PINC Research has put a buy rating on Cosmo Films, with price target of Rs 125, in its report dated September 11, 2008.

Company

Cosmo Films Ltd. (CFL) was incorporated in ‘76 by Mr. Ashok Jaipuria to manufacture BOPP (Bi-axially oriented polypropylene) films, which find application in the consumer products industry for packaging, lamination and for other industrial applications (capacitors & adhesive tapes).

INVESTMENT RATIONALE

�� CFL is a focussed manufacturer in the Indian BOPP film market and is gradually concentrating on supplying specialty films, which command higher realisations and robust margins and are insulated from pricing pressures of the commodity cycle.

�� The impending capex is aimed at not only enhancing capacities but also streamlining operations to optimise process efficiency. Production of commodity grade films will be shifted to newer lines and that of specialty films to older, smaller lines; since the latter are customised and economically produced on smaller lines, thereby generating operating leverage for the company.

�� It has successfully developed specialty grade Thermal Laminated films, which come in at the highest end of the BOPP film spectrum. Apart from enjoying a vital ‘First mover’ advantage, it is moving towards safeguarding revenues and profitability.

According to the report "At the CMP of Rs 100, CFL trades at a P/E and EV/EBITDA of 2.4x & 2.1x resp of its FY10E earnings. The company’s strategy of streamlining operations and the ability to innovate new products coupled with bullish trends in the flexible packaging industry inspire confidence in the outlook for the company. Hence, we initiate coverage on the company with a ‘BUY’ recommendation and price target of Rs 125, with a 15 months investment horizon",