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Report By: Surbhi Bagaria – surbhi@dynamiclevels.com
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Cosmo Films- A Turnaround Story
Page 2
Cosmo Films Ltd
3
Company Background
4
Product Portfolio
5
Packaging Industry-India
6
Factors affecting Growth
8
Company Financials
9
Peer Comparison
13
Shareholding Pattern
14
Company Future Outlook
15
Cost Optimization
16
Cosmo Valuation & Investment Rationale
17
Source: Company, www.dynamiclevels.com
CMP Rs 360
Target: 450
FY17P/E: 8.9x
Cosmo Films Ltd.
Cosmo Films Ltd is a leading manufacturer in flexible packaging with wide
range of products in its portfolio. It was the first to manufacture Bi-axially
Oriented Polypropylene Films (BOPP) in India with 20% market share. Cosmo
has manufacturing units in India, Korea, Japan and US and customers across
80 countries around the globe.
Dynamic Levels is positive on the prospects on Cosmo films as:

In FY 16 the Cosmo maintained its topline at par compared to last
year but reduced the expenditure by 100 Cr from 1577 Cr to 1465 Cr
as the cost of raw materials went down from 1122 Cr to 1002 Cr due
to fall in crude oil price which is a major part of expenditure for
packaging industry.

Finance Cost went down by 9.8 Cr from 39.88 Cr to 30.18 Cr
indicating reduction in debt of the Cosmo.

PAT increased from 27.66 Cr to 96.24 Cr i.e. up by 248% YoY whereas
price has gone up by 386% from low of 84 to 408.

The share is still trading at a low PE of 8.91 compared to Industry PE
of 18.73

To reduce the impact to crude price volatility COSMO is shifting its
focus to specialty.

India Ratings Upgrades Cosmo Films long term credit rating to ‘IND A’
from previous rating of ‘IND A-’

COSMO global BOPP specialist has announced plans to install a new
BOPP line at the Karjan plant site near Vadodara by 2017 which will
increase the annual production capacity by around 40%.

Demand for BOPP films is expected to increase especially in FMCG
sector
Page 3
COSMO FILMS Share Price Performance
EXCHANGE SYMBOL
COSMOFILMS
Current Price *
361.60
Face Value
10
52 Week High
408
(11-5-16)
52 Week Low
83.95
(11-5-15)
Life Time high
408
(11-5-16)
Life Time low
3.62
(04-9-98)
Average Daily
13.68
Movement
Average Volume
335331
1 Month Return
22.68
(%)
P/E Ratio (x)
8.91
Book Value
195.22
Market Cap(Cr)
770.45
% of Promoter
NIL
holding pledged
Current Capitalization (Millions)
Share Price (inr)
369.1
Shares Out.
194
Market Capitalization
7,175.3
(inr)
- Cash & Short Term
323.5
Investments
+ Total Debt
3,439.5
+ Pref. Equity
0.0
+ Total Minority Interest
0.0
= Total Enterprise Value
10,291.3
(INR)
Book Value of Common
4,562.7
Equity
+ Pref. Equity
0.0
+ Total Minority Interest
0.0
+ Total Debt
3,439.5
= Total Capital
8,002.2
Company
Background:
Source: Company, www.dynamiclevels.com
Established in 1981, Cosmo Films Limited is one of the largest
manufacturers of Biaxially Oriented Polypropylene (BOPP) Films in the
world. With manufacturing units in India, Korea, & USA, Cosmo has a BOPP
manufacturing capacity of 136,000 TPA and a sales turnover of USD 215
Million (INR 1.472 Billion) in FY 2014-15. Cosmo is the largest BOPP films
exporter from India and the world's largest manufacturer of thermal
lamination films. Cosmo offers a comprehensive range of BOPP Films for
flexible packaging, lamination, labelling and industrial applications,
including speciality films such as high barrier films, velvet thermal
lamination films and direct thermal printable films. Apart from a dominant
share in the Indian market, Cosmo exports to more than 80 countries
worldwide. Cosmo's customer base includes the leading global flexible
packaging and label face stock manufacturers like Amcor, Constantia,
Huhtamaki, Avery Dennison etc., which service brands like Pepsico, Coca
Cola, Unlilever, P&G, CP, Reckitt Benckiser, Nestle, Mars etc. Cosmo also
has an extensive network of channel partners across the world for
distribution of its range of lamination films.
Key Advantages of COSMO are:
1. Experience and expertise of producing BOPP films for more than three
decades
2. Widest portfolio of BOPP based packaging, labels and lamination films
3. Multiple lines for providing flexibility in operations
4. Multiple warehousing facilities for providing just-in-time services across
the globe
5. Dedicated BOPP films R&D infrastructure
6. Dedicated account management teams for key global accounts
COMPANY PROFILE OF COSMO
Date of Incorporation
07-Oct-1976
Date of Listing
28-Feb-1995
Management
Name
Designation
H N Sinor
Additional Director
Ashish Guha
Independent
Director
H K Agrawal
Independent
Director
Pratip Chaudhuri
Independent
Director
Alpana Parida
Non Independent
Director
Registered Office Address
1008, DLF Tower-A,Jasola District
Centre,110025,New Delhi,Delhi,India
Website
http://www.cosmofilms.com
Cosmo Films Clientele includes:
Product Portfolio:
Page 4
Source: Company, www.dynamiclevels.com
Page 5
Source: Company, www.dynamiclevels.com
Packaging Industry- India
The Indian Packaging Institute estimates that the packaging industry in India is
worth USD 24 billion and growing at more than 15% p.a.
India’s share of USD 24.6 billion in the USD 77 billion global packaging industry is
a considerable share with a promising scope for further growth. India ranks 2nd
in terms of growth (with a growth rate of 14%-15%) with China leading the
growth race at 18% annual growth. Both countries are way ahead of the
competition even at a global level because the global packaging industry growth
rate is merely 3%-5%. Such stats clearly indicate the potential that the industry
has for becoming a global player.
However, there are certain issues that are creating obstacles for the industry.


