Q1 demonstrated that resiliency IMO. Jun/Jul have run with commodity margins at half of earlier level (likely 20-25/kg). Wght Avg according to management for Q1 was at 35 down 20%+. Q2 will further help clarify on this point. I believe prices are simply depressed due to lower margins prevailing in the market. The moment margins correct to 35+ the same traders will be driving it up.
You have correctly articulated that Cosmo had no new capacity for last 2-3 years. Let me further add that new capacities coming in will take 1-2 years to achieve reasonable margins and 3-4 years to get to 20%+ ROCE. Zigly, ideally should be an investment case for next 3-4 years till they drive it up beyond 500cr. Speciality Chemicals won’t be a big contributor bottomline wise, unless it is driven to 1000 cr levels over 3-4 years.
Yet, I believe a re-rating is due within 4-5 quarters. Market don’t wait to see the actual results come in – it just needs to believe it will come in and that the business has insulated itself against commodity fluctuations. A buyback is a very strong signal towards that – and that is why I believe re-rating will follow buyback. And buyback will happen when margin visibility is stable and BOPET line has gone on track smoothly. I expect Q3 results will show the way.
Also management seems to be harping a lot on ROCE. Buybacks and dividend payouts are a great aid to boost ROCE and ROE. Another factor is Polyplex. If they do a buyback Cosmo will likely follow.
Let’s see how things pan out …
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