Continuing their strong upward trend, shares of PCBL (formerly Phillips Carbon Black), a leading manufacturer of carbon black, spiked 4.52% during Friday's trade, reaching a new all-time high of ₹164 per share. The stock has demonstrated significant gains in recent weeks, with a 14.34% increase in the last week of trade and a 17.44% surge in the current month.
This continued rally can be attributed to the positive momentum carried over from the previous month, where the stock witnessed gains of 10.51% in April and 6.40% in May. It is worth noting that the stock zoomed 45% from its March 2023 low of ₹110 apiece to trade at the current market price of ₹160.30.
Long-term investors have also reaped impressive rewards, with the stock delivering a remarkable return of 2,740% over the past 10 years, climbing from ₹5.62 per share to its current position.
Going by the projections made by analysts at ICICI Direct Research, the stock may still have a long way to go. In its latest research note, the brokerage has assigned a 'buy' rating to the stock, setting a target price of ₹200 per share, indicating a new record high.
The brokerage has identified the following key factors for its bullish outlook:
New greenfield plant commissioned: PCBL recently commissioned a new carbon black plant with a nameplate capacity of 150 KT, involving a total capex outlay of ₹800 crore. The company aims to fully utilize the plant within three years, targeting double-digit volume growth in the coming years.
Growth in domestic and export markets: With favorable macro drivers in the domestic market and a promising export outlook, PCBL is expected to achieve a healthy volume growth rate of 12.2% CAGR over FY23–25E, reaching 5.6 lakh tonnes in FY25 compared to 4.45 lakh tonnes in FY23.
Focus on specialty grade carbon black: PCBL has, over the years, with indigenous R&D efforts developed grades in specialty carbon black domain, which is a high margin product (typically 3-4x normal trye grade carbon black).
The company is executing a brownfield expansion of 40 KT with a capex outlay of ₹300 crore to further strengthen its presence in this high-margin segment. Specialty grade carbon black volumes are projected to grow at a CAGR of 22% over FY23–25E, reaching 60 KT in FY25, according to brokerage.
Margin expansion and improved RoCE: The combination of volume growth, an emphasis on exports, and an increased proportion of high-margin specialty grade carbon black sales is expected to drive an improvement in EBITDA margins.
The brokerage anticipates a 200-bps increase in EBITDA margins to 14.6% in FY25E, with an EBITDA/tonne of ₹17,500. Consequent RoCE is seen expanding from sub 16% in FY23 to closer to the 20% mark in FY25E, which ICICI Direct believes, should drive a re-rating of the stock.
Healthy cash flow generation and attractive valuation: PCBL is anticipated to generate healthy cash flows, with a CFO yield exceeding 10% over FY23–25E. Moreover, the stock currently offers an inexpensive valuation of less than 10x P/E on FY25E, providing a favorable margin of safety for investors, the brokerage said.
PCBL is one of the largest carbon black manufacturers in India and a strong global player with a significant customer base in more than 45 countries. Carbon black, which is the main raw material in the production of automotive tyres, is produced using carbon black feedstock (CBFS) and tar oil.
05 analysts polled by MintGenie on average have a 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