Increasing global competition. The only way for India to meet the
global competition is to conform to internationally accepted standards
in packaging.
Rejection of products at the destination: India has a good export
scenario wherein several products are sent to global markets. However,
India does not have packaging specifications for most of the exportable
commodities. This is one of the reasons for rejection of products at the
destination. The world today is not divided by boundaries when it
comes to business and trade.
During the national conference on ‘Make in India — Packaging Transportation
of Hazardous Goods and UN Certification’, N.C. Saha, director – Indian Institute
of Packaging, said, “The Union ministry of commerce has constituted a standing
committee to formulate the packaging specifications for 500 exportable
commodities over the next year. By March 2016, IIP will develop packaging
specifications for tea, coffee, spices, cut flowers, marine products, table eggs,
fresh fruits and vegetables.”
Challenges for Packaging Industry










Rapid changes in technology
Shortage and Rising cost of raw
material
Costly Skilled Manpower
Rising input costs
Highly inadequate credit flow
Lack of Market Access &
Advanced technology
Lack of exposure to Best
Management
and
Manufacturing Practices
Lack of 100% commitment to
the quality standards
Lack of Marketing, Distribution
and Branding
Non-availability of skilled manpower
IIP (Indian Institute of Packaging) is an autonomous body established under the
Ministry of Commerce and Industry. It has been given the responsibility of
developing packaging specifications by 2016 in line with global packaging
standards for 500 exportable commodities including tea, coffee, spices, cut
flowers, marine products, table eggs, fresh fruits and vegetables.
Being a member of the UN, it has become important for India to comply with
the regulations, especially after mandating the UN certification for packaging of
goods catering to international market. Maybe these changes would provide the
means for leveraging the use of flexible plastic packaging that has dominated
the Indian packaging Industry till now.
Page 6
Source: Company, www.dynamiclevels.com
Although traditional packaging options exist, the shift to flexible packaging
has been a more recent change arising out of better visual appeal, cost
effectiveness, and sturdiness of the packaging material.
India needs to capitalize on its strengths in packaging solutions (flexible
packaging) and high export potential to become a global player. By focusing on
a globally compliant approach, it would be possible for India to increase
profits as well as come up as a prominent economy in the world’s trade
scenario.
International Business Opportunity








