Long term investment thesis remains unchanged…
About the stock: PCBL Ltd (erstwhile Phillips Carbon Black) is the leading manufacturer of carbon black, which is used as a reinforcing material in tyres.
• PCBL also derives ~11% of sales volume from speciality carbon black.
• Recently acquired speciality chemical company i.e. Aquapharm Chemicals
Q4FY25 Result: On the consolidated basis, at PCBL, net sales for the quarter came in at ₹ 2,088 crore with carbon black sales volumes at 150 kt (up 5% YoY, QoQ). EBITDA for the quarter came in at ₹298 crore with margins at 14.3% (down 150 bps QoQ). Consequent PAT for Q4FY25 stood at ₹100 crore, down 10% YoY. EBITDA/tonne in the carbon black space for Q3FY25 stood at ~₹ 17,650/tonne.
Investment Rationale:
• Buoyed by export demand, aiming for 10 lakh carbon black capacity: PCBL is India’s largest and world’s 7th largest carbon black manufacturer with installed capacity of ~7.9 lakh tonnes as on date. Sensing robust demand prospects especially in Export market, it is looking at adding 90 KT capacity via brownfield expansion at its new Tamil Nadu plant (30KT due for commissioning in Q1FY26) and finalised a new greenfield plant in AP. It is targeting double digit volume CAGR over next 5 years and is looking at substantial export play with near term capacity pegged at ~10 lakh tonne. We have modelled carbon black sales volume at PCBL to grow at a CAGR of 10% CAGR over FY25-27E to 7.2 lakh tonne in FY27E. Exports share in its total carbon black sales volume mix is on the rise from 27% in FY21 to 41% in FY25 and is further slated to increase to 45% by FY27E.
• Increasing share of speciality grade, margin accretive, structural driver: PCBL has, over the years, with indigenous R&D efforts has developed grades in specialty carbon black (SCB) domain, which is a high margin product (typically ~3-4x normal trye grade carbon black). Speciality grade carbon black volumes grew 9% YoY to 62KT in FY25. On a high base, SCB volumes are expected to grow at a CAGR of 12% over FY25-27E to 78KT in FY27E. This is structurally positive for EBITDA/tonne profile at PCBL.
• Aquapharm turnaround in sight; stepping up speciality chemical play: Aquapharm operates in the niche water chemical space. With change in ownership, management systems & processes as well as cost efficiencies, PCBL is guiding for a strong turnaround at this business. With captive presence in US, it also stands to gain from current tariffs imposed by US. We expect revenues at Aquapharm to grow at a CAGR of 20% over FY25- 27E with EBITDA margins seen improving from 14% to 18.5% mark.
Rating and Target Price
• With organic levers of growth amidst changing business profile in favour of more speciality chemical play including niche battery chemical business, aspiration to clock 5x PAT in 5 years i.e. (~₹ 2,500 crore in FY29E vs. ~₹ 500 in FY24), we remain positive on PCBL and retain our BUY rating on the stock with revised target price of ₹ 515 i.e. 25x P/E on FY27E
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