SRF results came in. Poor show from the Packaging Films business. Taking out 2 excerpts from their concall:
- Our Packaging Films Business reported a revenue of INR1,203 crore in Q3 FY ’23. The business faced headwinds with several new lines getting operationalized, both in the BOPET and BOPP film segments in India and overseas. In addition, a decline in global demand, elevated energy costs in Europe, adversely impacted our Hungary operations. Surplus supply in the near term are unlikely to get corrected. But we do believe that BOPP will start to witness an improving trend going forward.
- This business has a supply situation that is there in the market today, especially in BOPET. We believe that while there will be some negatives around it, we should be better off given our customer contracts, given our value-added product profile, given our R&D capability and given our position with some of our key customers. So while the industry will go through, let’s say, to a certain extent an extended lull, BOPP should still do better that BOPET
Takeways –
- Packaging Films industry is in for tough time for next few quarters (“extended lull”). BOPP will be relatively better off than BOPET.
- Cosmo should outperform industry being heavily concentrated in BOPP and its claim towards speciality portfolio which is by and large insulated from capacity glut.
- I maintain my views that Q3 will be the bottom for Cosmo (business performance wise) and then it will move up from there. How fast? Depends upon
(a) pace of commodity margin revival to an extent
(b) whether they are able to increase their BOPP speciality sale (Q2 was down compared to Q1) and
(c) when BOPET speciality products starts selling
Q4 will see some demand revival as global intventory levels correct out and post christmas ordering begins. But I guess real pace in EBITDA growth will pick up Q1 FY24 onwards. In any case EPS will get a 3.84% boost in Q4FY23, ceteris paribus, thanks to buyback.
Disc:Invested
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