Cosmo First Limited (COSMOFIRST) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the investor call of Cosmo First Limited to discuss the Q1 FY '27 results. Today, we have with us from the management, Group CEO, Mr. Pankaj Poddar; and Group CFO, Mr. Neeraj Jain; CEO Zigly & Head Corporate Development, Mr. Saurabh Jain. Starting off with the statutory declaration. Certain statements in the conference call may be forward-looking. These statements are based on management's current expectations and subject to uncertainties and changes in circumstances. These statements are not guarantees of future results.[Operator Instructions] Please note that this conference is being recorded. Now may I request Mr. Neeraj Jain to take us through his opening remarks, subsequent to which we may open the floor for the Q&A session. Thank you, and over to you to Neeraj.

Well, thank you very much. Very good afternoon, ladies and gentlemen, and thank you for joining us for Cosmo's June 2026 Results Conference Call. We'll begin this call with a brief opening remarks from the management side, which may be followed by the questions. Well, June 2026 quarter reflects a quarter of continued momentum in our core flexible packaging business, alongside newer businesses gaining scale, operational efficiencies resulting in all our B2B businesses are profitable now. With the major phase of our capital investment behind us, we are now entering the next phase of our journey, focusing on leveraging these assets, improving ROCE and strengthening cash generation. We'll first talk about the financial results for the June quarter. So consolidated sales for the June '26 quarter is INR 1,166 crores, which is higher by 46% from the June '25 quarter. This is backed by 9% increase in the volume and of course, increase in the raw material prices, which got passed on to the customers, reflecting in the higher sales value. The company has done well to manage uncertainties caused by the West Asia war and posted EBITDA increase of 26% in June '26 quarter to INR 147 crores compared to INR 116 crores in June '25 quarter. Well, if we have to pinpoint the incremental EBITDA is primarily driven by five factors: first, higher sales volume by 9%; second, higher BOPP-based specialty sales volume by 12%. So our specialty improved by 12% in the quarter 1. Number three, improved base BOPP and BOPET film margins; number four, enhanced performance of our USA film business, of course, post reduction in the U.S. import tariffs. Number five, higher EBITDA by our other B2B business verticals, which include specialty chemicals and rigid packaging. Well, in fact, quarter 1 EBITDA was suppressed due to lower export volume caused by port congestion, which impacted our volume by 13%, which, of course, is a non-repetitive in nature. EBITDA margin in percentage terms was 12.6% versus 14.5% in June '25 quarter as revenue increased by 46%, although volume increase was by 9%. The remaining sales growth was reflecting higher raw material prices, which got passed on to the customers. It may please be noted that gross margin per kg, which is the real benchmark for our industry has improved across all film categories, whether the base film category, semi specialty or the specialty films. BOPP gross margin was running at INR 30 per kg in June '26 quarter versus INR 20 per kg in March '26 quarter and INR 23 per kg in June '25 quarter. This includes stock gain as well, which is non-repetitive in nature. BOPET film gross margin was running at INR 9 per kg in June '26 quarter versus INR 18 per kg in March '26 quarter and INR 13 per kg in June '25 quarter. BOPET, of course, is a smaller segment for Cosmo -- BOPET capacity is 30,000 metric tons as against BOPP capacity of 277,000 metric ton. Semi-Specialty contribution improved to INR 45 per kg from INR 36 per kg in previous quarter. And Specialty Film margin remained stable at close to INR 63 per kg. This is why the company focuses more on to improving the specialty films. PAT improvement is moderate due to increased depreciation and interest related to new capacity. Coming to U.S. So post reversal of additional custom duty imposed in FY '25, '26 on import from India to U.S. Now the U.S. subsidiary received a refund of close to USD 7 million in July 2026, which has not been appropriated in the accounts for June '26 quarter, pending finalization of customers' refunds thereagainst. Our film business strategy remains consistent with focus on increasing the share of specialty films, expanding our portfolio of differentiated products, improving our product mix and driving operational efficiencies. We believe this strategy provides better resilience while strengthening our core competence in the global market. Moving to outlook for the current financial year '26-'27. While the company expects top line to grow by close to 20% in FY '27 on overall basis, although we believe new businesses on a blended basis should grow close to 60% in the financial year. And of course, this top line increase should come with commensurate increase in the bottom line as well. Moving to new business verticals performance for the quarter. First, starting with the Specialty Chemicals. The Specialty Chemicals subsidiary has continued to achieve traction and posted 34% top line growth on year-on-year basis with 25% EBITDA. Rigid Packaging Cosmo, which runs under the brand Cosmo Plastech has posted 58% top line growth in June '26 quarter on a Y-o-Y basis and also has turned EBITDA positive with close to 7% of operational EBITDA. Now FY '27 focus for the vertical shall be on achieving higher profitability through higher capacity utilization, improving sales mix and more brand sales and improve the efficiencies at the plant. The business is also augmented 50% growth in capacity over the next 2 quarters with a very minimal kind of CapEx, which will pave future growth for the next quarters. Moving to consumer businesses. So as you know, Cosmo has two consumer businesses, Zigly, which is the pet care venture; and second, continuing to strengthen our window film, paint protection film and ceramic coating business verticals. Zigly maintained its strong growth trajectory with close to 70% year-on-year growth, supported by continued expansion of its retail footprint and increasing adoption of its private label products. During the quarter, the business expanded into new locations and further strengthened its product portfolio. Our Cosmo consumer business also continued to build momentum. Cosmo Consumer has started branding -- brand building with TV advertisement from July 2026. We expanded our presence into automotive through the launch of our first 4C Cosmo Car Care center in Pune and continuing to strengthen our window film, paint production film and ceramic coating business verticals. We remain highly encouraged by the market response and continue to invest in building this business for long-term value creation. Briefly talking about the corporate, the net debt and ROCE. So of course, there is a very clear focus across the organization to improve the return on capital employed in FY '27. As we discussed last time, the CapEx cycle of the company is largely complete. The focus will be on fully leverage the strategic CapEx done in last three years close to INR 1,200 crores. Net debt at June '26 is broadly flat at the level of the quarter 4 of FY '26, which is INR 1,166 crores, which is also 2.3x to EBITDA. This is despite the net working capital increase by INR 85 crores during the quarter because of raw material price increase post West Asia war. With a very clear road map to reduce the net debt over the next 2 years, we are expecting net debt to EBITDA to reduce to below 2x to EBITDA in next 12 months. Our new businesses, Specialty Chemical, Plastech, Cosmo Consumer, all are scaling and will lead to incremental growth. And on that note, we conclude our opening remarks and would be glad to discuss any questions, comments or suggestions that you may have. Thank you.

