Buy Phillips Carbon Black; target of Rs 210 : ICICI Direct

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ICICI Direct's research report on Phillips Carbon Black

In a recent notification, the Ministry of Finance has denied extension of anti-dumping duty (ADD) on imports of carbon black (used for rubber application) into India largely from China & Russia. It is amid the Commerce Ministry proposing an extension of ADD. This comes as a negative surprise to us but does not change any business dynamics for the domestic carbon black players, as of now, including industry leader Phillips Carbon Black (PCBL). As highlighted in our recent report (dated December 28, 2020), extension of ADD just ensures better volume offtake for carbon black players and by no means implies better pricing or profitability. We remain confident of better sales volume prospects and profitability at PCBL, reiterating our positive stance on the company.

Outlook

However, with fundamental demand levers at play, we remain positive on PCBL and maintain our BUY rating with an unchanged target price of Rs 210 valuing it at 10x P/E on FY23E EPS. Sensing the robust demand, PCBL is in the midst of setting up a greenfield plant of 150 KT capacity (capex of ~Rs 600 crore) and is awaiting regulatory approval for the same. Healthy return ratios matrix (RoCE>15%) and robust cash flow from operations (CFO yield>15%) provide good margin of safety.

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