Sector Outlook 2022: Cosmo Films has a CapEx of Rs 100 crore in film & chemical business for next year: Pankaj Poddar, Group CEO

Pankaj Poddar, Group CEO, Cosmo Films Ltd., talks about his expectations in 2022, concerns and the company's preparation to deal with those, speciality segment, margins, cost rationalization, patents, product pipeline and CapEx, among others, during a candid chat with Swati Khandelwal, Zee Business. Edited Excerpts:

Q: How the year 2022 is looking? Do you expect that it will be better than the past and where do you expect more growth to come from?

A: 2022 is looking like a good year to us and it has many reasons like our portfolio has turned quite widespread, our packaging sales are down to 40%, we have created a good portfolio - 'Label' and also created an industrial film portfolio. At the same time, we are continuously growing our exports and last year exports stood just at 40% but 50% exports have already taken place in the first six months. We have already turned the world's second-largest company in labels in BOPP and have turned the world's largest company in industrial films. So, Cosmos is growing very well in all the speciality segments and going forward, we will stay in the same growth. Next year, we will be launching speciality polyester films. In addition, in regard to the new businesses that we started then in the speciality chemical business the Masterbatch and textile chemical are growing on a month-on-month basis. We will be starting the adhesive business at the start of the year. Similarly, in the Zigly petcare business that was started in September, we have clocked sales of Rs 20 lakh in the third month from just one retail store. So, we are seeing good growth in each of our business segments and are considering 2022 as a very strong year for Cosmo Films.

Q: What can be the concerns or challenges that the sector may face and how are you prepared to manage them?

A: The raw material costs that were increasing in the past has been reduced significantly in the last one to one-and-a-half months and is continuously coming down. So, I don't think that raw material will be a challenge. In fact, amid the Omicron-wave raw material may come under further pressure for the next few months. On the other hand, there is good growth in demand and it is happening in different segments. Next year, three lines of BOPP will be created in India but I do not think that it will affect a lot because there is a demand is more than 10% in India and globally it is between 6-7%, so, this is not any major capacity expansion. Apart from this, COSMOS is more focused on speciality films, so, I do not think that it will be a big challenge for us. The second target for us is to fast flow our new businesses and this is why we have planned to open several stores of Zigly next year, we are also strengthening our digital platform. So in Zigly, we are creating a very good digital-first omnichannel business. Similarly, we assuming that our Cosmo Speciality chemical business, which was started last year (2020) and has grown almost four to five times (2021) and for the next year, we are assuming that the Cosmo Speciality business will also grow three to four times in revenue terms in 2022.

Q: If the speciality segment grows from here that what impact will it have on the margin and where it can reach in the next two to three years?

A: The best part of speciality is that the margins are quite stable, unlike commodity that shifts due to demand and supply. Last year (2020) was quite good for the commodity margins where commodity margins stood at around 24-25%. The best benefit of speciality is that our profitability becomes more stable and continue to move towards growth and fluctuations is reduced. So on average, margins are better than commodities, Our speciality which stood at 50% last year (in 2020) was brought to around 62% in the first two quarters of FY22. Our third quarter, especially December month, has been quite good for speciality and our order book is strengthening and we are getting approvals from new customers. I have said earlier that by March 2023, we will shift 80% of our sales into speciality sales to ensure that the commodity prices impact us the least in the coming future.

Q: You have said that speciality sales of Cosmos will reach 80% by March 2022. Tell us the extent where you have reached and do you think that the numbers will be achieved by 2023?

A: Definitely, it will be achieved. In fact, in the past, we have also said that it will be achieved by March 2024 but as our growth is sound and Cosmo's team is working good, customer reception of our products is quite good, our quality is quite strong. Our research and development are quite strong and we have around 35 research scientists at present. Overall, the customers are appreciating the efforts of Cosmo and I feel that by March 2023, definitely, we will be able to achieve the 80% number in terms of total sales in volume terms.

Q: Your company was focusing on cost rationalization and has a target to move from Rs 30 crore to 40 crores per annum. Will you increase your target for next year?

A: We focused on sustainability more than cost rationalisation and in sustainability, we did around 20 different projects. We have already made savings of around Rs 40 crore this year and we will get a major saving next year as well. Currently, we are establishing a Rs 100 crore project in the captive scheme in which we are installing a hybrid of wind and solar due to which our power cost will reduce further in the future. We will also reduce our carbon footprint a lot. So, at our Baroda plant, we will get around 30% of the power from sustainable solutions shortly. We have similar targets of generating maximum power through wind and solar - the renewable sources - at our other plants as well. Similarly, we have also reduced wastages at our plants and have increased their recycling. We have also tried to consolidate more and more goods in the trucks that used to move out from our place. We have also minimized the packaging that is used on the goods after having words with our customers. So, we have done many projects on sustainability due to which there is just not a reduction in the carbon footprint but we have also seen a cost advantage of around Rs 40 crore. On the other hand, there was high inflation in many costs and we have seen it due to a surge in the prices of several raw materials, packaging material, as well as freight costs, have gone up significantly. So we were able to reduce those increases to some extent by conducting these projects. Going forward, we are identifying new projects so that we can rationalise our costs further.

Watch Full Video Here:

Q: How Many new patents will you be getting in 2022 and how many have you applied to date? Also, the company has launched several products this year. Is the next year seems promising like this?

A: We have applied for six patents this year of which we have received the preliminary level approval for the first patent Normally, the patent approval process takes its time and we have just not applied for the patents in India itself but it is applied in many other countries. Next year again, we will have a target to apply for more than six patents. This year, we have launched many products. In fact in textile chemical, we have launched around 40 products within a year out of which at least 4-5 are quite innovative products for the market and customers are liking it. For next year, we have created a pipeline of adhesives and adhesives. We will be launching four categories of adhesives, namely packaging adhesive, lamination adhesive, label adhesive and automobile adhesive, next year. Out of this laminate, the adhesive has been good with the customers during its trial and their feedback is that the product is better than whatever product is available in the market for paper film lamination. So, our product pipeline is quite strong and we are focusing a lot on research in every business, maybe it is a film where we have launched several products of synthetic paper and labels last year. We have also launched several products of sustainable solutions. So, our pipeline is strong and its credit goes to our research and development team. In the last few years, we have invested around Rs 30-40 crore in R&D. We have dedicated an entire building for research and development and have installed several types of equipment in our research lab.

Q: Update us about the company's plans related to CapEx and expansion for 2022? Also, what is an update on the adhesive plant that you are setting up? Will you increase the capacity of the film business, if yes, what is the scope?

A: We are about to expand our volume by 50% out of which one line is coming next year (2022) and the next line will come in FY2024-25. After the installation of both the plants, our sales will grow by around 50%. So, this year, we have a CapEx of around Rs 275 crore and next year, we assume that the Capex will be around Rs 100 crore. Next year, we will also have the remaining CapEx of the Polyester line. Apart from this, we are also consolidating our entire chemical facility at a new location which will involve a CapEx of around Rs 50 crore in which we will increase our chemical volumes by six times. So, our major expansions are in film and chemicals. At the same time, we will open many stores in Zigly and strengthen our digital platform and launch many brands. Collectively, in film and chemical, we have a CapEx of around Rs 100 crore for next year. We are estimating a CapEx of around 50-60 crore in Zigly business.