A PROJECT ON

TURN AROUND AND COMPETITOR ANALYSIS OF

COSMO FILMS LTD
In Partial Fulfillment for the Award of the Degree of

Bachelor of Arts in Economics

Faculty Guide:

Submitted By:

Ms. Manisha Raj

Assistant Professor
Amity School of Economics
Amity University, Noida

Rishika Singh
A6018214014
B.A(H) Economics 2014-17

AMITY SCHOOL OF ECONOMICS

AMITY UNIVERSITY
Sector 125, Noida
July 2016

Candidates Declaration
I hereby declare that the work, which is being presented in the project, entitled
Turn Around and Competitor Analysis of Cosmo Films Ltd in partial fulfilment for the award of
Degree of Bachelor of Arts in Economics submitted to the Amity School of Economics, Amity
University, Uttar Pardesh is a record of my own investigations carried under the Guidance of Ms.
Manisha Raj of Amity School of Economics and Mr. Neeraj Jain, CFO Cosmo Films Ltd.

I have not submitted the matter presented in this report anywhere for the award of any other Degree.

Name: Rishika Singh

Enrollment No: A6018214014
Programme: B.A(H) Economics
Batch: 2014-17

Counter Signed by:

Ms. Manisha Raj
Assistant Professor
Amity School of Economics
Amity University, Noida

Amity School of Economics

CERTIFICATE

This is to certify that Rishika Singh, enrollment no. A6018214014, B.A.(Honors) Economics 2014-17,
has presented a seminar on Turn Around and Competitor Analysis of Cosmo Films Ltd in partial
fulfilment for the award of the degree of Bachelor of Arts in Economics under Amity University,
Uttar Pradesh.

Date: 1st August, 2016

Faculty Guide:
Ms Manisha Raj
Assistant Professor
Amity School of Economics

Prof.(Dr.) Shalini Singh Sharma

Director
Amity School of Economics

ACKNOWLEDGEMENT
It is not possible to prepare a project report without the assistance &

encouragement of other people. This one is certainly no exception.

On the very outset of this report, I would like to extend my sincere & heartfelt
obligation towards all the personages who have helped me in this endeavor.
Without their active guidance, help, cooperation & encouragement, I would not
have made headway in the project.
I am ineffably indebted to Mr. Neeraj Jain (CFO Cosmo Films Ltd.) for conscientious
guidance and encouragement to accomplish this assignment.
I am extremely thankful and pay my gratitude to my faculty Ms. Manisha Raj for her
valuable guidance and support on completion of this project in its presently.
I extend my gratitude to Amity School of Economics, Amity University and Cosmo films
ltd for giving me this opportunity.
I also acknowledge with a deep sense of reverence, my gratitude towards my parents and
member of my family, who has always supported me morally as well
as economically.
At last but not least gratitude goes to all of my friends who directly or indirectly
helped me to complete this project report.
Any omission in this brief acknowledgement does not mean lack of gratitude.

TABLE OF CONTENTS
Particulars

Page no.

Abstract

Rationale of the study

Chapter 1
Introduction to BOPP Industry

Overview of Cosmo Films Ltd.

11

Company Profile

11

Literature Review

17

Methodology of the Study

18

Chapter 2
Business Model Analysis

20

Analysis of Past Performance

21

Future prospects

23

Chapter 3
Competitor Analysis

28

Chapter 4
Conclusion

31

References

32

Comments

ABSTRACT
Cosmo Films Ltd is is pioneer of Biaxially Oriented Polypropylene (BOPP) Industry in India and
one of the global leaders and manufacturers of BOPP Films. It is one of the lowest cost BOPP
manufacturer and is the fifth largest player in the world. The company manufactures packaging films,
lamination films, label films and industrial films for various packaging applications with production
and distribution centers in US, Korea, Netherland & global channel partners in more than 45
countries. Cosmo has a BOPP manufacturing capacity of 136,000 MTPA and a sales turnover of USD
215 Million (INR 1.472 Billion) in FY 2014-15. Cosmo film is the only company in the world that
provides both film & equipment.
The company has recently undergone a turnaround due to reduction is variable cost, change in
strategy, improving product mix and upgradation of machinery. This turn around has fostered
significant increase in the EBITDA by manifold in the FY 2015-16. The demand for BOPP film is
growing at 12-15 % per annum. The company is anticipating a strong demand for BOPP films in the
coming years, especially from the FMCG sector, which prompts it to expand its BOPP production
capacity by 42%.
In this project the financial statements of the company and its competitors are analyzed to understand
the reason for the turnaround and how is the company functioning with respect to its competitors.

