Pankaj Poddar, Group CEO, Cosmo Films Ltd., talks about demand scenario, expansion plans, export business, speciality portfolio, cost rationalization, Capex and M&A opportunities, among others, during a candid chat with Zee Business Executive Editor Swati Khandelwal. Edited Excerpts:

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Q: A good demand scenario trend was seen in the gone quarter. Do you think it will continue as better demand prospects are visible and what is your outlook for FY22?

A: Demand has returned in a good manner in the FMCG segment and other segments where we supply, maybe it is labels or synthetic paper. There was a surprising trend this time that normally our industry slows down a lot in around Diwali as holiday starts at this point of time due to which 15 days before and 10 days after the Diwali demand remains quite low. But this time, the demand for FMCG was quite good even in this period. We never knew that there was a shutdown in the industry at the time of Diwali or not. Speaking from the demand perspective, it has been a record-breaking year for many years and demand is also looking quite strong in the coming period. If we will talk about November, then things are quite good. In fact, two lines were added in our industry but their impact was also not known because demand has always been better than the supply.

 

Q: Do you think that the continuity of this demand and the unprecedented kind of move will be the new normal, if yes, how will you cater to it, although you have talked about expansion but do you think that more expansion will be needed?

A: There are two reasons for demand in the industry (i) definitely, the overall demand is good and (ii) polypropylene is a good recyclable material and does the packaging very well and excellently preserves food. So, we are seeing that the is a trend in which the customers are shifting towards BOPP films and accordingly, there is a good growth demand in BOPP films. We have already taken two capacity expansions in which we have talked about a speciality polyester, which will be expanded next year and in the last quarter, we also talked about the expansion of the BOPP line, which is the world's largest line. Because a huge backlog is going on at the machine supplier end due to COVID-related disruptions, so, that line will come into existence in 2024-25. As far as film business is concerned, we have announced two expansions which will be executed shortly. Apart from this, in textile chemical, we have commissioned our plant, recently, and from this quarter onwards, we will start getting the numbers of textile chemical. Our adhesive plant will also be commissioned in the next quarter due to which we will be able to provide data on adhesive sales and volumes from the next quarter to our investors.

Q: How the export business is looking and how much growth has been seen there because you derive 40% of revenues from exports? Do you think that the trend will be maintained?

 A: In exports, things differ from market to market, especially because COVID is playing a role in it, like as COVID is present in Europe, at present, and accordingly demand and prices are slightly low there. If we will talk about some other markets like South America, it is showing a good trend at present. So, the trend is different in different markets but Cosmo mainly exports in speciality only due to which our exports across the globe is quite stable and is growing. The trend will continue. If you will have a look at the previous quarter results then our subsidiaries have performed quite well, maybe it is a subsidiary of the US, Europe, Japan or Korea, and this highlights that there is huge optimism in these countries as well. Secondly, the growth of our speciality in these geographies is continuously improving the performance of our subsidiaries on a quarter-on-quarter basis and is also improving their profitability in those reasons.

Q: Your speciality portfolio is looking quite strong and you have said earlier that you would like to increase it upto 80%. By when it can happen, what is the timeline at which you are looking at and what kind of impact it can have on the financials in terms of margins?

A: Earlier, we have informed the investors that we are targeting 80% sales of speciality in March 2024 but our quarter-on-quarter growth is signalling that we will meet the target before it. The most important thing that will come from this is that there will be more stability in our profitability. What happens now is that if the margins move up and down in our commodity segment, which is around 35% then our margins are affected a little bit in either direction. But, the more we will turn into a speciality company because if we will have a look at the margins in speciality remains constant and margin improves when there is a growth in the speciality. Accordingly, we will be able to post better stability, decommoditize the company and make it a research-oriented company. Today, we have more than 30 employees in research of which many are post-doctorates and doctorates and are innovating many things. We have applied for six patents in the recent past and we have already got approval for one patent at the India level in terms that it is a patent-level product. Going forward, we will start a process for a global patent for it.

Q: In your presentation, you have said that there will be an overall cost rationalization of Rs 30-40 crore per annum. How will you do it? Also, tell us about the CapEx that will be lined up for the next two to three years per year?

A: For this year, we have a Capex of around Rs 300 crore, which is largely for the polyester line. Next year, again, we do not have any major CapEx and it will be around Rs 50 crore and then work on the BOPP line will be started which will spread for two years, which means going forward, we will have a CapEx of Rs 200 crores each year. Secondly, in our Zigly business, where we are talking about Pet Care, we will have CapEx for opening new stores but it will depend on the number of stores that will be opened in the coming time. Earlier, we have said that we will have a CapEx of between Rs 75-100 crore for the business but from God's Grace, we are getting a good response for that business. In fact, our first store - which is not even two months old, yet - has clocked a one-day sales above Rs 1 lakh and our average sales on that store have crossed the Rs 50,000. We will ramp up more stores at a great speed. On the other side, we have also launched a website and are improving the bugs continuously and are providing many solutions to pet parents. So, we will remain invested in that business. But if you again talk about the CapEx, we do not have any significant CapEx and our debt to EBITDA ratio is at 0.85, which is a very comfortable zone and will continue to be in the comfortable zone in the coming future.

Q: You have increased your focus into some other business and segments and are foraying into segments like adhesives, shrink films and recyclable laminates for labels and flexible packaging applications. What is the plan here and will you look forward to some M&A opportunities on the front or you will like to grow organically?

A: Any good opportunity will be evaluated for M&A but for the time being, we are not focusing on M&A because we have a lot of upcoming business segments, like Masterbatch, which was opened last year; textile chemical, which was started this year; Zigly - started this year and we are starting adhesive next year. So, a lot of our businesses are in pipeline and we are also expanding a lot in films but at the same time, if, we will get any good M&A opportunity then we will like to evaluate it, subject to the board approvals and all the legal compliances.