it’s a gross margin only, right.

Neeraj Jain — Senior Vice President (Chief Financial Officer)

Yeah.

Vipul Kumar Shah — Sumangal Investment — Analyst

Okay sir. Thank you and all the best.

Operator

Thank you. The next question is from the line of Rahil Shah, an Individual Investor. Please go ahead.

Rahil Shah — Individual Investor — Analyst

Hi, sir. As for the next financial year are you able to give any outlook or guidance in terms of revenue and EBITDA margins for the business at a whole?

Neeraj Jain — Senior Vice President (Chief Financial Officer)

We normally do not believe in giving such guidances. But as I said earlier that we just started to stabilize now, when it comes to customer demand in overseas market. So at this stage, obviously it is a commodity content where it is very difficult to give any forecast. But in general, we expect that next quarter should be somewhat better than the current quarter?

Rahil Shah — Individual Investor — Analyst

Okay, thank you. And all the best.

Operator

Thank you. The next question is from the line of Amit Agarwal, an Individual Investor. Please go ahead.

Amit Agarwal — Individual Investor — Analyst

Good afternoon, sir. Sir, my question is regarding BOPET line. So it’s a new line, what is the monthly run rate we have achieved in the last three or four months? And sir by definitely confidence sir, is it right to understand that BOPET margin right now, commodity business is less than BOPP, this INR13 versus INR17? Am I right?

Pankaj Poddar — Group Chief Executive Officer

You are right that BOPET is lesser than BOPP right now. And as I said earlier that last month we were almost able to run, close to a 100%. So every month we are scaling up on this.

Amit Agarwal — Individual Investor — Analyst

What is the turnover? Can you give the guidance for that monthly run rate?

Neeraj Jain — Senior Vice President (Chief Financial Officer)

Yeah, the monthly turnover is close to 20 — close to INR25 crore.

Amit Agarwal — Individual Investor — Analyst

INR25 crore. Another question is, sir, China has opened up after COVID. So does that help in getting better rates for BOPP? Or doesn’t make any difference?

Pankaj Poddar — Group Chief Executive Officer

China does not impact our business.

Amit Agarwal — Individual Investor — Analyst

China doesn’t impact our business, even in export market also?

Pankaj Poddar — Group Chief Executive Officer

Yeah, yeah, it does not impact. There are hardly one or two categories where it is a small impact. Otherwise China does not impact us.

Amit Agarwal — Individual Investor — Analyst

And my last question is regarding — sir, if I see your standalone results and consolidated results, sir the difference between the turnover is INR100 crores this quarter. Usually, it used to be INR50 crores every quarter, between the consolidated results and the standalone turnover. Could you explain that?

Neeraj Jain — Senior Vice President (Chief Financial Officer)

You see, it’s a factor of two aspects. One is how much sales the overseas subsidiaries are doing. And second is, how much sales standalone India is doing, overseas subsidiaries, because that needs to be eliminated. So whatever figure of difference you will see between consolidated sale and standalone sale, will be net of these two items. So to answer your question last quarter, the December ’22 quarter the sales from India operation to overseas operations was low.

Amit Agarwal — Individual Investor — Analyst

Okay. It is one-off thing or this is the usual thing going on in future?

Pankaj Poddar — Group Chief Executive Officer

Of course, one-off, because of the lower demand for which we discussed for the US which should get corrected from the quarter four.

Amit Agarwal — Individual Investor — Analyst

And I think — but previous question had asked about the investment made in Petcare? Is it INR50 crores or INR15 crores till now in Petcare business.

Neeraj Jain — Senior Vice President (Chief Financial Officer)

So Pankaj mentioned INR50 crores investment so far, 5-0.

Amit Agarwal — Individual Investor — Analyst

5-0. Okay. Thank you. Thank you.

Operator

Thank you. The next question is from the line of Nayan Gala from Etica Wealth. Please go ahead.

Nayan Gala — Etica Wealth — Analyst

Yeah, good evening, sir. Can you hear me?

Operator

Yes.

Nayan Gala — Etica Wealth — Analyst

Yeah. So sir. I have a couple of questions. One is in terms of the demand. So during the last couple of quarters we have seen many global markets showing less signs of the demand. So are we seeing some stability over there in terms of some revival in demand?

Pankaj Poddar — Group Chief Executive Officer

As I said earlier, demand is not impacted. It is just the inventory corrections. And to some extent it has already happened in quarter three. There is some balance left, which should get over in quarter four.

Nayan Gala — Etica Wealth — Analyst

Okay and in terms of which geographical areas, where we can expect to increase our revenues from?

