Cosmo Films: Recommendation Review

We had recommended Cosmo Films to our investors in Dalal Street Investment Journal Vol. 27, Issue No. 17 (dated August 12, 2012), when the scrip was trading at Rs 83. Its consistent dividend payment history with a good dividend yield was the primary factor behind recommending this scrip.

What added to our confidence was that not a single share of the company was pledged. In addition, the company envisaged achieving future growth through capacity expansion to meet the growing demand in India and abroad. After increasing its capacity in 2009, the company plans to make a further investment of up to Rs 175 crore for the new BOPP facility of 40000 TPA, taking the total BOPP capacity to 136000 TPA. The project is running fairly on schedule, and should be completed by March 2013. Its valuations were also good.

At present, the scrip is trading at Rs 90, showing decent gains of 10 per cent after having touched a high of Rs 93. We recommend that investors book partial profits at the current levels.

The financial performance of the company has been good for the June 2012 quarter, where the topline stood at Rs 283.75 crore and the bottomline at Rs 6.13 crore (adjusted for Rs 8.05 crore extraordinary loss) as compared to Rs 256.42 crore and Rs 10.99 crore during the same period last year. Had there been no extraordinary loss on account of foreign currency fluctuations, the profitability would have been higher. At the current levels, the scrip is trading at just 3.82x its trailing four-quarter adjusted earnings. Though it is still cheap as far as valuations are concerned, we feel that the decent gains within a short period should be used as an opportunity to book partial profits.