ICICI Direct Suggests Buy This RP-Sanjiv Goenka Group Stock For Aggressive 38% Returns

ICICI Direct in its report on PCBL Ltd recommends buy the stocks of the company for a target price of Rs 160/share. PCBL Ltd (erstwhile Phillips Carbon Black) is the leading manufacturer of carbon black, which is used as a reinforcing material in tyres. PCBL also derives ~9% of sales volume from speciality carbon black, which fetches high margins and finds application in paints, and plastics among others. It has a healthy margin profile, a capital-efficient business model (RoCE>15%) with limited leverage on b/s (~0.3x debt: equity as of FY22).

Stock Outlook

On Friday, the stocks of the company closed at the Current Market Price (CMP) of Rs 116/share. On Friday it declined 4.15% from its close after setting at CMP. The stock hit the 52-week low level on 24th February 2022 at Rs 89/share, while the 52-week high level recorded on 04 October 2021 at Rs 138.65/share.

The PE ratio of the stock is 9.78. The PB ratio is 1.75. Return on Equity (ROE) is 16.29%. EPS is Rs 11.86. It has a Market Capitalization of Rs 4,378.57 crore.

In terms of returns, the stock has performed well on long-term investment. In the past 1 week, its share price moved up nearly 5.69%, in 1 month moved up 11.92%, and in past 1 year, its share price slid nearly 1.92%, respectively. In 3 years, it has delivered 112.94% returns and 91.23% in 5 years, respectively.

The brokerage is bullish on the stock and suggests buying for Rs 160 target price. It has the potential to gain 38% in 12 months considering the CMP & Target price of the stock.

Q1FY23 Results

PCBL reported robust performance in Q1FY23.

• Net sales in Q1FY23 stood at Rs 1,409 crore, up 16% QoQ with carbon black sales volumes at 109kt (down 3% QoQ) and realisation at Rs 126/kg (up 18% QoQ). Speciality grade carbon black sales volumes stood at 9,867 tonne.
• EBITDA in Q1FY23 came in at Rs 196 crore with margins at 13.9% (up 270 bps QoQ). Consequent PAT for Q1FY23 stood at Rs 126 crore, up 39% QoQ.
• EBITDA/tonne for Q1FY23 stood at ~Rs 18,000 (vs. ~Rs 12,200 in Q4FY22), highest ever in PCBL's history, primarily driven by lucrative spot sales.

ICICI Direct suggests buy for a Target Price of Rs 160/share

PCBL has been one of our early finds wherein it grew ~2x in the past five years (~Rs 60 in July 2017 to ~Rs 120 as of July 2022).

"We maintain our positive view and retain BUY rating on the stock. PCBL with organic growth prospects, much heathier B/S and return ratios is a good proxy to play upon recovery in volumes in the tyre and broader auto space. Revising our estimates (volume, margins), we value PCBL at unchanged target price of Rs 160 i.e. 12x P/E on FY24E EPS," the brokerage has said.

Key triggers for future price performance

• Healthy growth on anvil. We expect sales, PAT to grow at 25%, 9%, CAGR, respectively, in FY22-24E, building in ~8% volume CAGR in the same time. Sales growth looks optically higher due crude led rise in realisations.
• With greenfield expansion (~150 KT) under execution and successful strides made in the speciality carbon black domain, long term growth prospects are robust amid limited competition in overseas markets.
• Expected commissioning of Greenfield project in CY22E with brownfield expansion of speciality grade carbon black lines (~40,000 tonne) by FY24E.
• Trades at inexpensive valuation of <10x P/E on FY24E EPS of ~ Rs 13.4/share.

About - PCBL Ltd

PCBL, a part of RP-Sanjiv Goenka Group, was set up by Mr K. P. Goenka in 1960 and started production at Durgapur with a production capacity of 14,000 MT per annum. For over six decades, PCBL has been playing a pioneering role in the performance materials and specialty chemicals segment, with a current production capacity of 6,03,000 MT per annum and generating 91 MW per hour of green power. Today, PCBL is the largest carbon black manufacturer in India and a strong global player with a significant customer base in 45+ countries. Apart from four strategically located state-of-the-art plants at Durgapur in West Bengal, Palej & Mundra in Gujarat, and Kochi in Kerala, it has also set up R&D centres at Palej in Gujarat and Ghislenghien in Belgium.

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.