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Phillips Carbon Black Q1FY15 results update

August 5, 2014, Tuesday, 13:02 GMT | 08:02 EST | 17:32 IST | 20:02 SGT
Contributed by Nirmal Bang

Phillips Carbon Black (PCB) reported improvement in results; with EBITDA margins at 7.7% vs 5.6% in Q4FY14. The company started FY15 on a positive note and reported PAT of Rs 1.1 cr in Q1FY15. The company is in the process of replacing higher cost raw material CBFS by CBO which is expected to lead to improvement in margins coupled with improvement in demand scenario.

- Carbon Black increase in volumes both QoQ and YoY as domestic volumes continued to show signs of pick up for second consecutive quarter. Exports contributed ~27% of the total volumes. Capacity utilization stood flat at ~63% in Q1FY15. Management aims to maintain this capacity utilization in FY15E. We expect PCB to report sales growth of 5.5% for FY15E.

- Commissioning of Kochin plant led to higher power consumption and thus the power volumes have remained stable. Realisations in the power segment witnessed improvement as the company got open access for selling power outside at higher rates.

- PCB reported PAT of Rs 1.1 cr in Q1FY15 vs loss of Rs 82.5 cr in Q1FY14 and PAT of Rs 2.0 cr in Q4FY14.

- Loss on forex transactions witnessed increase as some old contracts witnessed mark to market impact.

- Anti dumping duty on import of carbon black from China, Russia and Thailand has been extended till July 2015.

FY14 was a challenging year for PCB with prolonged slowdown in the auto and auto ancillary industry which was further aggravated by volatility in rupee and higher crude prices. However, the company has been striving hard to improve its financials and have taken number of steps which include access to cheaper raw material, focus on increasing volumes etc.

In our view, with revival in domestic demand and tapping export markets will lead to improvement in volumes. Increasing domestic demand will result in better realisations. We believe that increased focus on exports will help PCB to bring back the capacity utilization rates to above 70%. An increase in capacity utilization will also enhance the power volumes and contribute to profitability.

Revival in global (improvement in demand in China will lead to lower dumping in India) and domestic demand, reduction in crude prices and stability in rupee holds the key for improvement in performance of PCB. We expect an improvement in FY15E over FY14 and expect the company to report sales growth of 5.5% and EBITDA margin of 7.0% and PAT margin of 1.9%. We expect PCB to report net profit of Rs 46 cr in FY15E as against loss of Rs 86.6 cr in FY14. We expect PCB to report RoE of 8.6% in FY15E.

At CMP, PCB is trading at P/E of 6.65x on FY15E EPS whereas on P/BV it is trading at 0.57x on FY15E. PCB is trading at EV/EBITDA of 7.94x FY15E. We recommend HOLD with a target price of Rs 106; an upside of 18.7% from current levels.

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