[Operator Instructions] The first question is from the line of Nirav Jimudia from Anvil Wealth.

Sir, first of all, thank you for the improved disclosures in the presentation about the segmental revenue as well as the operating profit numbers. It helps a lot. Sir, first question is like you mentioned in your opening remarks about the ROC portion ROCE. So I had a question like since we have invested close to around INR 1,200 crores over the last 4, 5 years across various verticals and coupled with the fact that the cycle also was not conducive in the last 3, 4 years, -- our ROCE was at like 8% to 10% in last financial year. So how do you see the ROCE moving over next 2 years, given most of the new verticals have turned EBITDA positive and they are scaling up? And also, if you can explain the levers of growth for each of the individual businesses, that would be very helpful.

You are right that our ROCE was 11% because of a lot of capacities being added, new businesses started. We are now working to improve the ROCE over the next 12 to 24 months. We intend to take it to anywhere between 15% to 20%. This is going to happen through multiple initiatives. First is the volume growth. There is still -- we expect 15% more capacity that can be sold in the film business. All other businesses have sufficient capacities to sell whether chemical, plastic and so on. In fact, plastic with a very minimal CapEx, we are going to add 50% more capacity because of the existing setup being made like that. Similarly, the B2C businesses also are growing at a phenomenal growth. So what we expect is that overall, this year itself, the company revenue should grow by minimum 20%, while the new businesses should grow at 60%. Over and above, we will get the benefits from U.S., U.S. itself is expected to grow anywhere between 25% to 30% this year post the duty rationalizations in U.S.A. specialty sales growth and a lot of other cost efficiency measures that we are taking.

It helps, sir. Sir, secondly, like on the BOPP side, you mentioned that we have now a spare capacity of around 15%, which will be sold in subsequent quarters. But my question is very specific to the specialty side, like how many new grades of BOPP we have developed over the last 2 years? And what differentiates these products from our existing portfolio? So if you can just give some understanding based on the opportunity size, application-wise, improvement in our per kg EBITDA margins and the target markets where we wanted to place these products?

So our specialty sales on a much larger base has grown 12% in this quarter. The driving factor is product development. This quarter alone, we launched synthetic paper film for high-end digital printing, PVC-free green graphic films and anti-fog transparent BOPET lidding films. We also secured an international patent for a CPP film technology. We have six patents granted and 11 in the pipeline. All incremental CapEx is directed as specialty assets.

Correct. So sir, like in terms of the opportunity side, if you can throw some understanding like the films, as you mentioned, it must be in the niche categories and possibly we could be having a first-mover advantage. So what sort of per kg improvement in margins or let's say, some understanding about the overall EBITDA numbers, if you can share how the things are moving so far as these initiatives are concerned?