Pankaj Poddar — Group Chief Executive Officer

US and Europe, those are the two regions which were impacted.

Nayan Gala — Etica Wealth — Analyst

Okay, okay. And in terms of sir, like we are going to launch the heat control film. So by when can we expect that? And what will be the target turnover that we expect on that particular product?

Pankaj Poddar — Group Chief Executive Officer

This will be done sometime in May ’23 end. And this is product, it’s a B2C product in the Indian market. It will — first year it will start to grow. So at this stage it’s difficult to give a forecast for this.

Nayan Gala — Etica Wealth — Analyst

Okay. And in terms of margins how are the margins for this particular product?

Neeraj Jain — Senior Vice President (Chief Financial Officer)

The margins also initially — I mean, this product has a very good margin. First of all, let me say that. But first year will be a year with a lot of trials and lot of samplings. So first year we may not have any excellent margin on this. As we continue to build this business this product will have one of the highest margins among all our product lines.

Nayan Gala — Etica Wealth — Analyst

Okay. And any other player who would be manufacturing this in India?

Pankaj Poddar — Group Chief Executive Officer

Yeah, there is one player. Majority of the film is imported currently in India. But there is already one player who manufactures it. But we feel that we will be very, very superior in terms of the overall quality.

Nayan Gala — Etica Wealth — Analyst

Okay, and do we plan to like — the plan is to replace the import with the domestic manufacturing?

Pankaj Poddar — Group Chief Executive Officer

The plan is much more. Today, we feel that most of the Indian building does not have a heat control film. We feel there is a huge opportunity to educate the customers and build the market. So it is not just replacing imports because most of the imports are happening for really low quality films. The plan is to really increase the market base itself by many times.

Nayan Gala — Etica Wealth — Analyst

Okay. All the best sir. Thank you.

Operator

Thank you. There is a follow-up question from the line of Anil Nahata, an Individual Investor. Please go ahead.

Anil Nahata — Individual Investor — Analyst

Yeah. So my last question on the BOPET was, we had announced a INR30 crores, INR31 crores CapEx for the specialty films on the electronic side. Is that a part of the overall BOPET plan, or is it something different?

Pankaj Poddar — Group Chief Executive Officer

It is not with BOPET. This is something else.

Anil Nahata — Individual Investor — Analyst

Okay, so can you give some guidance around that? And when is that coming up and what kind of business we see in that?

Pankaj Poddar — Group Chief Executive Officer

We will disclose it closer to the date. But this should be launched within quarter one of next financial year.

Anil Nahata — Individual Investor — Analyst

Okay. So it’s basically four, five months away from now?

Pankaj Poddar — Group Chief Executive Officer

Yeah, four, five months away.

Anil Nahata — Individual Investor — Analyst

Okay. And the last question for me, was that when we look at the specialty film, ratio for — in the BOPP, this quarter the turnover itself was lower and the ratio was lower still. I mean as the volume ramps up, again, I mean there will be a far bigger bridge to cover in the next coming quarters. So already two people have asked about that the aspect of about reaching 80% in the next one year. But my question is slightly different.

When we look to your reports, you started reporting between specialty and semi-specialty. And probably in one of the interviews, you said that it is around fifty-fifty. How do you see this ratio moving up going forward also?

Pankaj Poddar — Group Chief Executive Officer

Yeah, so see obviously both these segments are equally important. Obviously again, specialty makes more money. So every company would like to grow specialty more. But having said that, we would not like to leave the opportunity on the table, even for the semi-specialty, because that film also makes more margin than commodity. It’s a very different thing. We are working on both all the time.

Anil Nahata — Individual Investor — Analyst

Okay. Okay, that answers my question. Thanks a lot and all the best.

Pankaj Poddar — Group Chief Executive Officer

Thank you.

Operator

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

Neeraj Jain — Senior Vice President (Chief Financial Officer)

Well, to summarize, I think company’s strong specialty film portfolio should deliver superior returns in coming quarters and years. Although there could be near-term outlook, BOPP and BOPET is expected to be challenging. We are working on several R&D projects and film business which should continue to prove out. Zigly is rapidly becoming well-known one among the pet parents benefiting all pet lovers and company’s stakeholders. Specialty Chemicals division should double its revenue from the last year while actively focusing on new product launches.

At the end statutory declaration. Certain statements in this concall may be forward-looking statements. These statements are based on management’s current expectations and are subject to uncertainty and changes in circumstances. These statements are not guarantees of the future results. Thank you very much for joining. We really look-forward. Thanks.

Operator

[Operator Closing Remarks]