Cosmo First Limited | Packing a Punch: All Set To Get Its Mojo Back - Share India Securities

CMP - Rs.775 | TP - Rs. 1,200 | Upside - 55%

Cosmo First Limited (Cosmo) is one the leading BOPP (packaging films) players in India with an increased focus on high margin specialty/semi specialty products. Cosmo commands 70% domestic market share in the specialty BOPP segment and is set to become the largest BOPP player in India post capacity expansion in FY26.

We believe the BOPP spreads have bottomed and could see a sharp uptick (BOPP spreads already up 40% from lows in 1QFY25).

Besides, to reduce cyclicality in film business, the company has ventured into 5 new high growth verticals which are likely to contribute to 16%/8% incremental revenue/EBITDA in FY26.

We estimate EBITDA to grow at 73% CAGR over FY24-FY6E while net profit is likely to jump 5x (low base of FY24) led by recovery in BOPP prices along with incremental contribution from new verticals and higher share of specialty products. Our assumption of BOPP EBITDA spreads for FY25E/FY26E at Rs14/16 are very conservative. We believe Rs 18-19/kg spreads could boost profit by 6x. We value the company at 10x PE multiple to arrive at a target price of Rs 1200 (55% upside)

Key Rationale

- Commodity BOPP spreads at bottom; Limited capacity addition to push prices higher: Commodity BOPP gross margins in FY24 have been at decadal low levels of Rs10-12/kg as compared to average spreads of Rs25/kg and peak spreads of Rs40/kg post Covid. This was mainly on account of a 25% increase in BOPP capacity in a short time frame of 18 months (FY22-FY23). No new major capacities are expected in FY25 in the BOPP segment

- 80% volume target from specialty/semi specialty products to boost margins: The share of specialty/semi specialty volumes increased from 38% in FY19 to 64% in FY24. The high margin specialty business contributed 33% of volumes in FY24. Cosmo has targeted the share of specialty/semi specialty business to reach 80% of volumes by end of FY26. We estimate every 1% increase in contribution from specialty films to add Rs40-45m to EBITDA.

- New Businesses to Contribute 16% of Revenues by FY26: To reduce cyclicality, Cosmo ventured in to 5 new verticals-1)Metallized Capacitor films; 2)Rigid Packaging; 3)Specialty Chemicals; 4) Sun Control and Shrink films; 5) Pet Care Business(Zigly). The 4 business verticals (apart from Pet Care) are expected to account for Rs745m of incremental EBITDA (14% of total EBITDA).

- Valuation & View: We estimate revenue/EBITDA/net profit to grow at 22%/73%/125% over FY24-FY26E led by sharp uptick in BOPP gross spreads supported by incremental revenue/EBITDA of Rs 6325/445m from new verticals. D/E is likely to peak at 0.7x in FY25 with final leg of capex spends of Rs3bn. We value Cosmo at 10x PE with a FY26 TP of Rs1200

Shares of Cosmo First Limited was last trading in BSE at Rs. 786.90 as compared to the previous close of Rs. 785.05. The total number of shares traded during the day was 39754 in over 2013 trades.

The stock hit an intraday high of Rs. 800.00 and intraday low of 767.45. The net turnover during the day was Rs. 31243864.00.