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  • CMP : 105.5 Chg : 0.30 (0.29%)
  • Target : 160.0
  • Target Period : 12-18 Month

20 Apr 2022

On well charted growth path, healthy gains ahead…

About The Stock

PCBL Ltd (erstwhile Phillips Carbon Black) is the leading manufacturer of carbon black, which is used as a reinforcement material in tyres.

  • PCBL also derives ~8% of sales volume from speciality carbon black, which fetches high margins and finds application in paints, plastics among others
  • It has a healthy margin profile (15%+), a capital efficient business model (RoCE>15%) with limited leverage on b/s (~0.3x debt: equity as of FY22)
Q4FY22 Result

PCBL reported a muted performance in Q4FY22.

  • Net sales for Q4FY22 were at ₹ 1219 crore, up 5% QoQ, primarily driven by 10% QoQ growth in carbon black realisations at ~₹ 106/kg amid ~4% QoQ drop in sales volumes at 112 KT. Speciality grade volumes - 9,350 tonne
  • EBITDA in Q4FY22 was at ₹ 137 crore with EBITDA/tonne at
    ~₹ 12,167/tonne. PAT for the quarter came in at ₹ 90 crore, down 19% QoQ
  • For FY22, total carbon black sales volume was at 454 KT, up 17% YoY with EBITDA at ₹ 656 crore (up 26% YoY) and PAT at ₹ 427 crore (up 37% YoY)
What should Investors do?

PCBL has been one of our early finds wherein it grew ~3x in the past five years (~₹ 40 in April 2017 to ~₹ 120 as of April 2022).

  • We maintain our positive view and retain BUY rating on the stock
Target Price and Valuation

Revising our estimates and rolling over valuations to FY24E, we value PCBL at unchanged target price of ₹ 160 i.e. 12x P/E on FY24E EPS

Key Triggers for future price performance
  • Healthy double digit growth on anvil. We expect sales, PAT to grow at 26%, 17%, CAGR, respectively, in FY21-24E, building in 11.4% volume CAGR
  • With greenfield expansion (~150 KT) under execution and successful strides made in the speciality carbon black domain, long term growth prospects are robust amid limited competition in overseas markets
  • Trades at inexpensive valuation of <10x P/E on FY23E EPS of ~₹ 11.8/share
Alternate Stock Idea

In midcap, small cap coverage, we also like VST Tillers.

  • It is a leader in domestic power tiller space and a key beneficiary of import restrictions in the category. Successful launches in higher HP tractor space
  • Capital efficient, cash rich b/s. BUY with a target price of ₹ 3180

Key Financial Summary

Particulars FY19 FY20 FY21 5 year CAGR (FY16-21) FY22P FY23E FY24E 3 Year CAGR (FY21-FY24E)
Net Sales 3,528.6 3,243.5 2,659.5 7.0 4,446.4 4,807.2 5,361.6 26.0
EBITDA 622.8 464.9 518.6 25.7 655.6 721.1 832.4 16.9
EBITDA Margins (%) 17.6 14.3 19.5 - 14.7 15.0 15.5 -
Net Profit 388.5 283.5 312.3 68.7 427.2 445.4 500.7 16.9
EPS (₹) 11.3 8.2 9.1 - 11.3 11.8 13.3 13.4
P/E 10.0 13.7 12.5 - 10.0 9.6 8.5 -
RoNW (%) 23.6 16.8 16.2 - 16.4 15.6 15.9 -
RoCE (%) 22.8 16.1 16.1 - 16.3 15.4 16.7 -
- - - - - - - - -
Source: Company, ICICI Direct Research

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I/We, Chirag Shah, PGDM and Shashank Kanodia, CFA, MBA (Capital Markets), Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.   

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