Phillips Carbon Black Q4FY17: On a recovery path, Buy for 39% upside in 18 months

SKP Research | Nov. 11, 2009, midnight

Company Background & Product Highlights

Phillips Carbon Black Limited (PCBL), incorporated in 1960, in collaboration with Phillips Petroleum Company, is a part of RP-Sanjiv Goenka Group. It is the largest manufacturer of carbon black (CB) in India (46% market share by capacity) and seventh largest in the world, having an installed capacity of 4,72,000 MT and co-generation power capacity of 76 MW spread over four locations in Durgapur (W.B.), Palej & Mundra (Gujarat), and Kochi (Kerala). CB is used as a reinforcement material providing tensile strength to tyres and other industrial rubber goods and forms 23% by volume of tyre weight and 10% by value of tyre costs.

Investment Rationale

Strong Quarter – Carbon Black vertical steering profitability

  • During Q4FY17, PCBL reported net sales of Rs 5,499.8 mn, registering growth of ~21% y-o-y basis, supported by robust volume growth and improved product mix. Carbon Black segment grew by ~20% y-o-y to Rs 5,817 mn, contributing ~94% to revenues backed by ~9.8% y-o-y improvement in net realizations to Rs 53,712/tonne, while power business contracted by 6.3%.
  • PCBL’s revenues are expected to grow at 13% CAGR over FY17-19E to Rs 24.7 bn backed by robust domestic demand for CB and continuation of anti-dumping duty on Chinese imports. Further, a likely decline in imports will also create space for additional revenue for PCBL.


PCBL is well positioned to capitalize on the positive structural changes witnessed by the industry coupled with robust auto sector demand, continuation of anti-dumping duty on Chinese imports, steep correction in international crude prices and improvement in operational efficiencies. Given the above factors, we have valued the stock on the basis of P/E of 11x of FY19E earnings. We recommend a BUY on the stock with a target price of Rs 606/- (39% upside) in 18 months.


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