RATIONALE OF THE STUDY

The purpose (objective) of the study can be divided into two parts:

a) Firstly, this study aims at finding out the reasons for the sudden increase in profits over
the last two years. Also, finding if the company can sustain the increased profits.
b) Secondly, competitor analysis has been done to find out how efficiently our company is
performing in comparison to the competitors. The rationale behind this study is that it will
provide the company with information which will help in better decision making
regarding the employee expenses, administrative expenses and other costs to minimize
expenses and increase profits.

CHAPTER 1

INTRODUCTION TO BOPP INDUSTRY

BOPP stands for Biaxially Oriented Polypropylene. BOPP is a strong thermoplastic polymer. BOPP

film is most commonly used in candy wrappers, chips packaging, vitamin multi-packs, CDs
and DVDs. BOPP film exhibit excellent physical and chemical properties such as elongation,
superior tensile strength, excellent stability, improved optical properties, and improved
barrier to water/gases. BOPP films are used in broad range of applications including food &
beverage packaging, medical packaging, personal care packaging, tamper evident films, etc.

The packaging industry in developed as well as developing countries is growing as a result of

an increasing consumption of consumer goods, which in turn drives the need for more
sophisticated packaging. Much of this increased consumption is attributable to higher
disposable incomes of the middle class in developing countries. A thriving consumer goods
market indirectly boosts demand for BOPP. Higher life expectancy is boosting demand in the
pharmaceutical and food packaging market, which in turn is driving the BOPP market.
However, price volatility in raw material prices is expected to hamper the BOPP market. Raw
material used in its manufacture is polypropylene which is a crude oil derivative and hence
subject to crude oil supply and price volatility. New high performance and cost effective
product developments through research & development activities is expected to provide
immense opportunities for the players in the BOPP market.

Asia Pacific is the largest market in terms of production and consumption of biaxially
oriented polypropylene. Growing flexible packaging industry and changing consumer
behavior is expected to drive the market in the region. In addition, governmental regulations
those imposes labelling of consumer products is further driving the market in the region.
Growth in demand from Europe was moderate, but it is expected to gain momentum in the
near few years.

Global biaxially oriented polypropylene market is consolidated with few players present in the
market. Major players are having presence across value chain with backward integration. Market
players are coming up with innovative products for packaging applications. Product innovation forms
the major part of business strategies for the players which requires strong research & development
activities. Mergers & acquisitions are quite prominent in the market to gain regional market share.
Strategic alliances are also part of business strategies for few companies. For instance, Cosmo Films
entered into the strategic alliance with Gujrat Propack and acquired it in 2002 to retain a bigger
market share in. Further, marketing and branding are major factors affecting business strategies
among the BOPP market players. These players adopt aggressive marketing strategies to retain or to
gain market share in regional markets.

Some of the key players in biaxially oriented polypropylene (BOPP) market include Innovia Films,
Cosmo Films Ltd., Dunmore Corporation, Jindal Poly Films, Kopafilm, Ampacet Corporation,
Granwell Products, Taghleed Industries, Coperion K-Tron, Vibac, Borealis AG, Arkema S.A., China
National Petroleum Corporation, Du Pont, The Dow Chemical Company, SABIC, Sinopec Corp,
Exxon Mobil Corporation, Formosa Plastics Group and Eni S.p.A.

This report further analyses one of the major producers of BOPP films, i.e., Cosmo Films Ltd through
its annual financial reports and other data collected through interaction with the employees of the
company.

Structural Analysis
The global consumer packaging market is valued at approximately US$400b and an
estimated US$500b if industrial endmarkets are included. The Brazil, Russia, India and
China (BRIC) markets comprise approximately 30% of global demand, increasing as their
economies further develop. Packaging sales in the emerging markets are expected to continue
to show strong growth both increased consumption and demand for consumer goods drives
the need for more sophisticated packaging, due to a growing middle class.
The macroeconomic environment has been challenging for the packaging industry in recent
years, given pressures on consumer spending and their exposure to fast moving consumer
good (FMCG) producers. The combination of Eurozone economic uncertainty and raw
material and energy price inflation has also had a negative impact on packaging producers.
Growth in emerging markets has been both a threat and an opportunity.
In the course of this work, seven key operational capabilities that successful packaging
companies have in common have been identified. An understanding of these will be helpful
to both strategic and financial investors, as well as packaging management teams, in
challenging or validating current practices and performance.
The seven success factors are:
1. management of raw material inflation,
2. the reduction of waste,
3. effective capital expenditure,
4. operational performance measurement,
5. product and customer profitability management,
6. innovation
7. and global supply chain management.