Export Business Opportunity
Import Facilitation and Sourcing
Contract manufacturing Opportunity with Overseas
Companies
Technology Transfer & Joint Ventures Opportunities
Advanced Machineries, Equipments and Technology
Collaborations and Strategic Alliances
Patented Technology and New Projects
Overseas Exhibition Participation Opportunities and Finance
Facility
Page 7
Source: Company, www.dynamiclevels.com
Factors Affecting Growth of Packaging
Industry in India
1. Urbanization
Modern technology is now an integral part of nation's society today
with high-end package usage increasing rapidly. As consumerism is
rising, rural India is also slowly changing into more of an urban society.
industrialization and expected emergence of the organized retail
industry is fuelling the growth of packaging industry.
2. Increasing Health Consciousness
As people are becoming more health conscious, there is a growing
trend towards wellpacked, branded products rather than the loose and
unpackaged formats. Today even a common man is conscious about
the food intake he consumes in day-to-day life.
3. Low Purchasing Power resulting in Purchase of Small Packets
India being a growing country, purchasing power capacity of Indian
consumers is lower; the consumer goods come in small, affordable
packages. Products like toothpaste, fairness creams in laminated
pouches are highly innovative and are not used elsewhere. Low priced
sachets have proved to be extremely popular in smaller towns and
villages, where people do not prefer to buy larger packs due to
financial constraints.
4. Indian Economy Experiencing Good Growth Prospects
The Indian economy is growing at a promising rate, with growth of
outputs in agriculture, industry and tertiary sectors. Overall economic
growth has proved to be beneficial for the consumer goods market,
with more and more products becoming affordable to a larger section
of the population.
5. Changing Food Habits amongst Indians
Changing lifestyles and lesser time to spend in kitchens are resulting in
more incidence of eating away from homes resulting in explosive
growth of restaurants and fast food outlets all over the country.
Demand for products like pasta, soups, and noodles in India, is fuelling
the growth of packaging industry in India.
6. New areas:
One area that has been identified as having good market potential is
equipment for manufacturing aluminum beverage cans. Machinery for
cleaning and drying containers; automatic high speed labeling
machines and capping machines; sealing machines for cans, boxes, and
other containers; machinery for filling, and closing bottles and cans;
packing/wrapping machines; and moulding machines also offer good
prospects.
Page 8
Source: Company, www.dynamiclevels.com
Company Financials:
Income Statement (in Mn)
FY 2014
FY 2015
FY 2016
14,683.6
10,968.8
33.1
453.2
2,591.5
14,046.6
637.0
363.8
25.2
338.6
316.4
(18.0)
37.0
(55.0)
(55.0)
16,467.8
12,498.8
29.4
345.4
2,860.2
15,733.8
734.0
331.1
10.3
320.8
31.0
382.2
105.6
276.6
276.6
16,155.8
11,418.0
356.8
2,824.8
14,599.6
1,556.2
315.8
1,240.4
278.0
962.4
962.4
NI to Common Incl Extra Items
(55.0)
276.6
962.4
Abnormal Losses (Gains)
Tax Effect on Abnormal Items
NI to Common Excl. Extra Items
Basic EPS
Dividends per Share
Payout Ratio %
286.8
(97.5)
134.3
(2.83)
1.0
-
(33.3)
9.2
252.5
14.23
3.5
24.6
69.4
(24.0)
1,007.8
49.50
10.0
20.2
Total Revenue
Selling General & Admin Exp.
R & D Exp.
Depreciation & Amort.
Other Operating Expense/(Income)
Operating Expense., Total
Operating Income
Interest Expense
Interest Income
Net Interest Exp.
Other Non-Operating Inc. (Exp.)
EBT Excl. Unusual Items
