Established in 1981, Cosmo Films Limited (CFL) is one of the largest manufacturers of Biaxially Oriented Polypropylene (BOPP) Films in the world. With manufacturing units in India, Korea, & USA, Cosmo has a BOPP manufacturing capacity of 136,000 TPA and a sales turnover of USD 249 Million (INR 16.2 Billion) in FY 2015-16. Cosmo is the largest BOPP films exporter from India and the world’s largest manufacturer of thermal lamination films. Apart from a dominant share in the Indian market, Cosmo exports to more than 80 countries worldwide. Cosmo’s customer base includes the leading global flexible packaging and label face stock manufacturers like Amcor, Constantia, Huhtamaki, Avery Dennison etc., which service brands like Pepsico, Coca Cola, Unlilever, P&G, CP, Reckitt Benckiser, Nestle, Mars etc. Cosmo also has an extensive network of channel partners across the world for distribution of its range of lamination films.
Why I like this?
- CFL is the largest manufacturer of thermal lamination films and exports to more than 80 countries.
- End users include big names such as Pepsico ,Coca Cola, Nestle, ITS, P&G, Unilever etc. This gives a lot of confidence about the quality being offered.
- Margins have improved lately as a result of lower crude prices. Also, there has been a focus on value added products having higher margins and cost reduction.
- The losses in their US subsidiary which was impacting the overall company bottomline have come down substantially.
- Recently they have increased their capacity by around 50%.
- Now a look at some numbers (click to open image in a new window):
Apart from the sales growth, look at how the profit has grown highlighting the lower crude cost and lower losses in foreign subsidiaries. I believe the current market price is not reflecting these developments. Further, as the foreign subsidiaries turn profitable, it will impact the net profit in a big way. Accordingly, ROEs will be good on a consistent basis.
- Debt to Equity is reasonable at 0.93. Days receivable is around 54 days as compared to 76 days of days payable highlighting good working capital management, which is important in this industry.
Now the best part. This company generated an operating cash flow of Rs. 222 Cr in the last financial year and this is against a market cap of Rs. 625 Cr (Current Market Price of Rs. 319)! Wow! I can buy this masterpiece for less than 3 times operating cash flow! (For those thinking about free cash flow, the company has made an average annual capital expenditure of Rs. 60 Cr. in the last three years) The trailing PE multiple is around 6. For a company that serves such big names, generating so much cash, in an industry that is growing domestically at a rapid pace and having experienced management, this is a what you call a steal! Its like I found a bundle of 1000 bucks lying on the road. Now I can at least make an effort to pick it up 😉