Factors Affecting Growth of Packaging Industry in India

1. Urbanization
Modern technology is now an integral part of nation's society today with high-end package
usage increasing rapidly. As consumerism is rising, rural India is also slowly changing into
more of an urban society. industrialization and expected emergence of the organized retail
industry is fueling the growth of packaging industry.
2. Increasing Health Consciousness
As people are becoming more health conscious, there is a growing trend towards well packed,
branded products rather than the loose and unpackaged formats. Today even a common man
is conscious about the food intake he consumes in day-to-day life.

3. Low Purchasing Power resulting in Purchase of Small Packets

India being a growing country, purchasing power capacity of Indian consumers is lower; the
consumer goods come in small, affordable packages. Products like toothpaste, fairness
creams in laminated pouches are highly innovative and are not used elsewhere. Low priced
sachets have proved to be extremely popular in smaller towns and villages, where people do
not prefer to buy larger packs due to financial constraints.
4. Indian Economy Experiencing Good Growth Prospects
The Indian economy is growing at a promising rate, with growth of outputs in agriculture,
industry and tertiary sectors. Overall economic growth has proved to be beneficial for the
consumer goods market, with more and more products becoming affordable to a larger
section of the population.
5. Changing Food Habits amongst Indians
Changing lifestyles and lesser time to spend in kitchens are resulting in more incidence of
eating away from homes resulting in explosive growth of restaurants and fast food outlets all
over the country. Demand for products like pasta, soups, and noodles in India, is fueling the
growth of packaging industry in India.
6. New areas:
One area that has been identified as having good market potential is equipment for
manufacturing aluminum beverage cans. Machinery for cleaning and drying containers;
automatic high speed labeling machines and capping machines; sealing machines for cans,
boxes, and other containers; machinery for filling, and closing bottles and cans;
packing/wrapping machines; and moulding machines also offer good prospects.

OVERVIEW OF COSMO FILMS LTD:

THE COMPANY PROFILE
Established in 1981 by Mr. Ashok Jaipuria, Cosmo Films Limited is pioneer of Biaxially Oriented
Polypropylene (BOPP) Industry in India and one of the global leaders and manufacturers of BOPP
Films. It is one of the lowest cost BOPP manufacturer and is the fifth largest player in the world. The
company manufactures packaging films, lamination films, label films and industrial films for various
packaging applications with production and distribution centers in US, Korea, Netherland & global
channel partners in more than 45 countries. Cosmo has a BOPP manufacturing capacity of 136,000
MTPA and a sales turnover of USD 215 Million (INR 1.472 Billion) in FY 2014-15. Cosmo film is
the only company in the world that provides both film & equipment.
The company has a strong and collective research and development team with experience of over 100
person years. The team is well ahead in Product Development Curve with the development of the first
thermal lamination film and first BOPP player to be doing DTP coatings. It is uniquely positioned to
have a mix of BOPP and Value Add Films. The company has good corporate governance and
professional management.
The company has recently undergone a turnaround due to reduction is variable cost, change in
strategy, improving product mix and upgradation of machinery. This turn around has fostered
significant increase in the EBITDA by manifold in the FY 2015-16. The demand for BOPP film is
growing at 12-15 % per annum. The company is anticipating a strong demand for BOPP films in the
coming years, especially from the FMCG sector, which prompts it to expand its BOPP production
capacity by 42%.

Key Advantages of COSMO are:

1. Experience and expertise of producing BOPP films for more than three decades
2. Widest portfolio of BOPP based packaging, labels and lamination films
3. Multiple lines for providing flexibility in operations

4. Multiple warehousing facilities for providing just-in-time services across the globe
5. Dedicated BOPP films R&D infrastructure
6. Dedicated account management teams for key global accounts
The company has expanded its course of operations since its inception and with time it has established
more manufacturing units. Cosmo Films now has five major plants in Waluj, Karjan and Shendra in
India and other two in Korea and USA.

PRODUCT LINE
The companys packaging films are used by the worlds best flexible packaging manufacturers,
servicing leading global FMCG brands, because it is able to provide a solution for every need ranging from optical properties, superior printability and low sealing temperature, to high hot tack,
low COF and stable COF, which are required for any flexible packaging application.

1.

