Cosmo First: Expanding Horizons and Driving Growth in Speciality Films, Speciality Chemicals, and Petcare Industries.

Company Description:

Cosmo First Ltd., established in 1981, is a leading company in the BOPP Films Industry in India. It is promoted by Mr. Ashok Jaipuria and is the largest exporter of BOPP films from India. The company is the world’s largest producer of thermal lamination films and the global second largest player in specialty label films. It is also the world’s largest supplier of industrial application films. With a good mix of specialty and commodity films, it is among the top four players globally in BOPP specialty films. The company has diversified into specialty chemicals and ventured into the D2C pet care business with its brand “ZIGLY.” Cosmo First has strong financials, a focus on R&D, and a favourable ESG and sustainability rating.

Business Segments:

• Specialty Films Business: Cosmo First Ltd. has a strong focus on the specialty films segment, this segment includes various specialty products, such as speciality label films, thermal lamination films, and industrial application films. Cosmo First holds a significant market share in each of these product categories, making it a key player in the industry.
• Specialty Chemical Business: The company offers a range of specialty chemical products, including masterbatch, coating chemicals, and adhesives. With a focus on quality and innovation, Cosmo First aims to meet the specific requirements of diverse industries such as packaging, coatings, and adhesives.
• D2C Petcare Venture: Zigly is Cosmo First Ltd.’s D2C (Direct-to-Consumer) pet care venture, operating as a digital-first omni-channel platform. Zigly aims to cater to the needs of pets at every stage of their lives and is focused on building India’s largest pet care ecosystem.

Performance in Q4FY23:

• In Q4FY23, Cosmo First Ltd. demonstrated its commitment to expanding its specialty and semi-specialty films portfolio, which is a high-margin category for the company. Despite facing supply chain issues and geopolitical crises in certain export markets, the company aimed to maintain its speciality film sales. While commodity films margins, both BOPP and BOPET, experienced a decline during the quarter, Cosmo First, with its focus on speciality films, was able to withstand the margin pressure and outperform the industry. The company anticipates an improvement in the coming months, putting an end to the consecutive quarterly decline.
• Additionally, Cosmo First’s Petcare vertical continued its rapid growth, achieving a monthly run rate revenue of Rs. 2 crores through its experience centres and expanding online presence. The company is also finalizing the acquisition of an online pet care business, which is expected to further accelerate the growth of the Petcare vertical.
• The Speciality Chemical subsidiary is set to launch new adhesives, contributing to the subsidiary’s growth in FY23-24, along with healthy growth in the masterbatch vertical.
• Cosmo First maintains a strong balance sheet with substantial cash reserves and a net debt to EBITDA ratio of about one time. The company’s commitment to providing returns and sharing prosperity with shareholders is reflected in the recommended dividend of Rs 5 per equity share for FY22-23, along with the 1:2 bonus issued in June 2022 and a share buyback in February 2023. Despite the challenging outlook for the BOPP and BOPET industry, Cosmo First’s focus on specialty films is expected to position the company as a leader in the industry.

Opportunities:

• Cosmo First Ltd. is presented with several opportunities for growth and expansion across its diversified businesses. The company aims to achieve a target of 20% CAGR in topline growth over the next three years. The potential high growth engines for Cosmo First include its Speciality Films, Speciality Chemicals, and the digital-first, D2C Petcare business.
• In the Speciality Films segment, Cosmo First plans to further expand its speciality portfolio, with a current volume of 62% and an annual growth rate of 13% over the last four years. The company targets a volume of over 80% from speciality films by the end of 2025. To support this growth, Cosmo First has plans to increase its capacity, including the specialized BOPET Line in Q3 of FY23, the CPP Line by FY25, and the BOPP Line by H1 of FY26. The company also emphasizes research and development (R&D) and sustainability, with a team of over 30 highly qualified polymer and chemical scientists. Furthermore, Cosmo First holds eight current patents with more in the pipeline. With a strong financial position, including a net debt/EBITDA ratio of one times and a net debt/equity ratio of 0.3 times, the company is well-positioned for continued growth in the Speciality Films segment.
• The Speciality Chemicals business offers additional growth opportunities for Cosmo First. The company has a masterbatch plant with 75% captive consumption and 25% outside sale, and plans to expand this facility within the next year. Cosmo First also intends to scale up its Coating Chemicals business in the coming years. Additionally, the company is developing a complementary Adhesive business for packaging, lamination, and labels, expected to be launched in FY24. Cosmo First targets a 25%+ return on capital employed (ROCE) for its Speciality Chemicals business.
• In the Petcare segment, Cosmo First recognizes the untapped potential of the industry, which is growing at a rate of 25% or more. With its D2C digital-first omni-channel presence in pet products and services, the company has already achieved a monthly Gross Merchandise Value (GMV) of Rs. 2 crore through its 15 experience centers and online platform. Cosmo First plans to expand its experience centers to 100+ within the next couple of years. Moreover, the company intends to demerge its Petcare vertical into a separate company in the medium term, indicating its long-term commitment and focus on this high-growth sector.

Overall, Cosmo First Ltd. is well-positioned to capitalize on these opportunities across its Speciality Films, Speciality Chemicals, and Petcare businesses. With a strong financial foundation, a focus on R&D, and plans for expansion and diversification, the company is poised for continued growth and success in the coming years.