Anand Rathi: buy Phillips Carbon Black Robust volume growth; target Rs 261

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Phillips Carbon Black
Robust volume growth; maintain Buy
Phillips Carbon Black (PCBL) registered robust 3QFY11 volume
growth of 20.4% yoy (7.6% qoq), in line with our estimate.
Exports were up 7% yoy and 18% qoq. These and better
realization helped PCBL clock-in a healthy 24.3% revenue
growth, despite lower contribution from the power segment.

 3QFY11 margin flat; power segment picking up. PCBL’s
margin of 14.6% in 3QFY11 was in line with that of 3QFY10
(14.7%), but higher 260bps qoq mainly owing to lower employee
and raw-material costs. Margin has improved after decline in the
past two consecutive quarters. Contribution from Power in the
quarter increased 12.9% yoy and 6.7% qoq. At the EBIT level,
contribution from Power was up 23.6% yoy to `156m.
 Net profit slipped 10.7% yoy. 3QFY11 profit was down 10.7%
yoy to `300m, as the company had made provision for a higher
tax rate (33% vs. our expected 25%) due to the lower profit from
Power and higher deferred tax.
 Change in estimates. We lower our FY11e and FY12e EPS 6%
and 3.2% respectively on account of higher tax, other adjustments
and delay in commencement of the Mundra plant.
 Valuation and risks. We maintain Buy on PCBL, while reducing
our target price to `261 from `272, based on 1.3x FY12e PBV.
The stock trades at 3.8x FY11e and 2.9x FY12e earnings. Risks:
higher imports and lower exports of carbon black; lower-thananticipated
merchant power rate.