Income Tax Expense
Earnings from Cont. Ops.
Minority Int. in Earnings
Net Income
WACC
Equity
Cost of Equity
Weight of
Equity
Debt
Cost of Debt
Weight of
Debt
WACC
Page 9
FY
2012
FY
2013
FY
2014
FY
2015
FY
2016
11.2% 9.9% 11.9% 12.5% 13.2%
28.4% 20.8% 14.3% 23.4% 62.2%
Income Statement Analysis:
1. In FY 16 the Cosmo maintained
its topline at par compared to
last year but reduced the
expenditure by 1000 Mn as the
cost of raw materials went down
due to fall in crude oil price which
is a major part of expenditure for
packaging industry.
2. PAT increased from 276.6 Mn
to 962.4 Mn i.e up by 248% YoY
whereas price has gone up by
whereas price has gone up by
386% from low of 84 to 408.
3. The share is still trading at a
low PE of 8.91 compared to
Industry PE of 18.73
4. Reserves of the company have
gone up by 20%.
5. Cosmo reported a PAT loss of
Rs 55 Mn in FY14 due to a onetime forex loss of Rs 287 Mn.
Cost of Equity
Weight of
Equity
Cost of Debt
8.9% 5.7% 11.9% 7.8% 7.8%
71.6% 79.2% 85.7% 76.6% 37.8%
9.5%
6.6%
11.9%
8.9%
Weight of
Debt
11.2%
Source: Company, www.dynamiclevels.com
Balance Sheet (In Mn)
ASSETS
Cash And Equivalents
Short Term Investments
Total Cash & ST Investments
Accounts & Notes Receivable
Total Receivables
Inventories
Prepaid Exp.
Restricted Cash
Other Current Assets
Total Current Assets
Net Property, Plant & Equipment
Long-term Investments
Other Long-Term Assets
Total Assets
LIABILITIES
Short-term Borrowings
Accounts Payable
Other Current Liabilities
Total Current Liabilities
Long-Term Debt
Other Non-Current Liabilities
Total Liabilities
Minority Interest
Additional Paid In Capital
Comprehensive Inc. and Other
Total Equity
Total Liabilities And Equity
Supplemental Items
Total Shares Out. on Filing Date
Total Shares Out. on Balance Sheet Date
Book Value/Share
Tangible Book Value
Tangible Book Value/Share
Total Debt
Net Debt
Page 10
FY 2014
FY 2015
FY 2016
549.7
50.0
599.7
1,382.6
1,382.6
2,024.4
14.2
740.7
4,761.6
6,327.6
42.1
376.3
11,507.6
183.2
183.2
1,219.5
1,219.5
1,795.4
48.8
7.8
780.4
4,035.1
6,056.0
414.4
253.5
10,759.0
323.5
323.5
1,174.4
1,174.4
1,720.4
837.7
4,056.0
6,592.7
770.3
11,419.0
2,693.2
1,323.2
199.8
4,216.2
3,175.6
2,511.3
1,214.4
269.0
3,994.7
2,386.2
1,209.3
1,591.7
1,037.0
3,838.0
2,230.2
516.0
7,907.8
507.0
3,092.8
3,599.8
11,507.6
571.9
6,952.8
507.0
3,299.2
3,806.2
10,759.0
788.1
6,856.3
194.4
4,368.3
4,562.7
11,419.0
19.4
19.4
185.2
3,541.9
182.2
5,868.8
5,269.1
19.4
19.4
195.8
3,767.2
193.8
4,897.5
4,714.3
19.4
19.4
234.7
4,562.7
234.7
3,439.5
3,116.0
Balance Sheet Analysis
Company’s long term
investment has increased
from 42 Mn to 770 Mn in
2 years.
Cosmo has reduced its
short term borrowings
Cosmo has reduced its
long term debt by 30%
from 3175 to 2230 Mn
Book value has increased
from 185 to 234 per share
Total debt has gone down
by 41% which is very
positive for the Co.
Source: Company, www.dynamiclevels.com
Cash Flow ( In Mn)
FY 2013
FY 2014
FY 2015
Net Income
113.3
(55.0)
276.6
Depreciation & Amort., Total
388.1
453.2
345.4
Other Non-Cash Adj
(58.3)
46.4
112.2
Changes in Non-Cash Capital
268.6
(224.2)
293.9
Cash from Ops.
711.7
220.4
1,028.1
(1,658.1)
(888.3)
(477.8)
Sale of Property, Plant, and Equipment
112.2
133.0
103.6
Cash Acquisitions
(93.7)
-
(59.3)
-
-
-
Invest. in Marketable & Equity Securt.
(93.7)
-
(59.3)
Other Investing Activities
276.7
17.0
50.8
(1,456.6)
(738.3)
(442.0)
142.7
22.4
(345.5)
Long-Term Debt Issued
1,170.6
1,267.2
158.7
Long-Term Debt Repaid
(584.5)
(645.5)
(675.0)
728.8
644.1
(861.8)
Pref. Dividends Paid
(113.0)
(56.9)
(22.7)
Total Dividends Paid
(113.0)
(56.9)
(22.7)
38.6
-
-
