Buy Oriental Carbon and Chemicals; target of Rs 1575: Centrum

Centrum's research report on Oriental Carbon and Chemicals

We maintain our positive stance on Oriental Carbon & Chemicals (OCCL) and retain Buy with a revised TP of Rs1575. Q2 performance was strong with EBITDA/PAT growth of 32%/42% YoY. We continue to remain positive on company’s prospects led by solid demand outlook for IS in domestic market led by fast paced growth of domestic tyre manufacturers and opportunity for gaining market share globally led by higher penetration in new geographies of US & China. Consolidated margins are expected to improve over FY18-20E led by i) higher share of IS business with increasing volumes coupled with benefits of operating leverage and ii) positive contribution from strong turnaround of downsized subsidiary Duncan Engineering. Strong capital allocation track record is an added positive.

Outlook

We value OCCL on our conservative AOCF/EV yield based on five year average cash flows to arrive at our revised TP of Rs1575. Maintain Buy. Key downside risks are lower volumes and rupee appreciation.