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Phillips Carbon Black
Powering ahead; maintain Buy
We maintain a Buy on Phillips Carbon Black, with a revised
target of `246 (from `261). We are upbeat about the company,
given its healthy volume growth and improving high-margin
power division. We expect a 23% net profit CAGR over FY11-13e.
Benefiting from rising demand. Demand for tyres would
continue rising, in line with the buoyant auto industry. Hence,
PCB is likely to benefit from economies of scale. To sustain its
leadership and benefit from mounting demand, both domestically
and globally, PCB is further expanding capacity.
Capacity expansion to fuel volume growth. PCB’s 360,000tpa
expanded capacity now runs at 90% utilization. Another 50,000tpa
would be operational by end-1QFY12. Given rising demand, we
see the capex as suitably timed.
Power – reduces commodity risk. PCB generates 60.5MW, of
which 10.5MW is utilized internally, the rest sold at ~`3/unit. It
plans to set up two more plants of 16MW (total) by 2QFY12. We
expect this to boost earnings, given the division’s high margin, of
up to 80%. Further, PCB plans to tie up some of its spare power
capacity through PPAs.
Valuation and risks. At our target of `246, the stock trades at
FY12e PE of 5.6x and EV/EBITDA of 4x. We value PCB at
FY12e P/BV of 1.25x. Key risks: Volatility in key raw material
prices and capacity under-utilization.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Phillips Carbon Black
Powering ahead; maintain Buy
We maintain a Buy on Phillips Carbon Black, with a revised
target of `246 (from `261). We are upbeat about the company,
given its healthy volume growth and improving high-margin
power division. We expect a 23% net profit CAGR over FY11-13e.
Benefiting from rising demand. Demand for tyres would
continue rising, in line with the buoyant auto industry. Hence,
PCB is likely to benefit from economies of scale. To sustain its
leadership and benefit from mounting demand, both domestically
and globally, PCB is further expanding capacity.
Capacity expansion to fuel volume growth. PCB’s 360,000tpa
expanded capacity now runs at 90% utilization. Another 50,000tpa
would be operational by end-1QFY12. Given rising demand, we
see the capex as suitably timed.
Power – reduces commodity risk. PCB generates 60.5MW, of
which 10.5MW is utilized internally, the rest sold at ~`3/unit. It
plans to set up two more plants of 16MW (total) by 2QFY12. We
expect this to boost earnings, given the division’s high margin, of
up to 80%. Further, PCB plans to tie up some of its spare power
capacity through PPAs.
Valuation and risks. At our target of `246, the stock trades at
FY12e PE of 5.6x and EV/EBITDA of 4x. We value PCB at
FY12e P/BV of 1.25x. Key risks: Volatility in key raw material
prices and capacity under-utilization.
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