Phillips Carbon Black- Continuing robust volume growth; Buy: Anand Rathi

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Phillips Carbon Black
Continuing robust volume growth; maintain Buy
 In line with estimate, revenue driven by better volumes.
Phillips Carbon Black (PCB) reported robust 2QFY11 volume
growth of 29.1% yoy (0.6% qoq), in line with our estimate, mainly
boosted by the 199.5% yoy rise in exports. This and better
realisation allowed it to clock a healthy 50.6% revenue growth,
despite the slightly lower contribution from the power segment.
 Power segment disappoints; 2QFY11 margin declines. PCB’s
12% 2QFY10 margin was considerably lower (by 18.6%), chiefly
due to the rise in raw material cost and the smaller contribution
from Power, down 12%. Employee cost jumped 76% yoy on
account of the bonus payout. At the EBIT level, contribution
from Power was down 20% yoy to `136m.
 Net profit slipped 25% yoy. The lower contribution from Power
dragged the net profit down 25% yoy to `242m, as the company
had made provision for a higher tax rate (33%; we expected 20%)
due to the lower power profits and higher deferred tax.
 Change in estimates. We lower our FY11 and FY12 EPS
estimates by 9.1% and 3% respectively due to the higher tax rate
and other adjustments.
 Valuation and risks. We maintain a Buy on PCB, with a revised
target price of `272 (earlier `278). The stock trades at 5.5x FY11e
and 4.3x FY12e earnings. We continue to value the stock at 1.3x
FY12e PBV, giving a target price of `272. We introduce FY13
estimates. Risks: Higher imports and lower exports of carbon
black; and lower-than-anticipated merchant power rate.