Cash from Financing
654.4
587.2
(884.5)
Net Change in Cash
(90.5)
69.3
(298.4)
Cash Interest Paid
256.4
393.4
328.6
Cash Taxes Paid
100.3
(24.9)
52.4
Free Cash Flow
(946.4)
(667.9)
550.3
Capital Expenditure
Proceeds from Investment
Cash from Investing
Net Short Term Debt Issued/Repaid
Total Debt Issued/Repaid
Other Financing Activities
Page 11
Cash Flow Analysis:
Cash from Operation is increasing
evey year
Cosmo is reducing its capital
expenditure YoY.
Cosmo reduced its Long term debt
by 861 Mn
In FY16 Free cash flow turned
positive from negative in FY15 and
FY14
Source: Company, www.dynamiclevels.com
Ratios
Profitability
Return on Assets
Return on Capital
Return on Equity
Margin Analysis
EBITDA Margin
EBIT Margin
Earnings from Cont. Ops
Margin
Net Income Margin
Normalized Net Income
Margin
Free Cash Flow Margin
Asset Turnover
Total Asset Turnover
Fixed Asset Turnover
Accounts Receivable
Turnover
Short Term Liquidity
Current Ratio
Quick Ratio
Cash from Ops. To Curr
Liab
Avg. Days Sales Out.
Avg. Days Payable Out.
Long Term Solvency
Total Debt/Equity
Total Debt/Capital
LT Debt/Equity
LT Debt/Capital
Total Liabilities/Total
Assets
EBIT / Interest Exp.
EBITDA / Interest Exp.
(EBITDA-CAPEX) / Interest
Exp.
Total Debt/EBITDA
Net Debt/EBITDA
Page 12
FY
2014
FY
2015
FY
2016
-0.5%
2.1%
-1.6%
2.5% 8.7%
5.7% 14.3%
7.5% 23.0%
7.4%
4.3%
4.3%
6.6% 11.8%
4.5% 9.6%
4.5% 9.6%
Ratio Analysis:
Profitability ratios indicate that Cosmo’s Returns have
improved YoY, indicating that the management is
efficiently using its assets to generate earnings and
Cosmo is able to generate good return with the money
shareholders have invested
-0.4%
0.9%
1.7%
1.5%
6.0%
6.2%
-4.5%
3.3%
--
Cosmo’s margins have improved which is an indication
the revenue that is left with the Company after it has
deducted all the expenses has increased YoY.
1.3x
2.4x
11.0x
1.5x
2.7x
12.7x
1.5x
2.6x
13.5x
Asset Turnover ratio indicates that Cosmo is efficiently
deploying its assets to generate the revenue.
1.1x
0.5x
0.1x
1.0x
0.4x
0.0x
1.1x
0.4x
0.1x
33.2x
--
28.8x
40.2x
27.1x
--
163.0% 128.7% 75.4%
62.0% 56.3% 43.0%
88.2% 62.7% 48.9%
33.5% 27.4% 27.9%
32.1% 27.5% 26.4%
1.75x
3.00x
0.55x
2.22x
3.26x
1.82x
5.16x
6.34x
--
5.38x
4.83x
4.54x
4.37x
1.80x
1.63x
Cosmo’s Short term liquidity is in stress as it is not able to
meet the industry standards of minimum 2, which
signifies that the Company might have liquidity problems
in paying its short term debt on time.
Cosmo has high Debt which has decreased YoY, it is a
positive sign for the Cosmo as it is reducing its debt
Source: Company, www.dynamiclevels.com
Peer Comparison
Company Name:
COSMO FILMS
LTD
Latest Fiscal Year:
03/2016
52-Week High
408.00
52-Week High Date
5/11/2016
52-Week Low
90.00
52-Week Low Date
5/12/2015
Daily Volume
263,141
Current Price:
368.50
52-Week High % Change
-9.7%
52-Week Low % Change
335.3%
Total Common Shares (M)
19.4
Market Capitalization
7,163.7
Total Debt
3,439.5
Minority Interest
Cash and Equivalents
323.5
Current Enterprise Value
10,279.7
UFLEX
LTD
03/2015
201.70
12/1/2015
112.00
6/12/2015
112,729
185.90
-7.8%
66.0%
72.2
13,424.1
22,099.8
7.5
1,858.6
28,246.7
JINDAL
POLY FILM
03/2015
612.00
11/4/2015
230.00
6/12/2015
68,967
521.30
-14.8%
126.7%
42.0
21,919.5
18,271.3
4,682.9
2,426.0
41,649.2
Leverage/Coverage Ratios
COSMO FILMS
UFLEX
LTD
LTD
Total Debt / Equity %
75.38%
73.5%
Total Debt / Capital %
42.98%
42.3%
Total Debt / EBITDA
1.798x
2.9x
Net Debt / EBITDA
1.629x
2.7x
EBITDA / Int. Expense
6.339x
5.0x
JINDAL
POLY FILM
108.1%
45.8%
2.8x
2.4x
10.1x
INSTRUMENT
COSMO FILMS
MOLD TEK
ESSEL PROPACK
UFLEX
JINDAL POLY
MANAKSIA
Peer Analysis:



