See 40-50% upside in Phillips Carbon: Aashish Tater

See 40-50% upside in Phillips Carbon Black, says Aashish Tater, Head of Research, Fortunewizard.com.

Tater told CNBC-TV18, "Phillips Carbon Black is one story where we feel the downside from the business point of  view is limited though the sector itself is in trouble. But now the government has extended its help to carbon black  companies and this could be a huge positive when it comes to turnaround of this particular business.”
He further added, “One year back there were major deals across the globe where the valuation for 55,000 metric  tonnes was given roughly around USD 80 million. Now this is a 472,000 metric tonnes capacity on consolidated basis  and is trading at a market cap of Rs 350 crore and if I adjust with the enterprise value Rs 600 crore, so on conservative  side also there is lot of potential from that angle where we feel Rs 168-169 is the Reverse Charge VAT (RCV) on the  deal that has happened a year back.”
“Now there is a fundamental shift to this particular business because of the government initiative to import Chinese duty  on coking coal and carbon black which is going to be extended till December 2013. So the carbon black business  itself will see lot of support in terms of price getting exhausted for Chinese importers. Thus the arbitrage play will end  and there will be an increase in margin.”
“There is another interesting aspect that we are upbeat on tyre stocks, which is one of the ingredients having carbon  and its products. Now if you see that angle what will happen is there will be an increase of 18 percent in terms of a  demand for this particular product for next year and the margin squeeze that has happened in the past is now going to  get reversed out. So we are working out with an EPS of close to Rs 20-25 for next year because of this particular  development that the government initiative has taken and the stock would be stabilizing around at Rs 140 mark from  medium term perspective."
"So on downside you do not have anything from fundamental aspect except that the sector  itself is in bit of trouble but now things are getting chalked out better for the sector, we feel there is a 40-50 percent  upside on conservative basis from this angle."