See, we have given a table in our investor presentation where if you would have seen that the base film margins have been changing as per the market quarter-on-quarter. But the Semi-Specialty margins in general have remained roughly INR 15 to INR 20 higher than the base film margins. -- the specialty film margins have remained at INR 60 plus for all these 5 quarters. And even if you remember in the past also, specialty margins were always higher. In fact, in the past, they used to be at INR 50, which we -- because of all the new product innovations have now been able to take it up to INR 60 plus. So that is the impact we are able to make to our financials by moving towards more specialty business. The second is Specialty Chemical itself is growing well. Last year, it grew 20%. And this year, we expect Specialty Chemical business to grow anywhere around 50% because a lot of our product development cycles are complete now. And that business is giving us 25% EBITDA margins. In fact, in this quarter itself, we've improved our EBITDA margins by 2% in Specialty Chemical in spite of such a phenomenal growth in the Specialty Chemical segment. Plastic again, which still last year was a loss-making business has a normalized EBITDA of 7%, excluding incentives, including incentives, they are 10% plus this quarter. Cosmo Consumer business also almost did breakeven. Though on a full year basis, we may still have some losses in Cosmo Consumer because this year, as we have seen that we have done a TVC launch and we've also done hoardings and so many other initiatives to build a brand for Cosmo PPF. And Zigly also continues to grow phenomenally well with 70% growth. And the percentage losses in Zigly business also is coming down quarter-on-quarter.

Sorry to interrupt Mr. Jimudia May we request you return to the question queue for a follow-up question. The next question is from the line of Raman KV from Sequent Investments.

Congratulations on a good set of numbers. My first question is with respect to margins. I mean our revenue has grown around 45%, whereas our margins have lagged in terms of growth, like they have only grown at 20%, 25%. And earlier during your commentary, you mentioned that BOPP margins were around INR 13 per kg versus INR 20, INR 23 per kg last year, last quarter as well. And BOPET margins were also slightly lower. So can you explain why was there a margin decline, one on that aspect? And also because our raw material is heavily linked to crude prices, have we able to pass on the high crude price to our end-use customers?

So see, first of all, I would like to compliment the entire management of Cosmo by ensuring that the raw material could be organized in such a tough environment where a lot of Indian petrochemical companies were asked to move towards LPG, and we were still able to run our lines efficiently. Now let me separate the three things separately happening in this quarter. Revenue rose 46%, while volumes rose only 9%. The gap is raw material price pass through following the West Asia conflict. Polymer prices moved up sharply and in pass-through business, that inflates both revenue and the denominator of the margin ratio. The right margin is contribution per kilogram, and that improved across every category. EBITDA is up 26% in absolute terms on 9% volume growth. This means that EBITDA per kilogram improved roughly 15% -- that is real operating environment. Regarding the sustainability of the margins, volume growth, specialty mix improvement, U.S. tariff benefit and the contribution from specialty chemicals and positive EBITDA from plastic are all structural. However, the element due to inventory gain within base BOPP margin is onetime and market dependent.

Yes, I get that. But when we compare just -- I'm comparing it in terms of rupees per kg itself, the BOPET margin has declined as well as the BOPP margin has declined on a sequential quarter basis. So do we expect it to pick up because we have passed on the raw material prices, like high raw material prices to the end-use customer? Or are we expecting this to be continued?

See, the BOPP margins have largely remained flat, excluding the stock gains because we also had stock gains in this quarter. The BOPET margins have marginally come down, but with the antidumping duty, which has been levied recently, we expect that the BOPET margins should go up. In fact, in this quarter, BOPET margins have gone up a bit. Obviously, India is slightly overcapacity in BOPET, which we feel that will get corrected in the coming quarters. Having said so, Cosmo is working towards even in the BOPET, where we want to shift still a large chunk of our commodity business to specialty business. And there also, we have seen quite a good progress.

Understood. And sir, I just want to understand what's your how do I say, historic like next 2, 3 years plan with respect to the Rigid Packaging business, how are you planning to grow it from small -- as of now, it's like a very small chunk of our business. Our main business is still coming from specialty like film, specialty, which includes specialty, semi-specialty and base films. So what's your plan on that front? And why I am asking this particularly because there has been a robust demand seen for Rigid Packaging across the FMCG business. So I just want to.

You're absolutely right that this is showing a very robust growth. That is the reason that with very minimal CapEx, we have been able to recently work towards growing our capacities by 50% -- with the new capacities, we should be able to do INR 250-plus crores of revenue. So this year, we expect to grow from INR 100 crores of last year revenue to INR 150 crores, INR 160 crores this year. And next year, we would like to take this business to INR 200-plus crores.

And there will be a margin improvement as well, right?

Absolutely. Last year, we were making EBITDA losses. And the first quarter without taking the sales tax incentive that we got, the normalized margins are 7% EBITDA margins.

Mr.KV may we request you return to the question queue for a follow-up question. [Operator Instructions] The next question is from the line of Jahnvi Shah from Share India.

Congrats on the results. Just wanted to ask, can you just provide some details on the capacity utilization for the Film Specialty and the Rigid Packaging? -- what is the utilization for each other?