Cosmo has highest volume
compared to its peers
Cosmo has given highest
return compared to its peers
from 52 week low of 335%
Cosmo has lowest Debt
compared to its peers
Leverage ratios show that

Cosmo is very placed in the
market compared to its
peers
1M
3M
6M
1Y
5.97
13.7
10.83
-0.03
5.52
-5.99
56.93
-30.76
31.22
29.94
30.51
6.08
33.44
-28.2
18.95
8.09
-0.76
-14.11
309.43
-17.04
44.38
52.98
78.87
-19.9
Movt Post
Budget
64.74
52.38
41.81
36.66
34.38
4.67
cosmo
Cosmo has given highest return among its peers in last 1 year of 309%
Page 13
Source: Company, www.dynamiclevels.com
Shareholding Pattern
Shareholding Pattern
Promoter and Promoter Group (%)
Indian
Foreign
Institutions (%)
FII
DII
Non Institutions (%)
Bodies Corporate
Others
Custodians
Total no. of shares (cr.)
Mar-16
43.51
43.51
NIL
2.14
2.05
0.09
54.35
NIL
53.36
0.99
1.94
Dec-15
43.51
43.51
NIL
1.06
0.16
0.90
55.43
NIL
55.43
NIL
1.94
Sep-15
43.51
43.51
NIL
1.71
0.08
1.64
54.78
7.94
46.84
NIL
1.94
Jun-15
42.84
42.84
NIL
1.01
0.02
0.99
56.15
7.34
48.81
NIL
1.94
Mar-15
42.84
42.84
NIL
0.99
0.02
0.96
56.17
6.89
49.28
NIL
1.94
FII’s have increased their stake in FY16 from 0.02 to 2.05
Persons holding securities more than 1% of
total number of shares under category
Public Shareholding.
Ambrish Jaipuria
Ashok Jaipuria
Parvasi Enterprises Ltd
Sunrise Manufacturing Co Ltd
Anil Kumar Goel
Bodies Corporate
Foreign Individuals or NRI
Category
Promoters
Promoters
Promoters
Promoters
NonPromoters
NonPromoters
NonPromoters
Mar-16
Dec-15
Sep-15
Jun-15
Mar-15
2.84
2.42
15.69
21.95
3.42
8.72
1.82
2.84
2.42
15.02
21.94
3.32
9.94
4.89
2.84
2.42
15.69
21.95
3.27
NIL
NIL
2.84
2.42
15.02
21.95
3.27
NIL
NIL
2.84
2.42
14.89
20.36
3.13
NIL
NIL
Promoters of COSMO have kept their investment constant throughout the year
Page 14
Source: Company, www.dynamiclevels.com
Cosmo Future Outlook

