Cosmo Films Ltd - 105.00 Rs
Incorporated in 1976 and promoted by Ashok Jaipuria, Cosmo Films Ltd (CFL) is the pioneer and market leader in the manufacture of biaxially oriented poly propylene (BOPP) film which is widely used as a flexible packaging material. Being non-toxic and totally recyclable this wonder thermoplastic material is also preferred for its superior moisture retention, strength, and flexibility, and better optical properties that provided higher visual aesthetics. Remarkably, CFL is one of the lowest cost producers of BOPP films in the world. It produces a wide variety of BOPP films such as transparent, pigmented, pearlised, antifog, speciality, holography, pressure sensitive, synthetic paper films etc. Of late it also started manufacturing value added and high margin products like thermal lamination films and metallized lamination films. Apart from FMCG sector being the major consumer, BOPP films also finds application in various other industries like textile, food processing, stationary, cigarettes over wraps, cosmetic, toiletries, label films, self adhesive tapes, holography/lamination etc. Due of smaller market size and demand supply mismatch in India, company is presently exporting 60% of its production. Infact CFL is the largest BOPP film exporter from India, supplying to over 60 countries across USA, Europe, Middle East and other parts of Africa.
With its manufacturing plant spread across Gujarat & Maharashtra, CFL currently has an installed capacity of 56000 MTPA of BOPP films, 21000 MTPA of thermal lamination films & 3000 MTPA of metallized films. Despite the industry going thru an over capacity scenario in domestic as well as international market, CFL has been working at 100% capacity utilization coupled with regular expansions. It is still confident of future growth and is further expanding its BOPP capacity to 96000 metric tonne by 2009 and 136000 metric tonne by 2010. At the same time, its capacity of thermal and metallized films will be increased 24500 tonne and 6600 tonne respectively by 2009. To maintain and grow its bottomline, CFL is focusing on value growth compared to volume growth by selling more value added specialty products like multi layer barrier laminates and thermal lamination films on paper based products, where margin are much better. On the other hand it is targeting higher end profitable markets to improve its realization and accordingly has set up a wholly owned subsidiary in USA recently. Simultaneously it has been constantly expanding its customer base by providing cost effective innovative packaging solutions to its customers.
Financially, company reported encouraging nos for the March qtr and ended FY08 on quite a robust note. Sales improved by nearly 10% to Rs 585 cr but net profit increased by whopping 80% to Rs 44.50 due to better efficiency and higher other income. It reported a healthy EPS of Rs 23 and declared 50% dividend which gives a yield of almost 5% at CMP. To fund its ongoing expansion company has allotted 31 lac warrants to promoter group to be converted @ Rs 107. Because of organized retailing, increasing mall culture and higher spending capacity, FMCG and food processing industry is witnessing phenomenal growth and hence domestic BOPP market is also growing @ 15~20 % per annum. Moreover, as per capita BOPP consumption in India is much lower compared to western and other Asian countries, the potential for demand growth is quite high. Secondly, company is looking to maintain its 18~20% growth in exports despite the rupee appreciation. However, rising crude oil prices may affect the margin of the company in future. In short, although no extra ordinary growth is expected for FY09, still it can register a topline of Rs 625 cr and bottomline of Rs 45 cr which leads to an EPS of Rs 20 on fully diluted equity of Rs 22.50 cr. Considering company’s leadership position, integrity of management, massive gross block of more than 450 cr, dividend yield, huge reserves etc, scrip is trading fairly cheap at an enterprise value of less than Rs 350 cr. Investors are advised to buy at current levels as scrip has the potential to appreciation 50% in 12~15 months.
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