Cosmo Films Ltd - Rs 60.00
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 dominant players in the BOPP market in India with a 23% market share and also 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 50% 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. Importantly, company is the only India player to manufacture thermal laminated films which is a high margin business. 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 MTPA by March 2009 and 136000 MTPA by March 2010. At the same time, its capacity of metalized films will be enhanced to 6500 tonne by March 2009 & further to 10500 by March 2010. The company has even started a coating film with a capacity of 12000 MTPA last year. 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.
Ironically, the per capita consumption of BOPP in India is just 130 gm compared to world average of 660 gm, hence proving to be a major indicator for growth potential, considering the retail revolution in the country. Hence the total domestic size of BOPP is around 160,000 TPA with 6 major players, who supply nearly 90% of consumptions. 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. Secondly to boost up its growth momentum, CFL has adopted an inorganic growth strategy and couple of days back only finalized to purchase the GBC Commercial Print Finishing business from ACCO Brands Corporation U.S.A. With revenues of approximately $100 million, GBC Commercial Print Finishing is a leader in the industry, providing thermal lamination films and equipment in Europe, North America, Japan and the Pacific region. It has three manufacturing sites - Hagerstown in Maryland, USA, Kerkrade in Netherlands and Asan in Korea. However terms of the transaction have not been officially disclosed yet and the deal is expected to get complete before Sept 2009.
Financially, company has been reporting encouraging result despite very sharp up down movement in crude oil prices. Incidentally, the recent crash in crude oil price will bring down the input cost considerably as polypropylene resin and ethylene vinyl acetate forms the major raw material for the company. But at the same time company has to proportionately reduce its product prices as well. Recently for the Dec qtr, CFL reported 10% decline in sales to Rs 135 cr whereas its profit fell by 40% to Rs 7 cr. But notably, company was able to maintain its OPM of 15%. Company has already posted an EPS of Rs 17 till date and may end FY09 with sales of Rs 650 cr and PAT of Rs 40 cr i.e. EPS of Rs 21 on current equity of Rs 19.40 cr. It may declare 40% dividend for FY09 which gives a yield of nearly 7% at CMP. To fund the expansion company has allotted 31 lac warrants to promoter group to be converted @ Rs 107 before August 2009. But looking at the market conditions, promoters may let it lapse and forgo the 10% as CMP is almost 40% lower than the conversion price. Considering company’s leadership position, integrity of management, dividend yield, huge reserves etc, scrip is trading fairly cheap at an enterprise value of Rs 275 cr. Investors are strongly advised to buy at current levels as scrip can easily appreciate 50% in 12~15 months.
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