Cosmo Films will open 15-16 new Zigly stores in the next 12 months: Pankaj Poddar, Group CEO

Pankaj Poddar, Group CEO, Cosmo Films Ltd., talks about Q3FY22 numbers, guidelines on Extended Producers Responsibility (EPR) on plastic packaging, margin, export market and opportunities, under PLI scheme for the production of speciality films, CapEx, Zigly among others during a candid chat with Swati Khandelwal, Zee Business. Edited Excerpts:

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Q: How the third quarter (Q3FY22) has been for the company, how is the demand and pricing situation.

A: We have been showing EBITDA improvement continuously since the last 11 quarters. Demand is quite robust and today itself I was going through the newspaper and the FMCG companies are growing well. Overall, our speciality segment may be level films, industrial films, or packaging across the board, the demand growth is good in India as well as globally. Therefore, it is visible in the month-on-month performance.

Q: Union Environment Ministry has notified the Guidelines on Extended Producers Responsibility (EPR) on plastic packaging, which is looking good for the company. What will it mean for your company and what kind of business you are expecting from it?

A: We have published our ESG report in the last quarter and it is also available on our website. So, the government's guidelines are quite good guidelines and are linked to recyclability and sustainability. And as people know that a lot of recyclable products are developed through BOPP films. Many big brands, in India as well as global, are working with us so that they can make recyclable products. In the last 3-4 years, we have converted a lot of packaging, which are recyclable maybe it is shampoo, tea, coffee or soap. There many products that we have put into recyclable packaging and we are seeing that more and more companies are interested in it. So, two factors are being created for BOPP or Polypropylene or the industry in which we are. On one hand, we are seeing that the overall demand for packaged goods is robust. There are many segments in India that are moving towards packaged goods. Secondly, customers and companies are shifting from the rest of the substrates to BOPP or Polypropylene-based substrates, which is quite favourable for the company.

Q: At a time when there has been margin pressure across sectors, what has led to increasing in margins for your company, both YoY and QoQ, and what is the outlook on margins? 

A: There are two factors for it. Our speciality shelf has gone up to around 65%. In the last three years, we have grown our speciality from 40% in volume terms to 65%, which is a sizeable jump. In most of the specialities, the entire raw material is covered back-to-back. So, whatever impact we saw in the last one year, in terms of the raw materials or the freight cost, because we have an agreement with our customers due to which we are able to pass on the cost. As far as the rest of the sales are concerned, the demand is going well in that too, there were few quarters in between where margins were low, but our speciality growth is very good, we were able to provide quarter-on-quarter good results to our investors.

Q: What is an update on the export business and what kind of traction is visible on the front and how much growth is seen there? Will you like to enter into some new markets and how the company's business has been in Europe? Also, how much impact does the Russian-Ukraine issue has on business?

A: The US has been the most favourable market for us. If will look back, then 3-4 years back, we had major losses in the US, in fact, we made an EBITDA loss of $5 million in just one year. But, if we have a look at this year's run rate then we have made substantial year-on-year improvement, however, will not be able to provide any exact projections but we will post an EBITDA of around $8-9 million this year, alone in the US. Our US sales used to stand at $35 million will close at around $55-60 million this year. So, the US is a market where we have grown in terms of sales. If we have a look at the US sales in the speciality packaging then 80% plus speciality sales go in the US and it has helped us a lot in improving our consolidated results. In addition, the demand is good in Europe as well but we are facing slight pressure there, in fact, you can say that the European prices are not such as overall prices of America. Overall, the freight cost is hurting and export freight is hurting every company but as our speciality segment is more and around 80-90% of our export comprise of speciality and in that segment, our freight cost and raw material cost exchange is back-to-back with the customers due to which fortunately freight cost has not impacted us in terms of P&L perspective.

Q: Your company has received sanction under the PLI scheme for the production of speciality films for use in electronic products. Tell us how much CapEx will you be making under PLI Scheme and how much revenue is expected from it? 

A: Initially, we have taken approval for a CapEx of only Rs 32 crore under the PLI scheme. As it is visible that a lot is being imported in electronics and the world market is growing very fast in electronics. We are talking to the government so that it can see that can localisation can happen for different types of applications. So, initially, we have taken a small initiative, and the PLI scheme is there for the same, which will replace the import. If the government encourages further, in the coming time, and more localisation happens, then we will do more localisation for the electronic segment, where we will target big CapEx and revenue. But to begin, it is a small start and when the CapEx is completed, we will be able to make sales of around Rs 150-200 crore in the electronics segment.

Q: Can you give an idea about the segment where do you see an opportunity and how big an investment you would like to make in it and how will you arrange that fund and do the company has enough capital for the purpose?

A: Funding-wise the company do not have many challenges, in fact, the biggest challenge for us is about how to allocate the capital at new places. If you will have a look at our debt EBITDA ratio then it hardly stands at 0.6. So, the company is standing with strong financials and will face no challenges in investing in new areas. As the electronics segment has a very wide application, it is applicable in white goods, electric vehicles and many more places. Even in our Group Companies, like Cosmo Freight, we are seeing huge growth of electronics there as well in India. The government is running a lot of initiatives for localisation, so, I think that the electronic segment is also a very good segment. If you would have seen in the past as well then we have already turned into the world's largest player for industrial applications. So, we have a huge focus in the film segment to ensure that how can we supply into the niche applications being a part of the speciality.

Q: Zigly’s pilot project has delivered better than forecast and the company looks forward to rolling out its digital-first Omnichannel business model. Provide some details about it and also explain to us your plans regarding Zigly?

A: We have multiple business models in Zigly, it is an omnichannel business and is a digital-first. On digital, we started with a website and are carrying out improvements in it on a regular basis. We are providing many types of services on the website like veterinary services, training services and going forward, we will be providing diagnostic services on it. We are also selling products on it. All the services are on the marketplace model, while product sale is on a stock and sell model. Similarly, we opened the first store in retail and it has posted an outstanding success. This is why we have decided to open 15-16 new stores in the next 12-13 months. In five years, we have plans to open 150 stores under the brand name Zigly. So, the pilot store launch has been good and it has been appreciated by many customers. We have already created 2,000 plus customers, who have provided quite positive feedback to us. There is a continuous improvement on the website and we are launching new services. The app will be launched around March 31, 2022. We are conducting its beta testing at present. In addition, we also launched van services, which is at a pilot scale at present and we are yet to get proper success in it. It has some initial challenges and we are shorting it out because every state has its own challenges. For instance, in Delhi, there are time-related issues for such kinds of vans and we are in talks with the government to resolve that. In general, our pilot launch has been quite good and now we will scale it up at a faster pace in the next 12 months and beyond that.