FY11-13 was a challenging for the BOPP industry, it witnessed
slowdown due to fall in demand resulting in deltas getting
crunched. Most players in the industry reported a 60-80% dip
in profitability. However, Cosmo Films was able to buck the
trend through cost optimization & changing production in
favour of higher margin products.

Improved profitability YoY negative to positive.

The BOPP industry is expected to grow at a CAGR of 8.5% by FY
20 on the back of the rising penetration of packaged foods and
disposable income.

Capability to substitute other flexible packaging materials such
as BOPET, BOPA and other specialty films, specially coated
label papers and aluminum foils provides a superior edge to
BOPP over other packaging products. BOPP also helps to
improve the shelf life of packaged products.

The management has indicated that it plans to increase the
production of higher value added variants of BOPP along with
thermal and coating films, the contribution of which is
expected to increase to 25% by FY18.

COSMO expects to increase in utilisations from 67% in FY15 to
70% by FY18 led by various technological up gradation
initiatives that the company is carrying out in its manufacturing
facilities

Fluctuating EBITDA margin and PAT margin expected to
stabilize due to cost optimization and improving product mix
Page 15
Source: Company, www.dynamiclevels.com
Cost Optimization to increase Profitability
(a) Upgradation of old manufacturing equipment which was
earlier consuming higher power per unit of output. With
upgradation in manufacturing lines the power consumption
per unit of output has reduced from 2 Rs/kg to 0.6 Rs/kg.
Accordingly, the power cost as a percentage of revenues has
reduced from 7.5% in FY09 to 6% in FY15.
(b) The technological upgradation has helped to control manpower requirements to support the expanded capacity
resulting in higher operating efficiencies.
(c) Improving operations at the US facility which posted a negative
EBITDA of Rs 29 crore in FY 2014-15 owing to labour issues in
the US plant. The management has cleared hurdles in the US
and is confident that the EBITDA loss would reduce to 6.5 crore
in FY 2015-16.
(d) Shift to value added products to stabilize margins at higher
levels.
(e) Shift in focus from traditional products like non tape and taped
films to modern techniques like specialty and semi specialty
films. These have higher margins and could boost EBITDA
margins of the company going forward.
(f) SEZ tax benefit to boost profitability: The Shendra plant, which
is dedicated to handle the export requirements of the
company, is located in the Special Economic Zone (SEZ), close
to Aurangabad. Cosmo will get Tax benefit like no income tax
for 5 years etc would accrue to the comany since the plant is
located in a SEZ. Tax benefits would lower the company’s
effective tax rate to the range of 23 to 25%.
Key Risks faced by Cosmo are:
(a) Fluctuations in the prices of commodities like PET chips
could result in volatility in margins and the company
might incur inventory losses in the event of a sharp
downfall.
(b) Delay in commissioning of the new capacity which is
expected to be completed by April 2018 could lead to
lower than estimated revenues.
Page 16
Source: Company, www.dynamiclevels.com
COSMO Valuations & Investment Rationale
An improving trend visible over the last few years due to:












Improving Product Mix towards Value Add, with consequently better margins
Sustainable reduction in variable cost (approx INR 25-30 crores pa)
Increase in production volume by improving existing manufacturing lines efficiency
USA Subsidiary Turnaround, leading to better consolidated results
New planned capacity expansion by 44% with one of the world’s largest and most efficient production
capability at low financing cost would further help higher asset turnover along with improved ratios.
Global annual BOPP demand is estimated to be approx 7.8 million MT. The global demand and supply are
broadly balanced except China.
Currently India BOPP production capability is estimated at approx 500k MT pa. India domestic BOPP
consumption is approx 390k MT pa and export from India is about 110k MT pa. Indian BOPP Industry has been
growing at almost double of the India’s GDP growth rate.
Considering low packaged food penetration in India and rising personal disposable income, the Industry is
estimated to grow fast.
Investment in organized retail industry and change in pack format from rigid to flexible is going to further add
to increasing demand.
Based on capacity addition announced in India, new capacity expected in the Industry may not be able to
address growing India demand. On current India BOPP Industry demand base, one new line each year may not
be sufficient to address India’s growing demand.
Strong domestic and global demand is helping efficient capacity utilization.
In line with strong demand fundamentals, Cosmo Films is implementing an increase in capacity by 60k MT p.a.
with 10.4 meter width state of art BOPP line, which is one of the lowest cost producing line in the world.
We initiate coverage on Cosmo Films Ltd as a BUY @320-340 with a target of Rs 450 representing a potential
upside of 30% from the buy price. COSMO FILMS is trading at a low PE of 8.9. We are positive on the company
prospects due to:




Capacity expansion which will lead to growth in volume,
Diversified product portfolio to reduce risk
Improving EBITDA and profitability margins and
Reducing Long term DEBT of the Co.
Page 17
Source: Company, www.dynamiclevels.com
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Page 18
Source: Company, www.dynamiclevels.com