Packaging Films

Printing & Pouching Films

Printing & pouching films are used in the packaging of snack foods, bakery products, ice creams,
fresh foods, chocolates and confectionery, etc.
The company offers superior performance films supporting high quality printing & converting.
Available Types:

Transparent
Matte
Pigmented White/Pearlized
Metalized

Barrier Films
These films provide solutions for two of the biggest challenges the packaging film industry is facing:
[a] reducing food wastage through enhanced shelf life of food products, and;
[b] reducing packaging material consumption through laminate rationalization.
The range of moisture, oxygen and aroma barrier films are solvent-free coated films, which are
generally used in duplex/triplex laminate structures, and offer very good machinability.
Available Types:

Transparent
White
Metalized
Overwrap Films
The range of overwrap films is used in various applications including general overwrap, cable
overwrap and cigarette overwrap.
The cigarette overwrap films are co extruded, low heat sealing and hot slip modified non-treated
BOPP films, which can run effortlessly on high speed machines. Different shrinkage values of these
films support wrapping of both single as well as medium bundled packs.
Available Types:

Transparent
White
2. Lamination Films
The company supplies a wide range of Lamination films used for graphic art lamination through our
network of distributors spread across the globe. Also, they have a range of specialty lamination films
like Velvet, Linen, Silky Matte, Scuff Free and Gluable Stampable films, which are used in high end

print lamination and luxury packaging.

L amination films range can broadly be classified as:

Thermal Lamination Films

Thermal Lamination Films have extrusion coated surface with low temperature melting resin, which
enables the lamination of film to paper products by heat and pressure. Various surface finishes
available add value to the printed surface. These films are available in 18 - 250 microns.
Available Types:

BOPP Based Thermal

PET Based Thermal
Wet Lamination Films
These lamination films are suitable for conventional wet lamination with dispersion, solvent-based,
UV or special hot-melt adhesives. All lamination films are pre-treated on both sides for subsequent
converting (hot stamping, embossing, UV spot varnishing, etc.) These films are available in 9 - 21
microns.
Available Types:

BOPP Based Wet

PET Based Wet
3. Label Films
Label Films play an important role in creating brand value, besides distinguishing the companys
product from the competitors, and ensuring legibility of the information printed on it. Cosmos range
of coated label films enable complete information legibility on a constricted surface area available for
the brand presentation. The transparent label films offer a perfect no label look, while the metallized
labels add to the shelf appeal of the pack.
Depending on the application, the company offers a range of label films, as following:

Label Face Stock Films

Majority of the home care & personal care products around the globe use our label stock films for
their self-adhesive label needs. These films also find usage in imparting functional and aesthetic
appeal in beverage and pharmaceutical products. All the films meant for label face stock are
Universal Printable films; which means that they can deliver superior print performance across
diverse printing processes which include UV, flexography, gravure, letterpress and offset. The films
are also compatible with all ink based systems, i.e., UV, water based and solvent.
Available Types:

Transparent
White

 Metalized
Wrap Around Label Films
Most of the well-known beverage brands use our films for their wrap around label needs. Cosmo
offers films for reel fed as well as cut & stack application.
Available Types:

Transparent
Pearlised
Metalized
In Mould Label (Iml) Films
In Mould labels are getting increasingly popular due to good aesthetics, durability of the label and the
elimination of an additional step of labelling the container. The companys current portfolio consists
of white films with good anti-static and orange peel effect. Transparent films are under
development.
Available Type:

White
Direct Thermal Printable (Dtp) Films
Direct Thermal Printable Films are BOPP films with a proprietary coating which enables
image/impression formation on the film upon contact with the print head of the thermal printer. A
protective layer is generally applied to protect the coated surface from mechanical abrasion, climatic
factors, chemical products etc. The film thus offers good scuff & water resistance. The film also lends
an excellent paper like matte finish and produces a dark image on printing while consuming limited
energy during the printing process. It is used for a multitude of applications like information labelling
(airport baggage tags), manufacturing to retail tracking, POS weight and price labelling, etc.
Available Type:

White
4. Industrial Films
A wide range of ready to use films for industrial applications like adhesive tapes, textile bags, long
lasting printing applications etc. The range of industrial films include:

Adhesive Tape Films

They offer non heat sealable transparent films for pressure sensitive tapes in range of 21-40 microns.
Films are generally offered with one side treated surface for enabling adhesive anchorage with water,
solvent and acrylic based PS adhesives. The films offer excellent flatness, gloss and clarity.

Textile Bag Films

They offer non heat sealable transparent films for textile bags in range of 25-42 microns. Films are
generally offered with one side treated surface for enabling surface printing. Just like the adhesive
tape films, these films offer excellent flatness, gloss and clarity. They also offer good mechanical
properties for pouching applications.

Release Films
They offer transparent, untreated, non-heat sealable films for release liner applications in
12/15/17/18/20 microns. The films offer low surface energy and good optics.

Synthetic Paper
As the name suggests, these films are white opaque treated paper look alike films. They replace paper
in applications where non-tear ability and moisture resistance is desired. The film behaves like paper
in terms of its folding endurance and printability. They are used in applications as varied as flip charts,
calendars & maps, baggage & garment tags, brochures, posters, hotel menu cards, hospital file
folders, nursery books, visiting cards & certificates. These films are available in 40 400 microns.

