packages to bring down the unit cost per pack. There is also a shift to thinner films to reduce the amount of packaging
consumed. Abroad, the shelf life for food products is much lower. In India, the shelf life is around 6 months for most
products. These over-specifications are now coming down.
In the packaging cycle, where is your entry point?
Polypropylene resin is a product of the petrochemical industry. We convert this polypropylene (or PP) resin into a film.
We then sell it to a converter who does the printing, lamination and pouching, which is a separate industry. The converter
then sells it to the end customer which could be a large FMCG company. We come in where the resin is converted into a
film. Cosmo Films is one of the leading players in production of biaxially oriented polypropylene (BOPP) films. The
product is used mainly by FMCG players. It is mostly used for biscuit packaging, potato chips, textile packaging and
cigarette packaging.
What is the size of the industry in India and abroad?
The packaging industry globally is around US $450-500 billion. This includes all substrates such glass, plastics, paper,
metals etc. and the converted products. It is growing at 3-4% annually. Globally, flexible packaging (eg. plastics) is
growing at a much faster rate than other substrates. Within the flexible packaging space, Biaxially oriented polypropylene
(BOPP) is the material of choice and is consumed around twice as much as other materials like polyester.
In India, the consumption of BOPP is the same as polyester. Traditionally, India has been a polyester market and is slowly
switching over to BOPP. The yield is much higher in BOPP as it is a lighter material compared to polyester.
The market in India for BOPP is 160,000 to 170,000 MTPA while globally it is 4.7 million tonnes and growing at 6%.
What growth is being witnessed?
There is a lot of capacity expansion happening. Around four years ago, the capacity utilisation globally was around 72-
73%. Because of strong demand globally, over the last two years, it has risen to around 77%. As is the case with most
commodities, when utilisation levels start increasing, people are willing to add more capacities.
In India, the BOPP market is growing at around 15-20%. The trigger here has been wide growth in the organised retail
industry. Globally, 70% of BOPP consumption is by the food sector. In India, it is only around 40% because food
packaging is still unorganised. As more organized retail players come into India, the growth of BOPP will only increase as
food packaging drives the growth for BOPP.
You are also in the thermal lamination space.
In wet lamination, which is most common in India, solvents are used. Some of these solvents are not good for the
environment. In thermal lamination, which is dry lamination, heat and pressure is used. Thermal lamination is more
environmentally friendly and the yield is much higher. Globally, there is a trend towards dry lamination.
What is your current capacity and what are your expansion plans?
We recently announced an investment of Rs.15 cr. for buying 2400mm wide metallizer for further capacity addition in our
metallizing business.
At present, our capacity is around 56,000 TPA for BOPP. Thermal lamination is currently at 21,000 TPA. In our
metallizing business, the capacity is 3,600 TPA while for coated products it stands at 1800 TPA.
Going ahead, BOPP would be 96,000 TPA early next calendar year. By the end of 2009, we see our BOPP capacity at
136,000 TPA. Thermal lamination would be around 25,000 TPA by the end of this calendar year. Metallization would be
9,600 TPA by middle of next year and our coating capacity would remain the same at 1,800 TPA for some time.
What is the capex plan for the expansion? How is it being funded?
The capex plan for BOPP's first line would be Rs.135 cr. while for metallization, the spend would be Rs.15 cr. Around
Rs.100-101 cr. would be debt. The promoters would bring in additional equity by warrants, which is around Rs.30-35 cr.
The rest would come from internal accruals. Our exports are close to 60% in value terms with sales amounting to around
Rs.332 cr. for FY08.
Brief us on your financials.
PAT has increased by 79.3%. Total income FY08 was Rs.591 cr. as against Rs.539 cr. during FY07. EPS improved to
Rs.22.89 from Rs.12.77.
What are the entry barriers in this business?
The challenge is now operational excellence as technology and finance are no longer entry barriers. BOPP is not easy to
manage and you need to be efficiently running your lines to be most cost effective.
What is the cyclicality in this industry? How do you hedge against the cycle?
The industry becomes cyclical when people start expanding capacity without understanding the demand. The cyclicality
is also linked to oil prices as there is 60-70% correlation of resin prices with oil. So far, we have been able to pass on the
higher input costs.
One way of hedging is by product diversification and that is why we have thermal lamination. We are adding value
added products like labels. The other hedge is diversifying the customer base which is something that we have been able
to do successfully. We have an equal split between our domestic and export revenue (export 57%, domestic 43% for
FY08).
