Cosmo First Ltd Q3 FY23 Earnings Conference Call Insights

Key highlights from Cosmo First Ltd (COSMOFIRST) Q3 FY23 Earnings Concall

Management Update:

• [00:04:08] COSMOFIRST said that while commodity margin has come down broadly to one-third of last year margin, there is no impact on specialty margins.

• [00:05:28] The company also said that in BOPET line, margins were under pressure in overseas subsidiaries mainly due to reduced gap between India and US RM price index and weakening of FX against dollar, mainly in Japan and Korea.

• [00:07:01] The company intends to focus on its specialty film portfolio in order to achieve upward margin correction in FY24.

• [00:11:59] COSMOFIRST expects Specialty Chemicals for FY23 to close between INR160-170 crore of sales, with positive EBITDA.

• [00:14:12] The company plans to invest between INR500-550 crore in value-added CapEx in BOPET line, CPP line, BOPP line, specialty chemicals and Zigly by March 2025.

Q&A Highlights:

• [00:16:28] Anshul Mittal of Care Portfolio asked why high inventory was held in 3Q23 and will it have further impacts in upcoming quarters. Neeraj Jain CFO said the supply chain had issues from Jan. to July, causing the company to hold higher inventory for imported items. In September, the supply chains and RM prices started improving, and 70-80% of the inventory has been cleared. The remaining 20-30% should arrive in 4Q23.

• [00:20:51] Anshul Mittal of Care Portfolio enquired if COSMO is still on target to achieve a specialty mix of 80% by FY24, considering the current economic slowdown. Neeraj Jain CFO replied the run rate is expected to reach 80% within FY24. COSMOFIRST is targeting a full year volume of 80%. The impact is not permanent, so the run rate is expected to recover.

• [00:21:29] Anshul Mittal of Care Portfolio asked about the volume growth in specialty and commodity sequentially and YoY. Neeraj Jain CFO answered that in FY23, the specialty volume is expected to remain flat or 2-3% plus minus. QtoQ COSMOFIRST saw a de-growth due to inventory corrections from customers.

• [00:22:50] Anshul Mittal of Care Portfolio asked is Zigly continuing an aggressive approach in the Petcare business despite economic slowdown and will it take 2 more years to reach breakeven. Pankaj Poddar CEO replied that Zigly petcare business is going strong and COSMOFIRST expects to break even and start making money in the next 2-2.5 years.

• [00:23:52] Varun Gupta with Augmenta Research enquired about the commodity spreads moved in month of January and February. Neeraj Jain CFO said COSMOFIRST is running at a similar level to 3Q. There has been no improvement yet, but hopes better conditions to come soon.

• [00:25:04] Varun Gupta with Augmenta Research asked when does the company expects supply demand balance to restore for BOPP and BOPET. Neeraj Jain CFO said polyester is expected to be balanced in one year’s time, while BOPP will take two years. Exporting should help rationalize demand and supply faster.

• [00:27:53] Yash Dantewadia from Dante Equity asked about export volumes outlook.  Pankaj Poddar CEO answered that COSMOFIRST saw an improvement from January but hasn’t reached the earlier levels.

• [00:28:41] Anil Nahata asked about the rollouts for FY24. Pankaj Poddar CEO answered that COSMOFIRST will continue to scale-up digital presence by opening more warehouses and increasing retail presence in Delhi NCR, Chandigarh, Bangalore, Hyderabad, and Mumbai.

• [00:29:33] Anil Nahata asked that if the store count would reach 45-50 by FY24. Pankaj Poddar CEO replied that COSMOFIRST won’t touch that number as of now, but added that it’s aggressively expanding. This year, the company opened 15 stores and next year it plans to open somewhere between 20-25 stores.

• [00:33:47] Anil Nahata enquired how fast the ramp-up of specialty can happen from FY24. Pankaj Poddar CEO answered that each year 10-15% of the volume will get converted into specialty, and as time goes on this rate will increase to 20-25%. Cosmo is providing excellent film quality, which customers have enjoyed, making it easier for customers to switch.

• [00:35:33] Anil Nahata asked that on the specialty product, mainly the heat control films, if it’s a B2B play or a B2C play. Pankaj Poddar CEO answered that it will be a B2C play and globally it will be a B2B play.

• [00:41:49] Jiten Parmar from Aurum asked if the share of specialty and semi-specialty of 80% by 2024 is still achievable. Pankaj Poddar CEO replied that the company is not changing the internal targets and are still working towards achieving the targets, though it may be a challenging target.

• [00:45:31] Rahil Shah asked about revenue and EBITDA margin outlook for FY24. Neeraj Jain CFO said it cannot give any guidance as the customer demand in overseas markets is still stabilizing, but expects it to be better than the current quarter.

• [00:47:59] Amit Agarwal asked about the increased difference in turnover number between consolidated and standalone in 3Q23. Neeraj Jain CFO replied that the difference between consolidated sales and standalone sales in 3Q23 was due to lower sales from India operations to overseas operations.

• [00:49:23]  Nayan Gala at Etica Wealth enquired if COSMOFIRST is seeing any signs of stability in terms of a revival of demand in global markets. Neeraj Jain CFO clarified that demand is not impacted, it is just the inventory corrections which should get resolved in 4Q23.