So in the film, we still have 15% capacity to be utilized, which we expect largely to be utilized over the next 2 quarters. Specialty Chemicals usually have 15% to 20% capacity more. Plastics, we are already adding 50% more capacity. Last year, we did INR 100 crores, and we expect to double it by next year. We should do INR 200-plus crores next year.

So for the utilization side, like it is a 100% utilized at the moment.

Sorry?

On the plastic side, the utilization capacity is like 100%.

In the speciality -- sorry , first is on the plastic side. Even with INR 200 crores, we'll have capacities left. And on the other thing, even the specialty side, which is the main focus of the company, we have already done the necessary CapEx in the recent years, and we have a lot of headroom to take our specialty film sales to close to 90% without any significant CapEx.

Okay. Perfect. But sir, I was just asking for the June quarter, what was the utilization? I was asking that.

Yes. In the film business it is 85%.

Okay. And sir, on the Zigly business, we saw that there was a good growth revenue side. Did we break even on the PAT?? Or like what -- can you provide some future guidance for the film on how we're going to move forward on the Zigly business?

See, our gross margins on a net sales basis are close to 50%. Quarter-on-quarter, we are seeing a declining EBITDA loss. Obviously, we need to reach a certain scale before Zigly starts to make money. Right now, we have reached a monthly run rate of close to INR 100 crores. And as we continue to scale up, we will make money, but it is still going to take a couple of years before we start to make money in this business. Annualized run rate of INR 100 crores.

The next question is from the line of [indiscernible] Gupta from Counter Cyclic PMS.

So firstly, I wanted to understand a little bit about the industry. With the increasing raw material prices, are we seeing some of the smaller capacities go offline and is the overcapacity situation correcting itself?

Actually, the larger question right now is the raw material availability. And as I said earlier, that we must complement Cosmo management team to organize the raw material in the last quarter. Honestly, every player had some impact because of raw material. Now how much is the impact to each player is obviously not known to us.

All right, sir. And secondly, if you could, in your best judgment, tell us that what would be the breakeven level of revenue that we are looking at in Zigly and Cosmo Consumer? At what level can we expect these businesses to start making money?

Zigly breakeven should happen around INR 250 crores of revenue. Cosmo Consumer can make money even earlier than INR 100 crores. But given that we want to build a brand in India and then some overseas geographies, therefore, it's very difficult. But in the quarter 1 itself, we are close to breakeven from an EBITDA perspective.

The next question is from the line of [ Aman Kumar Sonthalia ] from AK Securities.

How do we see the growth going forward in next 2, 3 years as far as Cosmo is concerned?

So we have projected a growth of 20% on an overall basis for this year with new businesses growing at 60%. Next year, we are still evaluating in terms of what is the growth potential. So it will be a little early to talk about the next year growth.

And sir, can you share some light on other income because it's very fluctuating. So what type of other income it is?

Sorry, can you repeat your question?

The other income part is very fluctuating because in the same quarter last year, it was around INR 25 crores. Previous quarter, it was around INR 17 crores and this quarter it is around INR 11 crores...

I think part of it is also because of fluctuating foreign currency. As you could see that foreign currency has been going up or down on a very frequent basis. So that is impacting the other income of it.

And sir, -- and what was the Zigly loss this quarter? I think it has increased a little bit from INR 10 crores to INR 15 crores.

Yes, it has increased. The loss widened because we continue to invest ahead of revenue in quarter 1 -- we have four new retail centers, two vet hospital acquisitions are in the pipeline and 20-plus private label launches. The revenue builds over following quarters. EBITDA margin has come down or loss has come down from 82% to 69% with 62% year-on-year revenue growth. The unit economics underneath are strong and improving. Gross margin is 47%. Services are now 64% of revenue sales mix. Private label revenue is up 105% year-on-year and 30% customers are doing repeat business with us. The deliberate shift is towards service and private labels, which are the two highest margin parts of the model, and both are growing faster than the business overall. We are at now 47 centers, 29,000 customers served in the last quarter and a GMV run rate of INR 100 crores annualized in a pet care market growing 22% a year. On capital and structure, we have said we intend to unlock value in the pet care vertical, and we are working on that.

And sir, one last question, sir, what is the current spread in BOPP film?

Sorry?

Current spread in BOPP film?

Yes, it keeps fluctuating on a day-to-day basis. We are not so much worried because our focus is always specialty films.

So there is no such issue related. And how is the demand scenario, sir?

Demand is quite strong.

The next question is from the line of Kevin Gandhi from Capital.

Sir, actually, I was late to the call. Can you please repeat the BOPP and BOPET margins for this quarter and earlier quarter again?

The BOPP margins, including stock gain last quarter was around INR 30 kg and BOPET margins were around INR 7 per kg.