|
Independent Research Report – Phillips Carbon Black Limited
Poised for growth on the back of capacity expansion Industry: Chemicals Date: November 01, 2010
| ||||||||||||||||||||||||||||||
|
Kolkata-based Phillips Carbon Black Ltd (PCBL), part of the RPG Group, is the largest domestic manufacturer of carbon black with a manufacturing capacity of 360,000 MT (~46% of total domestic capacity). It also sells excess power from its captive plants to the grid. We assign PCBL a fundamental grade of '4/5', indicating that its fundamentals are 'superior' to other listed securities in India.
Tyre industry-led rise in demand for carbon black spells good tidings for PCBL PCBL is in the process of increasing capacity at its Mundra facility by 50,000 MT by December 2010, in time to tap the potential arising from the tyre industry-led rise in demand for carbon black. The Indian tyre industry is expected to grow at a rate of around 11-12% over FY11 and FY12 driven by higher OEM (original equipment manufacturer) offtake and increase in replacement demand. Carbon black forms a key input in the manufacturing of tyres and growth in the tyre industry is expected to boost the prospects of the carbon black industry too.
Sale of excess power from captive power plant to help maintain margins PCBL plans to increase its captive power generation capacity from 60.5 MW to 76 MW by Q2FY12. It sells excess power after meeting its requirement to the grid; 37 MW was sold to the grid in FY10. The power segment contributed 4% of top line in FY10; it is expected to increase to 5% by FY12. EBITDA from this segment accounted for ~22% of overall EBITDA in FY10; it is expected to increase to 29% in FY12 on account of better utilisation of new capacities.
Revenues to grow at a two-year CAGR of 29% CRISIL Equities expects revenues to grow at a two-year CAGR of 29% to Rs 20.5 bn in FY12 on the back of buoyant demand growth from the end-user segment supported by increased capacity and utilisation. Margins are expected to improve to 15.4% in FY12 from 14.9% in FY10 driven by improved realisations. EPS is expected to increase from Rs 43 in FY10 to Rs 51 in FY12. RoE is expected at 28.9% in FY12 from 45.3% in FY10.
Fortunes dependent on tyre industry; volatility in crude prices could be a dampener 1) Despite diversifying into power, PCBL continues to be dependent on the tyre industry for its future growth prospects and is likely to remain vulnerable to the cyclicality of the automobile sector. 2) Carbon black feedstock (CBFS) – the feedstock used to produce carbon black - is a derivative of crude oil. Crude oil prices have been very volatile in the past two-three years. Any fluctuation in prices would have a bearing on the EBIDTA margins of the company, especially in a downturn as witnessed in 2008-09.
Valuation - the current market price has strong upside We have valued PCBL based on the discounted cash flow method and arrived at a fair value of Rs 286 per share. We initiate coverage on PCBL with a valuation grade of '5/5', indicating that the market price has 'strong upside' from the current levels.
Analytical contact
Email: clientservicing@crisil.com +91 22 3342 3561
CRISIL IER initiation and update reports available on www.ier.co.in
CRISIL IER reports provide a Fundamental Grading and a Valuation Grading of a company, presented in the form of a proprietary CRISIL Fundamental and Valuation (CFV) matrix. The Fundamental Grading is based on an analysis of the business and industry prospects, financial performance and outlook, management quality and corporate governance of a company vis-à-vis other listed companies in India. The Valuation Grading provides current assessment of the fair value of the company's stock.
Mukesh Agarwal Director – Research
Tarun Bhatia Director - Capital Markets
Business Development Team
If you do not wish to receive any more promotional e-mails from CRISIL, please click here to unsubscribe |
Post a Comment