PCBL (Phillips Carbon Black Ltd)
Robust volume growth, High capex intensity, Upgrade to BUY
PCBL reported a good show on numbers by maintaining its gross & operating spreads per kg near highest levels similar to last quarter. The good performance was backed by stronger volumes which helped maintain its operating metrics. Volumes have grown by 20% YoY & 5% QoQ because of additional volumes from Chennai (Normal carbon black) & Mundra (Speciality black) facility aiding volume momentum. We are expecting stronger pickup in volumes particularly to EU owing to ban on Russian CB supplies effective June 24 which will directly benefit Indian CB players. The company will continue to remain in capex mode for the next 2 years, planning to add further 90KT brownfield capacity in Chennai at capex of Rs3.5-4bn & also scouting opportunities for big greenfield expansion. However, we feel gross & EBITDA spreads per kg has likely peaked & we are modelling in nearly flattish spreads for next 2 years. Over the longer term, growth is expected to be strong led by robust volume growth and tapping exports market. We maintain our target multiple of 18x on March 26E EPS and arrive at a target price of Rs 327 per share.
Volumes momentum improved led by Chennai & Mundra, per unit spreads maintained on QoQ
Revenue grew by ~9% YoY & flattish on QoQ in Q4FY24. Despite volume jump of 5% QoQ realizations declined by 4%. On YoY basis volume growth of 20% was offsetted by realizations decline of 9%.
Blended gross spreads grew by ~11% YoY & flattish on QoQ to Rs 32.7 per kg. The company has maintained its highest ever gross spreads sequentially which itself is a positive.
Supply tightness in CB space globally & EU ban on Russian CB will help PCBL in increasing its export volumes. The long term outlook is bullish as PCBL is a proxy play on volume recovery in the tyre sector which is set to grow at 6-8% from FY24-26E, the company will witness volume CAGR of ~15% from FY24-26E.
The company Chennai plant is operating at utilization of ~34% of overall effective capacity of 1.25 lakh tonnes in FY24. In Q4FY24, the Chennai plant reported production volume of 19157 MT. Speciality black is maintaining its volume momentum & reported ~34% YoY & 7% QoQ uptick in volumes to ~15.5k tonnes in Q4FY24. We expect speciality volumes to grow CAGR of 25% & reach ~89.6k tonnes by FY26E.
Capex intensity to remain high for next 3 years
The company has further announced brownfield expansion in Chennai plant with a capacity of 90KT divided into 2 phases (A) Phase 1 of 30KT to start by Q1FY26E (B) Phase 2 of 60KT to start by Q3FY26E. The capex for the same is Rs3.5-4bn. We expect phase 1 to reach 35-40% in FY26E & full utilization in FY27E & Phase 2 to reach full utilization in H1FY28E.
Along with this, management has stated that company is looking for a big greenfield expansion in CB business (Tentative capex of Rs9-10bn) (Exact details not shared).
Above slew of expansion indicates that the company will continue to remain in capex mode in CB business for the next 3-4 years.
Valuation
Currently, the stock is trading at March 26E P/E of ~14.2x.
We maintain our target multiple of 18x and thereby, arrive at target price of Rs 327 per share which offers upside of 26.4% from current valuation. Therefore, we upgrade to BUY rating from earlier ACCUMULATE rating on the stock. (Note: We have not consolidated Aquapharm numbers in our model estimates).
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