Stock Pick From The Plastics Industry

Low Priced Scrip is hidden gem, today's underdog, a stock with future potential that is expected to fetch returns within 1 year. This is a stock picked carefully based on a fundamental analysis of the company.

The company recommended as the Low Priced Scrip for this issue is into manufacturing of Biaxially Oriented Polypropylene (BOPP) films, and thermal films which are used for packaging and laminating of FMCG, pharma and textile products.

Cosmo Films - Screened Against Volatility

HERE IS WHY

• It has a consistent dividend payment history of 50 per cent, and for FY12 too, it has announced a similar dividend, resulting in a yield of five per cent.
• Considering the defensive nature of the industries it caters to – FMCG, pharma and textile – the company is not expected to be impacted by any major downfall.
• With an increase in demand domestically and globally, and cooling off of raw material prices, the margins are expected to improve going ahead.

At times when the equity markets are volatile and uncertain, investors tend to go for defensive stocks like FMCG and pharma. However, one should not restrict investments to only these stocks and ignore other opportunities. One such low priced scrip that we recommend is Cosmo Films. The company has been known for its dividend payment history, and has not disappointed in terms of capital appreciation either.

BEST OF LAST ONE YEAR
Company Name	Reco.	CMP (Rs)	Gain %
Omkar Specialty Chem.	58.5	82	40.17
Granules India	102.3	140	36.85
PTC India	45	58	28.89
Dena Bank	80.5	96.75	20.19
Power Grid Corp. of India	96	110	14.58
IDBI Bank	81	88.5	9.26
Manjushree Technopak	80	87	8.75
United Bank of India	58	62	6.9

With a consistent dividend payment history of 50 per cent (FV Rs 10), Cosmo Films has not disappointed the investors this time too. In FY12, it has announced a similar dividend, resulting in a yield of five per cent. Apart from this, the new capacity addition will also be helpful in terms of growth. The management expects the company to grow at around 10-15 per cent annually for the next two years.

Cosmo is into the manufacturing of Biaxially Oriented Polypropylene (BOPP) films, and thermal films which are used for packaging and laminating of FMCG, pharma and textile products. Considering the defensive nature of the industries it caters to, the company is not expected to be impacted by any major downfall. Currently, it has a total capacity of 126000 TPA. Of this, BOPP films accounts for 96000 tonnes of capacity and thermal film accounts for of 26000 tonnes. The company’s products are highly in demand in the western countries due to their high quality and lower prices. The packaging industry in India has been growing at 15 per cent, and we expect this rate to move to over 20 per cent over the next few years. The company’s CFO, Pankaj Poddar, has stated that, “Owing to the growth in demand from the western markets, the company will continue to grow through the export route (60 per cent of revenues come from export) in the coming years”. He further emphasised that the company is hoping for the proposal for FDI in multi-brand retail to come through. This will give a huge boost to the demand for BOPP film, and Cosmo Films will be one of the major beneficiaries of the same.

Shareholding Pattern As on 30/06/12
Promoter& Promoter Group	44.03
FII	0.12
DII	0.03
Others	49.35
Bodies Corporate	6.47
Grand Total	100

Moreover, the company has plans to achieve future growth through capacity expansion in order to meet the growing demand of its customers in India and abroad. After increasing its capacity in 2008, it plans to make a further investment of up to Rs 175 crore for a new BOPP facility of 40000 TPA, taking the total BOPP capacity to 136000 TPA. About the funding, Poddar says “We are funding our capex through funds of around Rs 60-65 crore raised from the World Bank and other banks, and the balance will come through internal accruals. The project is running on time, and should be completed by March 2013”.

Financially, after witnessing some margin pressure in FY11 due to a two-fold jump in the raw material prices, the company saw a decent recovery in FY12. The topline remained flat at Rs 1136 crore. However, with the cooling off of raw material prices, the bottomline grew by five percent on a YoY basis to Rs 25.1 crore. Cosmo Films has not provided any growth numbers for FY13, but it has said that with an increase in demand and the worst gradually falling behind us in terms of prices of raw materials, the margins may see a strong recovery in FY13.

Last Five Quarters (Rs Cr)
Particulars	Mar '12	Dec '11	Sep '11	Jun '11	Mar '11
Total Income From Operations	289.66	256.58	284.93	306.31	309.73
Consumption of Raw Materials	186.83	163.75	172.99	198.36	183.39
Depreciation	9.3	8.91	9.02	8.68	8.87
Interest	8.01	5.2	5.8	6.44	5.72
Profit Before Tax	4.88	13.33	7.21	13.3	15.92
Net Profit	2.48	11.29	4.62	8.8	13.03
Equity Share Capital	19.44	19.44	19.44	19.44	19.44

On the valuations side, at the current levels of Rs 83.10 a share, Cosmo Films is available at a PE multiple of 3.84x its FY12 earnings. At this valuation, the company seems to be a good buying opportunity. Therefore, we recommend that investors buy the scrip with a price target of Rs 117.