SALES REVENUE

Cosmo Films Ltd (Cosmo) is strategically placed to exploit growth opportunities in the
flexible packaging industry given the wide range of its products portfolio. In the BOPP films
segment (~65% of revenues), it manufactures packaging, industrial, lamination and label
films. The downstream high margin segments, viz. thermal and coating films, constitute 23%
of total revenues.

LITERATURE REVIEW
Mudar Patherya, Over the years, I avoided companies like Cosmo Films on the grounds
that they were largely oil price proxies, reporting large (and temporary) profits during years
when crude oil prices were weak but reverted to square one when crude oil prices hardened.
Appears I have to finally revise my opinion.
In the past couple of years, this Delhi-based manufacturer of speciality films (packaging,
label, print lamination, and industrial) is gradually evolving its DNA to emerge as relatively
non-cyclical in an otherwise cyclical business. These are some of the ways through which the
firm is reinventing itself:
Sweating assets better. Transforming from a singularly manufacturing-focused company to
sales and marketing-driven organisation. Emphasising on the globalness of its brand.
Educating dealers on its complete product range. Moderating costs. Turning loss-making
units around. Graduating from the commodity to the value-added. The transition is visible
when you compare the performance of the second quarter of FY15 with the second quarter of
FY16.
The above article published in Business Standard highlights the change in operating pattern
of the company that is indicative its growth.
Cosmo is a leading manufacturer of BOPP films in India with a 20% market share. It
provides cost-effective innovative packaging solutions to leading FMCG & global brands.,
as given in a study by Ventura.
The article justifies how the company has been growing at a faster pace than its competitors
and PAT is expected to grow at a robust CAGR of 49% to Rs 91 crores by FY18.

Cosmo Films has a lean working capital across business cycles, reflecting underlying
superior business operation. We expect free cash flows to increase from Rs. 96.7 crore in
FY15 to Rs. 161.0 crore driven by core operational performance. as quoted by Nirmal
Bang.
The above study also lays emphasis on the upward growth pattern of the company and this
report has been use in this analysis.

METHODOLOGY OF THE STUDY

a) Collection of Information: All the information was received from the company. A checklist was
sent to the company requesting to provide with the necessary details. The data regarding the
competitors was taken from their website and other information they have put on the internet for
public use. Majorly all the data used is secondary data and further analysis is done on the given
data to reach various conclusions.
b) Analysis: The annual reports of the company for the last five years and that of its competitors for
the last five years have been analyzed. The cost audit report of the company for the last five years
has also been gone through. The detailed break up of components of some expenses has been
analyzed. The data was put on excel and analyzed on the basis of percentage to net sales.
c) Findings: The observations made from the analysis are based on the annual reports. The findings
help in determining whether the company is growing as its competitors or at a faster pace. Also,
the findings help one understand how has the company registered significant growth over the
previous years.
d) Interaction: I interacted with the Head of departments and the Managing Director. Also, I visited
the plant to understand the manufacturing process and evaluate the systems related to production
activities, receipts and issue of materials and certain other details which were sought to pursue the
study
e) Suggestions and Recommendations: The observations and suggestions made are indicative and
not conclusive.

CHAPTER 2

BUSINESS MODEL ANALYSIS

Cosmo Films has a business model based on business to business (B2B) with strong presence
in global and domestic market. The company caters to clients in more than 100 countries with
a major presence in USA, Europe, Japan and India. With a diversified client base and
complete solution to packaging sector, Cosmo has positioned uniquely to tap increased
opportunities in the BOPP films industry. The company sources polypropylene (a key raw
material) from domestic oil & gas companies like RIL, IOC, HPCL and imports from Middle
East (10 per cent). Raw material cost is ~ 64% of operating revenues and the company
doesnt get benefit of lower input cost in the P&L due to cost plus operating model.
Sustainable improvement in EBITDA margin is largely dependent upon product mix strategy,
better capacity utilization and efficiency in operation (like savings in power cost and
automation reducing man hours etc.)

ANALYSIS OF PAST PERFORMANCE

Good prospects after a challenging FY11-13

The period from FY 2011-13 was a challenging one for the BOPP industry. The industry
witnessed a sharp pull back in realizations owing to a slump in demand resulting in deltas
getting crunched. Most players in the industry reported a 60- 80% dip in profitability.
However, Cosmo Films was able to buck the trend through cost optimization & tweaking
production in favor of higher margin products.

