Commodity Margins were lower than my expectations. Management basically expects it to remain soft for a couple of quarters before it firms up. To me it means Q2 will be lower than Q1 and Q3 might come back to Q1 level.
Speciality Chemical ramp up looking good. Don’t have clarity on when the capacity addition can materialize for that. I believe Cosmo should be driving hard on this area with ahead of time additions as capex risk is low in this business.
Zigly guidance for 15 crore is a disappointment. I was expecting a more start up kind of mentality and an aggressive rampup riding on excellent cash generation from the films business. They believe they are going fast though.
While FY23 results will be damp given commodity margin decline, Cosmo will have an opportunity to showcase its de-commoditized business model. If it sails thru well enough and BOPET plant goes onstream smoothly, then I would like to bet on two things :
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Buy back. – management has no good use of cash being generated @100 crore per month. Capex is strategically debt funded as export credit is cheap. Assuming 1000-1200 crore capex over next 3 years , Cosmo might need to put in 500-600 crore max. The best potential use of accumulated cash would be a maximum allowed buy back of 25% of reserves value and keeping dividend at 20% distribution rate or even lower. Q3 seems logical for this.
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Re-rating – likely to follow buy back completion + 1-2 quarters. The biggest challenge is market had historically always valued it in mid single digits multiple. Going to double digits will need some good set of relatively larger investors to come in potentially or a bull run in small caps.
Disc – invested. No recommendations. DYOR.
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