PCBL - Bullishness Reloaded, Well Poised For Profitable Growth: ICICI Direct

ICICI Direct Report

Investment Rationale

• New greenfield plant commissioned: PCBL Ltd., in the recent past, has commissioned its new carbon black plant with a nameplate capacity of ~150 thousand tonne at a total capex outlay of ~Rs 800 crore. The company expects to fully utilise its plant in about three years thereby targeting double digit volume growth over next few years. With domestic macro drivers in place and favorable export outlook, volume growth is seen at healthy 12.2% compound annual growth rate over FY23-25E to 5.6 lakh tonne in FY25 versus 4.45 lakh tonne in FY23.

• Speciality grade volume to outgrow base grade: PCBL has, over the years, with indigenous research and development efforts developed grades in specialty carbon black domain, which is a high margin product (typically ~3-4 times normal trye grade carbon black). In this domain, PCBL is executing a brownfield expansion of ~40 KT at a capex outlay of ~Rs 300 crore with commissioning in FY24. Speciality grade carbon black volumes are slated to grow at a CAGR of 22% (higher than base grade) over FY23-25E to 60 KT in FY25 versus 40 KT in FY23.

• Margins and return on capital employed to expand, driving re-rating; With volume growth on the anvil amid thrust on exports and increasing volume share of high margin speciality grade carbon black sales (from 9.1% in FY23 to 10.7% in FY25), Ebitda margins are slated to improve ~200 basis points to 14.6% in FY25E with Ebitda/tonne seen improving to ~Rs 17,500/tonne in FY25. Consequent RoCE is seen expanding from sub 16% in FY23 to closer to the 20% mark in FY25E, which we believe, should drive a re-rating of the stock.

• Healthy cash flow generation with cash flow from operation yield more than 10% over FY23-25E and inexpensive valuation of less than 10 times price/earnings on FY25E provide good margin of safety.

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