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PCBL Ltd. witnessed healthy Q1 FY24 volume growth of 12.5% YoY in carbon black driven by 22.6% rise in export volumes, which indicates that the strong overseas market opportunity is playing out.
Company also witnessed a steady 6.7% volume growth in the domestic market. Specialty volumes grew 19.4% YoY. Gross profit per kg surprised positively with 14% QoQ jump to Rs 33.5 (with no one-offs) though it remains in line with the FY24 guidance of Rs 32/kg.
Spreads are likely to benefit in FY25 and onwards on the back of improving mix towards specialty chemicals and the more yield-efficient Chennai facility.
PCBL anticipates strong volume growth over the next few years due to Europe / U.S. looking to source more carbon black volumes from China / India amid muted capacity addition in Russia, Europe and U.S.
PCBL anticipates capacity addition of 80-100 kilo-tonnes per annum over the next few years to meet the growing demand. Company is working on developing super-conductive-grade carbon black, which finds application in electric vehicle batteries.
We have increased our earnings per share estimates by 1-2% over FY24E-FY25E as we raise volumes and spreads; however, the EPS improvement has been restricted due to higher tax rate.
We have increased our FY25E price/earnings multiple to 13 times (from 12 times) as we believe the market is becoming favorable.
Our revised target price is Rs 200 (earlier: Rs 180). Maintain ‘Buy’.
Risks:
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rise in competitive intensity from China or Russia in the export markets; and
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lower than expected spreads in India.
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