Since then, the demand has picked up resulting in improved financials of the BOPP players.
Cosmo reported revenue CAGR of 14% during FY13-15 to Rs 1647 crore in FY15 and an
EBIT growth of 5% to Rs 74.7 crore in FY15. However, it reported a PAT loss of Rs 5.5 crore

in FY14 owing to a one-time forex loss of Rs 28.7 crore. In FY15 the company reported a
PAT of Rs 27.7 crore owing to better operating efficiencies and higher capacity utilizations.

Financial Performance
The company reported a marginal decline in its revenue numbers during Q2FY16. Net sales
declined by 3.17% YoY to Rs. 435 crores due to a fall in raw material prices which was
partially passed on to the customers. However, EBITDA surged by 83% YoY to Rs. 49.4
crores, led by a decrease in raw material costs. The operating margin also expanded by 890
bps YoY to 11.6%. from 6.0%. PAT increased by a whopping 368% YoY to Rs. 20.78 crores.
Reduction in interest cost supported PAT growth during the quarter.
In FY15, Cosmo Films net sales stood at Rs. 1,646.8 crores, registering a growth of 12.2%
YoY. Its EBITDA dipped by 4.3% YoY to Rs. 104 crores, while margins contracted by 110
bps YoY to 6.3%. PAT grew by 603% YoY to Rs. 27.66 crores. The net profit numbers are not
comparable since there was a one-time exceptional loss of Rs 28.68 crore in the previous
year. Profit before tax and exceptional items grew to 34.89 crore in FY 2015 from 26.88 crore
in FY 14 registering a growth of 29.8%
With capacity expansion across segments, the growth trajectory in revenues (3 Yr CAGR of
13.17 % to Rs 1,647 crore in FY 15) should continue. Cosmo has a varied product basket and
diversified client portfolio which reduces the dependency of the company on a single product
or a single client. We expect Cosmo Films revenues to grow at a 3 year CAGR of 12.7% to
Rs 2,357 crores by FY18E while net consolidated profit after tax is expected to grow at a
CAGR of 49% to Rs 91 crore over the same period. The EBITDA margins (ex OI) and PAT
margins are expected to be at 9% and 3.9% respectively. The effective tax rate is expected to
be range bound between 22-25% due to the tax breaks related to the SEZ facility.

Cosmos Future Outlook

1. FY11-13 was a challenging for the
BOPP industry, it witnessed slowdown
due to fall in demand resulting in deltas
getting crunched. Most players in the
industry reported a 60-80% dip in
profitability. However, Cosmo Films
was able to buck the trend through cost
optimization & changing production in
favor of higher margin products.
2. Improved profitability year over year negative to positive.
3. The BOPP industry is expected to grow at a CAGR of 8.5% by FY 20 on the back of the
rising penetration of packaged foods and disposable income.
4. Capability to substitute other flexible packaging materials such as BOPET, BOPA and
other specialty films, specially coated label papers and aluminum foils provides a superior
edge to BOPP over other packaging products. BOPP also helps to improve the shelf life
of packaged products.
5. The management has indicated that it plans to increase the production of higher value
added variants of BOPP along with thermal and coating films, the contribution of which
is expected to increase to 25% by FY18.
6. COSMO expects to increase in utilizations from 67% in FY15 to 70% by FY18 led by
various technological up gradation initiatives that the company is carrying out in its
manufacturing facilities.
7. Fluctuating EBITDA margin and PAT margin expected to stabilize due to cost
optimization and improving product mix

Reasons for Turnaround

1. In FY 16 the Cosmo maintained its topline at par compared to last year but reduced the
expenditure by 100 Cr from 1577 Cr to 1465 Cr as the cost of raw materials went down
from 1122 Cr to 1002 Cr due to fall in crude oil price which is a major part of expenditure
for packaging industry.
2. Finance Cost went down by 9.8 Cr from 39.88 Cr to 30.18 Cr indicating reduction in debt
of the Cosmo.
3. PAT increased from 27.66 Cr to 96.24 Cr i.e. up by 248% year over year whereas price
has gone up by 386% from low of 84 to 408.
4. The share is still trading at a low PE of 8.91 compared to Industry PE of 18.73
5. To reduce the impact to crude price volatility COSMO is shifting its focus to specialty.
6. COSMO global BOPP specialist has announced plans to install a new BOPP line at the
Karjan plant site near Vadodara by 2017 which will increase the annual production
capacity by around 40%.
7. Demand for BOPP films is expected to increase especially in FMCG sector.

