Cosmo Films is increasing its value-added product offerings to ride out the storm in the poly films business.
AFTER A HARROWING LAST FEW YEARS FOR north-based Cosmo Films, is business turning the corner? The flexible-packaging industry has seen the worst in pricing this past year, despite the fact that a bulk of its revenues comes from a sector that is the booming right now — FMCG.
A host of green field expansions in the packaging sector increased capacities by a third to over 6.2 million metric tonne two years ago. As these new capacities came on stream, polyfilm producers, large and small, started heavily undercutting each other in a bid to corner market share. With it, the fortunes of market leaders such as Cosmo Films and Jindal PolyFilms took a downslide.
Between themselves, both these companies command a market share of more than 50 per cent, with about six other firms accounting for the remaining business. Cosmo Films too took an adventurous capacity expansion back in 2017, and had to bear the brunt of falling BoPP (biaxially oriented polypropylene) and CoPP (copolymer polypropolene) prices soon after, which knocked the wind out of the company’s stellar growth between 2014 and 16.
The firm followed up with another smaller CoPP line in January 2018. While these new capacity additions propelled the company on the revenue front, which zoomed from Rs 1,543 crore in FY16 to Rs 1,812 crore in FY18, the bottom line actually took a dent as costs mounted.
Typically, revenue expansions should have painted a profitable picture, but it impacted profits even more because of rising capacities. Consider this. In 2015-16, Cosmo Films raked in net profits of Rs 135.15 crore, thanks to rising volumes and prices. But come 2017-18, net profits slumped to Rs 85.4 crore. And if the current market dynamics is any indication, profits for FY19 could slump even further. In the first half of FY19, Cosmo Films has just Rs 20.8 crore net profit to its credit for all the capacities it put up.
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Denne historien er fra December 22, 2018-utgaven av Businessworld.
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