Buy Phillips Carbon; target of Rs 170: SPA Research

“PCBL reported below than expected set of numbers in Q4FY12. While the top-line was largely in-line with estimates, profit for the quarter was hit by lower than expected EBITDA margins, higher interest outgo & forex loss of INR 134 mn. EBITDA Margin squeezed off by 541 bps YoY & 113 bps QoQ to 8.51%, led by higher input costs & other operating expenses. We introduce FY14 estimates & roll-forward our valuations by 12 months. We retain our "BUY" recommendation & target of INR 170.”

“In Q4FY12, PCBL reported net sales of INR 5396 mn, up by 21.7% YoY & 4.9% QoQ. PAT at INR 51 mn was down by 84.8% YoY & 74.3% QoQ led by lower than expected EBITDA margins, higher interest outgo & forex loss of INR 134 mn in Q4FY12 (profit of INR 26 mn in Q4FY11) Revenue from carbon black (CB) segment having ~96% revenue contribution stood at INR 5180 mn, up by 22.4% YoY & 5.3% QoQ. Revenue from power segment contributing ~4% to total revenue stood at INR 305 mn, up by 7.6% YoY & 3.6% QoQ. EBIT margin in CB segment contracted by 670 bps YoY & 268 bps QoQ to 3.44%. EBITDA margins at 8.51% contracted by 541 bps YoY & 113 bps QoQ. This was on the back of higher than expected increase in raw material costs & higher other operating expenses. In FY12, raw material costs stood at 78.1% of net sales vis-à-vis 72.7% in the same period last year.”

“We have revised our estimates for FY13E to incorporate lower volumes, due to lower offtake by the tyre companies coupled with higher & cheap imports from China (7000-7500 MT/month vis-àvis usual run-rate of 2500 MT). We expect PCBL's top-line & bottomline to register a CAGR of 8% & 24% over the next 2 years. We introduce FY14 estimates & retain our "BUY" recommendation & target of INR 170 in 18 months at 4XFY14E EV/EBITDA,” says SPA Research report. 

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