We will have cash of around Rs 1,000 in the balance sheet in next four years: Pankaj Poddar, CEO, Cosmo Films

Pankaj Poddar, CEO, Cosmo Films Ltd., talks about the new products and products in the pipeline, current capacity, margin projections, expansion, diversification of business and CapEx among others during a candid chat with Swati Khandelwal, Zee Business. Edited Excerpts:

Q: Tell us about your new product launch. What kind of response you are getting on it?

A: Response is good. We are a new company in consumer goods and it is already available on few e-commerce platforms. The company in the last few days (15-20 days) has had discussions in modern trade and many modern trades have already agreed to display it at their places. Also, few of the distributors are also close to an agreement for it. So overall response channel partners and where it will be displayed is very good. And from the consumers on a regular basis, as we are seeing reviews of the product from the consumers from those who are picking the product is very good. It is the first such product for washing clothes where the anti-germ and anti-virus will stay 99.9% for seven days even after they are ironed. Again it is the first such product that is anti-COVID for garments. We also named the product as Kapdo ka Sanitizer and overall the consumer response is good for the products at the start.

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Q: What is the current capacity and what is the product pipeline for new products? Last time, we spoke you mentioned plans to diversify in specialty chemicals. So, what is the pipeline there and what are the products where you will enter? 

A: I would like to inform the viewers that historically, we were a Film Company. In the last two years, we have started many businesses. We are starting three new businesses in the subsidiary, the Cosmo Specialty Chemical business, which we started. Two of them have started and the third will be started in the near future. This is the first business of masterbatch, where we will internally consume some masterbatches and sell the rest of them in the market.

The business is growing constantly and on the first line, we have already reached 58% capacity utilization and expect that in the next 5-6 months, we will be able to reach close to 80% capacity utilization this line after this we will look at the investment on the second line in the Masterbatch. The second business is we have entered into the textile chemical segment. We entered the domain in March-April but immediately COVID was there, despite that we did sampling at multiple locations and got a good response. And we also started exporting our products outside India to Bangladesh within a period of two months and sales have started even in India. We have launched around 18 products in it which are largely B2B products, which are for processing houses.

But we have launched a product Fabritizer, which was industrial but we felt that it will do good in the consumer segment because currently, everyone is concerned and wants to be far from diseases. In this, we have launched a new product where we provide a guarantee that for seven days it will be 99.9%. In fact, it will continue to provide protection in the future as well but we have tested it for seven days in India as well as American labs.

So, it was a second textile chemical business under which Fabritizer was launched. Going forward, we will also launch the chemical sub-segment adhesive. We also did a next segment PetCare, which will be launched in the second quarter when our first experience sector will be launched and our app will be started. So, the company has started three-four businesses. In films, already, we have an expansion of specialty polyester, which will be started next year. So, three to four of our companies are starting and we are diversifying from films to being a multi-group company with different set-ups and we will continue to scale up those.

Q: From the shareholders' point of view what kind of margins should we expect for each one of the businesses? Also, going forward, where would you like to focus and which businesses will emerge as the growth drivers for you? What are the top-line and bottom-line targets in the next 3-4 years?

A: Our focus is more either on consumer-oriented or technology-oriented products. If I will talk about the individual businesses then in the film we have created about 65-70% specialty segment, which is a quite strong number even when the markets are not doing good, I expect that we will be able to post very strong results to our investors. So, if I will talk about the film business then we have a lot of focus to continue to grow in the specialty, in fact, we have informed our investors that we will reach 70% by March 2023 but looking at the present scenario it seems that on a consistent basis we will achieve 70% plus numbers in the specialty.

When it comes to Masterbatches, then there are limited companies that manufacture masterbatches of the films and we are one of those companies who are manufacturing the masterbatches of films, may it be P masterbatch or polypropylene masterbatches. Going forward, we will like to provide our masterbatches compound in the electronic industry, which is again engineering masterbatches and it is a technology-oriented work and our team has been working on it for the last one year. When we will be ready with the right product then only we will launch it in the market. In the textile chemical, we wanted to reduce water, water, electricity consumption.

Out of the 18 products that we have launched many are those in which reduces the water consumption by 30-40% for a processor. If you have a look then ETP waste and water consumption is the biggest issue for a textile processor and if we can reduce it substantially then I am sure that our customers will like our product and the initial response is quite good. Our adhesive business is co-relates with our film business because we have plans to sell adhesive to the existing film customers and initial trials have started and their results are good. Petcare will give us a consumer entry which will be launched through stalls and digital apps.

The company’s turnover will grow at least 10-15% YoY, it will be some more few years when the major launches will take place. But more than sales, we have a target to maintain our profitability at a sustained good level. Our margins will be a very strong margin in the industry. Typically in consumer products, it is seen that when you reach a scale then your margins are strengthened a lot which improves continuously and we have some targets related to it.

Q: Can you please share the range in which margins will be and the business that will contribute the most to your profitability?

A: After a lot of research, we have entered into all the businesses and each of them is either technology-oriented as consumer-oriented. Sharing projections are not easy to share these days but definitely we have targets to exceed the turnover of Rs 5,000 crore in the next five years and post a quite good EBITDA margin for our investors. We have a special focus on our EBITDA margin and return on capital employed (ROE) are targeting that on a consistent basis we can provide a return on capital employed of around 20% to our employees.

Q: You have talked about expansion and diversification. So, let us know about the CapEx that has been lined up and last time you said that you are filing a patent for certain products. Are there any acquisitions on the cards? 

A: In our specialty polyester line only, we have a CapEx of around Rs 325 crore. Apart from this, we have involved many value-added assets in it. So, we will have a total CapEx of around Rs 400-450 crore only on specialty polyester. In addition to it, we will have a CapEx of around Rs 70-80 on masterbatches and chemical businesses in the next three years. In petcare, I have already said that in the next four years, we will have an investment of around Rs 70-75 crore on it in which something is a part of CapEx and the rest will be of the losses that we will incur in the initial one to two years.

So, all put together, if we will see then the committed CapEx or investments that we have done from the cash perspective stands around Rs 550 crore in the next three to four years. The company is already generating good cash and our debts are going down continuously and last year our debt stood around Rs 450 crore and our EBITDA stood at Rs 429 crore. So, we are at a Debt EBITDA ratio of around 1:1. And the CapEx that we have and the investments that we will make in the next three to four years gives a sense that we will be sitting at good cash and our debt balance will be zero and we will be a net-debt positive company.

I expect that we will have cash of around Rs 700-1,000 crore in our balance sheet. As far as M&As are concerned, we are not viewing any M&A opportunities at present but if have some good opportunity then definitely we will like to review it. But on an immediate basis, we do not have any plans related to M&A.

Q: You said that you will have cash of around Rs 1,000 on your balance sheet. The shareholders will have an obvious question that how will you deploy that cash, i.e. it will be used in further expansions or shareholders will be rewarded in some form?

A: We did a buyback even last year and paid a dividend of Rs 25 per share to our shareholders in the same year. The company believes in offering good returns to its shareholders. If you will look into the history then the company has always given a good dividend to its shareholders and will like to maintain it constantly. Growth is such that we have already invested in three to four new businesses. We do not want to invest in the commodity business because we have a clear target that going forward, we will invest only in technology-oriented specialty or consumer products.

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So, we will like to invest more in different businesses depending on the success maybe it is advertising, marketing cost or some other assets. But going by the current projection basis, definitely, the company will generate a lot of cash and time-to-time, we will see the ways to deploy it. This is why we have diversified in three-four areas so that we can get opportunities in different areas. So, the area that will do better for us will pull more cash investment from our end in the coming time.