Phillips Carbon Black
Volumes to improve yoy; stock rallied; Hold
Key takeaways
Slowdown in domestic market continues. We expect Phillips Carbon
Black to report 3QFY14 volumes have risen 1.2% qoq (11.7% yoy). Last
year’s quarter had a very low base due to demand in the domestic market
dropping and more imports by domestic clients. On account of the rise in
export volumes, we expect revenue to have grown 8.4% yoy. And the
contribution from power could have declined, by 11.2% yoy, to `180m.
Disappointment in carbon black. We expect a 5.6% EBITDA margin in
3QFY14 vs 2.7% in 3QFY13. This 290-bp improvement in OPM would be
due to the pass-through of raw material costs. Carbon black imports are
squeezing the company. Though we expect other expenditure to be up
132bps to 11.5% yoy, we expect the EBITDA margin to have improved
290bps due to substantially lower raw-material costs (as percent of sales).
Expected to report profit. We expect a `47m profit in 3QFY14, a steep
513% jump yoy. We expect the volume pickup to have pulled the profit up.
The company was struck by dumping by China and other countries. The
government has imposed a 30% safeguard duty on carbon-black imports
from China. Though this would help reduce imports over time, we do not see
any benefit in domestic volumes in 3Q.
Our take. Since the 30% safeguard duty was imposed in Oct’12 (till Oct’13)
and 25% on CB imports from China till 31 Dec’13, such imports have slid.
Imports, though, from Korea have now risen. The 50,000-ton Cochin plant CB
expansion was completed in May’13. An MoU has been signed with the Tamil
Nadu government to set up a new CB and power plant; environment clearances
are in progress. In view of global developments, project work at Vietnam is
under review. We value the stock at a target PE of 3.5x FY15e earnings. We
downgrade the stock to a Hold, with a target price of `49. Risks. A slowdown
with original equipment manufacturers and adverse forex movement.
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Volumes to improve yoy; stock rallied; Hold
Key takeaways
Slowdown in domestic market continues. We expect Phillips Carbon
Black to report 3QFY14 volumes have risen 1.2% qoq (11.7% yoy). Last
year’s quarter had a very low base due to demand in the domestic market
dropping and more imports by domestic clients. On account of the rise in
export volumes, we expect revenue to have grown 8.4% yoy. And the
contribution from power could have declined, by 11.2% yoy, to `180m.
Disappointment in carbon black. We expect a 5.6% EBITDA margin in
3QFY14 vs 2.7% in 3QFY13. This 290-bp improvement in OPM would be
due to the pass-through of raw material costs. Carbon black imports are
squeezing the company. Though we expect other expenditure to be up
132bps to 11.5% yoy, we expect the EBITDA margin to have improved
290bps due to substantially lower raw-material costs (as percent of sales).
Expected to report profit. We expect a `47m profit in 3QFY14, a steep
513% jump yoy. We expect the volume pickup to have pulled the profit up.
The company was struck by dumping by China and other countries. The
government has imposed a 30% safeguard duty on carbon-black imports
from China. Though this would help reduce imports over time, we do not see
any benefit in domestic volumes in 3Q.
Our take. Since the 30% safeguard duty was imposed in Oct’12 (till Oct’13)
and 25% on CB imports from China till 31 Dec’13, such imports have slid.
Imports, though, from Korea have now risen. The 50,000-ton Cochin plant CB
expansion was completed in May’13. An MoU has been signed with the Tamil
Nadu government to set up a new CB and power plant; environment clearances
are in progress. In view of global developments, project work at Vietnam is
under review. We value the stock at a target PE of 3.5x FY15e earnings. We
downgrade the stock to a Hold, with a target price of `49. Risks. A slowdown
with original equipment manufacturers and adverse forex movement.
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