Cost Optimization to Increase Profitability

1. Upgradation of old manufacturing equipment which was earlier consuming higher power
per unit of output. With upgradation in manufacturing lines the power consumption per
unit of output has reduced from 2 Rs/kg to 0.6 Rs/kg. Accordingly, the power cost as a
percentage of revenues has reduced from 7.5% in FY09 to 6% in FY15.
2. The technological upgradation has helped to control man- power requirements to support
the expanded capacity resulting in higher operating efficiencies.
3. Improving operations at the US facility which posted a negative EBITDA of Rs 29 crore
in FY 2014-15 owing to labor issues in the US plant. The management has cleared
hurdles in the US and is confident that the EBITDA loss would reduce to 6.5 crore in FY
2015-16.
4. Shift to value added products to stabilize margins at higher levels.
5. Shift in focus from traditional products like non tape and taped films to modern
techniques like specialty and semi specialty films. These have higher margins and could
boost EBITDA margins of the company going forward.
6. SEZ tax benefit to boost profitability: The Shendra plant, which is dedicated to handle the
export requirements of the company, is located in the Special Economic Zone (SEZ),
close to Aurangabad. Cosmo will get Tax benefit like no income tax for 5 years etc would
accrue to the company since the plant is located in a SEZ. Tax benefits would lower the
companys effective tax rate to the range of 23 to 25%.

Key Risks faced by Cosmo are:

1. Sharp volatility in raw material price:
Sharp fluctuation in polypropylene price may result in volatility in EBITDA margin and
the company might see inventory losses. Notably, raw material cost stands at ~ 64 per
cent of net sales.

2. Delay in expansion plan:

Cosmo Films is expanding its capacity by 60000 MT. New capacity will start
commercial production from April 2017. Any delay in new capacity may affect
net sales and earnings growth in FY18.

An improving trend visible over the last few years due to:
1. Improving Product Mix towards Value Add, with consequently better margins,
2. Sustainable reduction in variable cost (approx INR 25-30 crores pa),
3. Increase in production volume by improving existing manufacturing lines efficiency,
4. USA Subsidiary Turnaround, leading to better consolidated results,
5. New planned capacity expansion by 44% with one of the worlds largest and most
efficient production capability at low financing cost would further help higher asset
turnover along with improved ratios,
6. Global annual BOPP demand is estimated to be approx 7.8 million MT. The global
demand and supply are broadly balanced except China,
7. Currently India BOPP production capability is estimated at approx 500k MT pa. India
domestic BOPP consumption is approx 390k MT pa and export from India is about 110k
MT pa. Indian BOPP Industry has been growing at almost double of the Indias GDP
growth rate,
8. Considering low packaged food penetration in India and rising personal disposable
income, the Industry is estimated to grow fast,
9. Investment in organized retail industry and change in pack format from rigid to flexible
is going to further add to increasing demand,
10. Based on capacity addition announced in India, new capacity expected in the Industry
may not be able to address growing India demand. On current India BOPP Industry
demand base, one new line each year may not be sufficient to address Indias growing
demand,

11. Strong domestic and global demand is helping efficient capacity utilization.
12. In line with strong demand fundamentals, Cosmo Films is implementing an increase in
capacity by 60k MT p.a. with 10.4-meter width state of art BOPP line, which is one of
the lowest cost producing line in the world.

CHAPTER 3

COMPETITOR ANALYSIS
Profit of any company is determined by the difference between the cost and the selling price.
To maximize profits, a company needs to focus on reducing its costs. Below, three major
costs that a company incurs are analyzed:

Employee Benefit Expenses:

Cosmo Films Ltd. has subsequently been reducing its employee expenses without any
reduction in the welfare of employees (as calculated by percentage to net sales). The salaries
have been increased over the years and unnecessary expenses have been cut down.
Whereas we can see from the graph that employee expenses have been significantly rising in
Uflex Ltd. This is indicative of improper expense planning and their expenses are increasing
at a bigger rate than their profits.
Also, Jindal Poly Ltd. has somewhat increased their employee expenses and this is majorly
due to increase in salaries. Though there is only a slight increase in the expenses.
Hence we can conclude that Cosmos employee expenses have been nicely managed and
should be reduced if there is further scope to reduce costs.

Employee Benefit Expenses

9
8

7.92

7.03

6
5
4

5.04

5.84

5.72

5.55

5.12
4.44

4.35

4.29

3
2
1
0

2011

2012
Cosmo Films Ltd

Employee Benefit
Expenses

1.51

1.27

0.88

2011

2013
Uflex Ltd

2012

1.53

1.4
2014

2015

Jindal Poly Films Ltd

2013

2014

2015

Cosmo Films Ltd

5.04

5.72

4.44

4.35

4.29

Uflex Ltd

5.55

5.12

5.84

7.03

7.92

Jindal Poly Films Ltd

0.88

1.27

1.51

1.4

1.53

Finance Costs:
Cosmo Films Ltd. has reduced its finance cost significantly as the interest costs have reduced
and the company is using self-generated money for further investments.
Whereas we can see from the graph that the finance costs have been significantly rising in
Uflex Ltd. This is indicative of improper expense planning and their finance costs are
increasing at a bigger rate than their profits. This is majorly due to increase in interest rates.
Also, Jindal Poly Ltd. has somewhat increased their finance costs and this is majorly due to
increase in interest costs. Though there is only a slight increase in the finnce costs.
Hence we can conclude that Cosmos finance costs have been nicely managed and should be
reduced if there is further scope to reduce costs.

