Cosmo Films – Diffentiated player in commodity business

Guess I slipped up and Q4 was acutally worse than Q3. Though at EBITDA levels it wasnt that bad given what happened to others, particularly Polyplex.

This worsens the outlook for FY24 somewhat. Moreover:

1. They will go slow on Zigly as they may not want to increase losses from there, given the main business is going thru an extremely rough patch (Management says the margins in commodity business are at level which is EBITDA -ve). Likely Acquisition of some online pet care company (small one) seems to point out that the store rollout will be scaled down in FY24 and more emphasis on online sales. This is corraborated from the fact that there seems to be no new store launch in last 2 months, to my knowledge.
2. The speciality chemical business doesnt seem to be taking off the way it was expected. Management doesnt want to add capacity immediately which means, it is performing below target.
3. This quarter they did not report the speciality sale for the quarter, but gave for the year. Doing a bit of calculation, it seems flat QoQ – which while not good, at least, is not bad news.
4. Balance Sheet and Cash remains very healthy which is heartening, and they can still fund the entire capex of 450-500 Crore for next 2 years from internal accurals, though most likely they will fund a large part thru cheap export based debt.

Bottomline, ROCE is under pressure in the short term, falling below 20%. Let’s see whether Q1 is better. Management did say that in May some marginal improvemen is there. Comparitively, the quality of business of Cosmo does seem significantly superior to Indian PFB business of competitors and I am more convinced about its transition to semi-speciality or semi-commodity business (as one may want to look at it).
Disc : invested