Buy Phillips Carbon Black; target of Rs 250: ICICI Direct

ICICI Direct's research report on Phillips Carbon Black

Phillips Carbon Black (PCBL) reported a steady Q3FY19 performance Net sales in Q3FY19 were at Rs 945.9 crore, up 54% YoY, primarily led by realisations that came in at Rs 90/kg vs. Rs 59/kg in base quarter (Q3FY18). Realisations were driven by an increase in crude price and consequent CBFS price amid rupee depreciation on a YoY basis Sales volume of carbon black in Q3FY19 were at 102 KT, up 1% YoY EBITDA in Q3FY19 was at Rs 178.8 crore with corresponding EBITDA margins at 18.9%. EBITDA/tonne in Q3FY19 was at Rs 17,543/tonne The management commentary indicated softness in demand and consequent carbon black prices in the international spot markets that will limit the exponential growth witnessed by PCBL in the past. With some delay in commissioning of new capacities, we expect earnings to consolidate post its re-basing in FY19E.

Outlook

We value PCBL at Rs 250 i.e. 10x P/E on FY20E EPS of Rs 25/share. We derive comfort from healthy cash flow generation with CFO yield at 10%, robust return ratios (RoCE>20%) & sound management practices thereby de-risking the business model from fluctuations of commodity and currency.