Mr Upal Roy, Chief Strategy Officer, Cosmo Films Ltd,

Tag : pp chips
Mr Upal Roy, Chief Strategy Officer, Cosmo Films Ltd, Jun 20, 2008

Cosmo Films Ltd (CFL) is a leading manufacturer and exporter of Bi-axially OrientedPolypropylene (BOPP) Films in India. The company which is promotedby Ashok Jaipuria is also one of the largest manufacturers ofthermal lamination films exported to Europe and US. The company wasawarded Top Exporter award from Dun & Bradstreet (D&BIndia) and Export Credit Guarantee Corporation of India Ltd. (ECGC)in the chemicals, petrochemicals and plastics sector under thelarge Indian exporters' category.

Upal Roy, Chief Strategy Officer, Cosmo Films Ltd, is responsible for formulating the companys strategy for mediumand long term. He is also responsible for Marketing and IT. Beforejoining Cosmo in 2007, Upal worked for 11 years in DuPont in avariety of roles ranging from Finance to HR to marketing, his lastposition being Business Manager DuPont Fluoroproducts and GlobalMarketing Manager for Signage, Fluoropolymer Solutions. Prior tojoining DuPont, Upal was employed by Citibank in the GlobalConsumer Bank Division, in Chennai, India. Upal started hisprofessional career with Texaco (now Chevron Texaco) in Houston,USA in 1992 as a business analyst in the Information TechnologyDivision. He has a B. Tech (Metallurgical Engineering) from IndianInstitute of Technology, Kanpur followed by a MS (MetallurgicalEngineering), University of Missouri, USA and a MBA from RiceUniversity, Houston.
In an interaction with Anil Mascarenhas of India Infoline , Upal Roy says, The challenge is now operational excellence astechnology and finance are no longer entry barriers.
Are you seeing a trend where package sizes are shrinking in foodpackets? What impact would this have on companies such as yours?
India is a unique market. The packaging requirements are generallyover specified as food has to be packed keeping in mind differenttemperatures as they are sent to different parts of the country.There is a trend in reducing the size of packages to bring down theunit cost per pack. There is also a shift to thinner films toreduce the amount of packaging consumed. Abroad, the shelf life forfood products is much lower. In India, the shelf life is around 6months for most products. Those over-specifications are now comingdown.

In the packaging cycle, where is the entry point your companymakes?
Polypropylene resin is a product of the petrochemical industry. Weconvert this polypropylene (or PP) resin into a film. We then sellit to a converter who does the printing, lamination and pouching,which is a separate industry. The converter then sells it to theend customer which could be for example one of the large FMCGcompanies We come in where the resin is converted into a film.Cosmo Films is one of the leading players in production ofbiaxially oriented polypropylene (BOPP) films. The product is usedmainly 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- 500bn. Thisincludes 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 muchfaster rate than other substrates. Within the flexible packagingspace, Biaxially oriented polypropylene (BOPP) is the material ofchoice and is consumed around twice as much as other materials likepolyester.

In India, the consumption of BOPP is same as polyester.Traditionally, India has been a polyester market and is slowlyswitching over to BOPP. The yield is much higher in BOPP as it is alighter material compared to polyester.

The market in India for BOPP is 160,000 to 170,000 tons per annumwhile globally it is 4.7mn tons and growing at 6%.

What is growth being witnessed?
There is a lot of capacity expansion happening. Around four yearsago, the capacity utilization globally was around 72-73%. Becauseof strong demand globally, in the last two years, it has risen toaround 77%. As is the case with most commodities, when theutilization levels start increasing, people are willing to add morecapacities.

In India, the BOPP market is growing at around 15-20%. The triggerhere has been wide growth in the organized retail industry.Globally, 70% of BOPP consumption is by the food sector. In India,it is only around 40% because food packaging is still unorganized.As more organized retail players come into India, the growth ofBOPP will only increase as food packaging drives the growth forBOPP.

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 thermallamination, which is dry lamination, heat and pressure are used.Thermal lamination is more environmentally friendly and the yieldis much higher. Globally there is a trend towards dry lamination.

What is your current capacity? What are your expansion plans?
We recently announced an investment of Rs150mn for buying 2400mmwide metallizer for further capacity addition in our metallizingbusiness.

At present, our capacity is around 56,000 tpa (tons per annum) forBOPP. Thermal lamination is currently at 21,000 tons. In ourmetallizing business, the capacity is 3,600 tpa while for coatedproducts it stands at 1800 tpa.

Going ahead, BOPP would be 96,000 tpa early next calendar year. Bythe end of next calendar year, we see our BOPP capacity at 136,000tpa. Thermal lamination would be around 25,000 tpa by the end ofthis calendar year. Metallization would be 9,600 tpa by middle ofnext year and our coating capacity would remain the same at 1,800tpa for some time.

What is the capex plan for the expansion? How is it being funded?
The capex plan for BOPPs first line would be Rs1. 35bn while formetallization, the spend would be Rs150mn. Around Rs1bn to Rs1.1bnwould be debt. The promoters would bring in additional equity bywarrants, which is around Rs300mn to Rs350mn. The rest would comefrom internal accruals. Our exports are close to 60% in value termswith sales amounting to around Rs3.32bn for the year ending 2008.

Brief us on your financials.
PAT increased by 79.3%. Total income for the financial year ending2008 was Rs5.91bn as against Rs5.39bn during financial year ending2007. EPS improved to Rs22.89 from 12.77.

What are the entry barriers in this business?
The challenge is now operational excellence as technology andfinance are no longer entry barriers. BOPP is not easy to manageand you need to be efficiently running your lines to be most costeffective.

What is the cyclicality in this industry? How do you hedge againstthe cycle?
The industry becomes cyclical when people start expanding capacitywithout understanding the demand. The cyclicality is also linked tooil 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 wehave thermal lamination. We are adding value added products likelabels. The other hedge is diversifying the customer base which issomething that we have been able to do successfully. We have anequal split between our domestic and export revenue (export 57%,domestic 43% for year ending March 31, 2008).

Is there a slowdown in the western countries in BOPP?
There is no downward trend in consumption. But there is somemigration happening in the BOPP manufacturing base. Many units inNorth America, Europe and Japan (earlier in 1990 almost 70% of BOPPmanufacturing was concentrated in these countries, now it hasdropped to under 40%) are being shutdown as it is not verycost-effective to run them. This is where companies like oursbenefit and that explains our higher exports too.

What is your message to shareholders?
We are very optimistic about the future and are going ahead withcapacity expansions. Packaging will remain a key growth story inIndia given the changing trends.

Cosmo Films has a lot of inherent strengths. One of our keystrengths has been our strong R & D and ability to innovate.Thermal Lamination is an example of this. We also work very closelywith our immediate transactional as well as with the end customerto jointly develop packaging solutions.

We participated in Interpack 2008, the largest global exhibitionfor packaging at Dusseldorf held every 3 years and anotherexhibition related to printing. The response was very encouraging.European countries are looking at emerging markets for sourcingtheir needs and Cosmo Films is geared to meet this demand.