PCBL to trade ex-stock split starting April 11, 2022

What’s Buzzing:

PCBL (erstwhile Phillips Carbon Black) had fixed April 12, 2022 as the record date for stock split in the ratio of 1:2 i.e. one existing share of face value Rs 2 gets sub-divided into two shares of face value Re 1 each with overall value of investment for an investor remaining the same. The ex-date for stock spilt was April 11, 2022.

Context:

On the ex-date i.e. starting today (April 11, 2022), the stock price will adjust for stock split ratio and is expected to trade at Rs 120/share i.e. half the closing price on April 8, 2022 (Rs 240/share).

Our perspective:

A stock split is aimed at making the per unit stock price more affordable to the retail investors and help augment liquidity in the stock. Fundamentally, PCBL is the largest manufacturer of carbon black domestically (market share >30%), which is primarily used as a raw material in manufacturing of tyres. PCBL has an effective capacity of ~5 lakh tonne and is currently operating at ~90%+ utilisation levels with carbon black sales volume pegged at ~1.2 lakh tonne in Q3FY22. Apart from the tyre & non tyre grade carbon black, PCBL has, over the years, with indigenous R&D efforts developed grades in specialty carbon black domain (~6% of its sales volume in FY21), which find application in paints, plastics, etc. Specialty grade carbon black is a technology intensive product with realisations at ~1.2-2x the usual grade while profitability ~3-4x the usual grade. PCBL intends to increase share from specialty space to ~10% of sales, going forward. Expectation of robust volume growth in the tyre space amid cyclical recovery in the CV segment as well as need for personal mobility driving sales in the PV segment, volume growth prospects at tyre ancillaries look robust. With healthy double digit growth on the anvil, we expect sales, PAT to grow at a CAGR of 23%, 16% in FY21-24E, building in 11.4% volume CAGR. With greenfield expansion (~150 KT) under execution and limited competition in overseas markets (especially from China), long term demand prospects for the company look robust. On the financials front, PCBL realises steady 15%+ EBITDA margins with RoCE at ~16-20% and limited leverage on b/s with debt: equity at 0.3x as of FY21. PCBL currently trades at inexpensive valuation of ~10x PE on a forward basis (FY23E).