Specialty films player Cosmo Films has had a subdued second quarter ended September 2016 on account of fall in raw material prices, its management has said.
Cosmo Films’ total income in Q2FY17 fell 7 percent at Rs 433 crore from Rs 464 crore in the year-ago period while operating profit too slipped 8 percent at Rs 45.5 crore (YoY). Profit after tax surged 2 percent at Rs 21.1 crore from Rs 20.8 crore.
Pankaj Poddar, CEO of Cosmo Films attributed the subdued performance to polypropylene prices were down which was passed down to customers. He added that volumes went marginally up 3 percent during the quarter.
Poddar said the company expects strong volume growth in FY18 as benefits from capacity expansion in the fourth quarter of the current fiscal to kick in.Below is the verbatim transcript of Pankaj Poddar’s interview to Nigel D’souza & Reema Tendulkar on CNBC-TV18.
Nigel: Numbers appeared a tad bit subdued, nothing great really about these numbers. The topline dipped. You were telling us polypropylene prices were under pressure. What is the outlook on prices going ahead? And also for the past quarter, how did the volumes do? Were they higher?
A: We compare the volumes versus the last quarter, they were higher and given that capacity is already utilised completely, we are able to generate these higher volumes through the improvement to do internally.
As far as the revenue is concerned, it is down largely because of two reasons, versus last year, year-on-year. One is that polypropylene prices are down, so these are passed on to the customers and second, there is some pressure that we observed in the last quarter on the margins largely internationally and that impact was there in India as well.
Reema: Some numbers then. You said volumes went up this quarter. By how much and how much did you have to cut down your prices this quarter?
A: The volume was marginally up by roughly three percent, but as to the margins are concerned, they were down by roughly 250 basis points. And in spite of that we have been able to have stable earnings before interest, taxes, depreciation and amortisation (EBITDA) number and that is largely driven by all the internal efficiencies and increase in speciality film sales. However, speciality sales have once again, on a year-on-year (Y-o-Y) basis, have grown by 10 percent.
Nigel: Give us some forward looking statements. Polypropylene prices, have they bottomed out currently. Margins from here on, can you do much better in terms of margins as well. Has that as well bottomed out? Give us some sense going ahead.
A: As far as polypropylene prices, to some extent it is linked to oil and oil has been quite range bound. If you really see in the last one year between USD 40 and USD 50 per barrel, so there is some correlation between oil and this and the way oil will proceed, polypropylene would kind of move in the same direction and given that it has been range bound, we expect that it should continue to remain range bound and therefore, polypropylene should stay range bound.
As far as our revenue numbers are concerned, we should see a very good jump in next year next to next year given that there is 40 percent capacity expansion that is going to come up in quarter four. Therefore, it should improve our EBITDA numbers and all other numbers once the new volume numbers start to come up in the financial numbers.
Reema: What did you say your capacity utilisation currently is, 100 percent?
A: Yes, it is fully utilised.
Reema: And once the new capacity comes on board, are you confident that you will be able to utilise all the additional capacity which flows through into your revenues? Is there that much demand?
A: The global market is fairly large and it is eight million tonnes and even with this new capacity, Cosmo would be only 200,000 tonnes. So, it is not a great addition from the global capacity perspective. Obviously, it does take a few months or one or two quarters initially to ramp up to the entire capacity utilisation but I see no concerns why we should not be able to use the demand completely. I am absolutely confident that we will be able to fairly quickly utilise the entire capacity as such.
Nigel: Give us some guidance going ahead. Year to date, that is the half year mark, you are down close to around 7 percent in terms of revenues. Last year, you did around Rs 1,700 crore. So, this year, what should your revenue number look like? And more importantly, in FY18 what should your numbers look like? I remember, we had the promoter on the channel and he said you are looking to be a USD 1 billion company in the next five years. So, you should be moving in that direction, what kind of numbers can we look at in FY18?
A: As far as this year is concerned, I do not expect any significant jump in revenues because the new expansion is coming only in Q4. We will be able to commercialise the production in this year itself but there will be a small volume growth from there.
However, as far as next year is concerned, there should be a pretty significant growth in the volume numbers. I cannot give you a number in terms of an absolute value because of the fact that polypropylene keeps moving and therefore it is difficult to put a number to it. In FY19 we should again see a very good growth because we intend to grow reasonably well in the next five years and therefore, you should see from FY18 every year good growth in our revenue numbers and that is what we are targeting at.
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