Finance Costs
7.92
7.03

5.04

5.84

5.72

5.55

5.12
4.44

0.88

4.29

1.51

1.27
Cosmo Films Ltd

Finance Cost

4.35

Uflex Ltd

2011

1.53

1.4

Jindal Poly Films Ltd

2012

2013

2014

2015

Cosmo Films Ltd

2.07

2.44

2.18

3.2

2.59

Uflex Ltd

5.86

5.2

5.54

5.26

3.6

Jindal Poly Films Ltd

0.74

1.11

1.57

2.02

1.04

Cost of Material Consumed:

There has been a gradual rise is cost of production of Cosmo Films Ltd. and it has shown a
slump in FY2015 due to fall in crude oil prices and other one-time factors that affect the cost.
This decline is the cost of material consumed has helped Cosmo Films Ltd. to increase its
profits to a great extent.
Whereas, Uflex Ltd. experiences continuous increase in cost of material consumed and is
indicative of the fact that they have not been efficiently planning their production activities.
Jindal Poly Films Ltd. seems to have managed their cost of material consumed very
efficiently as we can see a slow increase and then a fall. Its pattern is somewhat similar to the
of Cosmo Films Ltd.
Hence, it can be concluded that cost of material consumed is dependent of various factors and
the company should aim at planning its production activities effectively and efficiently.

Cost of Material Consumed

80
74.36

70
60 64.69

66.52

65.94

72.12

61.89

57.73

50

73.65

67.83

68.45
65.9968.07

54.59

51.1851.59

40
30
20
10
0

2011

2012

2013

Cosmo Films Ltd

Cost of Material
Consumed

Uflex Ltd

2011

2014

2015

Jindal Poly Films Ltd

2012

2013

2014

2015

Cosmo Films Ltd

64.69

66.52

67.83

73.65

68.45

Uflex Ltd

51.18

57.73

54.59

61.89

65.99

Jindal Poly Films Ltd

51.59

65.94

74.36

72.12

68.07

It is not possible to make comparisons of Raw Material Cost company to company because of
variations in Product Mix, Specifications and type of Raw Materials used. Further, there are
no Industry wise norms, which can be benchmarked.

CONCLUSION
The following points can be concluded from the above report:
1. In FY 16 the Cosmo maintained its topline at par as compared to last year but reduced
the expenditure by 100 Cr from 1577 Cr to 1465 Cr as the cost of raw materials went
down from 1122 Cr to 1002 Cr due to fall in crude oil price which is a major part of
expenditure for packaging industry.
2. Finance Cost went down by 9.8 Cr from 39.88 Cr to 30.18 Cr indicating reduction in
debt of the Cosmo.
3. PAT increased from 27.66 Cr to 96.24 Cr i.e. up by 248% year over year whereas price
has gone up by 386% from low of 84 to 408.
4. To reduce the impact to crude price volatility COSMO is shifting its focus to specialty.

5. Demand for BOPP films is expected to increase especially in FMCG sector.

6. Cosmo is performing decently well as compared to its competitors (Ufelx and Jindal
Poly Films Ltd)
7. Its management is very efficient and effective in policy planning and managing its
operations with the motive of minimizing costs and increasing profits.

SUGGESTIONS

REFERENCES

"Cosmo Films Ltd. Management". The Economic Times, 2016.

"Packaging firms in numbers", Print Week India. 17 Nov 2014.
"Cosmo Films evaluating coating in US". The Economic Times, 14 Oct 2014
"Cosmo Films Ltd.". Bombay Stock Exchange, 25 July 2015.
"NSE - IPFT Sponsored Company Reports". National Stock Exchange 25 July 2016.
"Swadeshi Polytex: Change of guard". India Today, 4 January 2016.
Phansalkar, Sanjiv (2005). Opportunities and Strategies for Indian Business: Preparing
for A Global India. SAGE Publications Pvt. Ltd.

Cosmo Films Going from strength to strength, Nirmal Bang.

Cosmo Films: Moving into a new orbit, Mudar Patherya