Top Brokerage Suggests Buy This Small Cap Stock For Gains Up To 32% In 12 Months

ICICI Direct in its recent report on PCBL Ltd recommends "buy"with a target price of Rs 170 per share. The stock can increase 32% from its current level in 12 months, according to the given target price. PCBL, a part of RP-Sanjiv Goenka Group, is a small-cap company having a market cap of Rs 4,865.49 crore.

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, plastics among others It has a healthy margin profile, capital efficient business model (RoCE>15%) with limited leverage on b/s (~0.3x debt: equity as of FY22).

Stock Outlook & Returns

On NSE, the stock's Current Market Price (CMP) is stood at Rs 128.90 per share, 8.19% below as compared to its previous close. The stock recorded its 52 week low at Rs 89 in February 2022, and the 52-week high at Rs 153.75 in September 2022, respectively.

 
 The stock has given 7.37% negative return in the past 1 week, whereas, in 1 month around 1.41%, respectively. The stock in 3 months gave 3.53% positive returns. Over the past 1 year, it has given a 10.08% positive returns. In the past 3 years, it gave 116.55% multibagger returns. In the past 5 years, it gave 41.72% positive returns. 
 

 

Q2FY23 Results

PCBL reported a steady performance in Q2FY23. Net sales in Q2FY23 were at Rs 1,628 crore, up 15.5% QoQ with carbon black sales volumes at 114 KT (up 4% QoQ) and realisation at Rs 140/kg (up 11% QoQ). Speciality grade carbon black sales volumes were at 10,016 tonne. EBITDA in Q2FY23 came in at Rs 189 crore with corresponding margins at 11.6%. Consequent PAT for Q2FY23 was at Rs 116 crore, down 7.7% QoQ. EBITDA/tonne for the quarter was at ~Rs 16,570/tonne, down 7.3% QoQ, still second highest in its history. It was higher than our expectations, primarily driven by a decline in outward freight rates.

Buy for a target price of Rs 170 per share

PCBL was one of our early finds wherein it grew ~8x since our initiation over six years (~Rs 17.5 in July 2016 to ~Rs 140 as of October 2022). "We retain BUY rating on the stock. PCBL stands to benefit from the current recovery in volumes in the domestic auto space, especially the CV domain with greater export play amid constrained exports from China Target Price and Valuation: Tracking management commentary and, thus, revising our estimates, we now value PCBL at Rs 170 i.e. 12.5x P/E on FY24E EPS," the brokerage firm has said.

Key triggers for future price performance

• Healthy growth on the anvil. We expect sales, PAT to grow at 26%, 9.5%, CAGR, respectively, in FY22-24E, building in 7.6% volume CAGR at same time. Sales growth looks optically higher on crude led rise in realisation.
• 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 13.6/share.

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 making any investment decision.