A deep dive into Phillips Carbon Black Limited

In your view, what do you think would be the most essential part of a car?

Now, some might say an engine but others would argue that it would be replaced with a motor, once EV rolls out in the market. Then again some might say, it would be the transmission system of the car but again the experts would argue that this system would be eradicated once automatic cars are available at the price of manual cars.

But, very few would think about Tyres! But then again, MRF is already leading in that sector and it has got some hypercompetitive friends like CEAT, Apollo Tyres, Balkrishna Industries and JK Tyres. So, now a million dollar question is – How could one invest in the tyre sector without taking a huge risk?    

But before revealing the name of the company, let me tell you about an element called Carbon Black. 

So, Rubber is naturally white in color. It is made black by adding various chemicals such as Carbon Black. Now, this is not done for some cosmetic purpose but because adding chemicals like Carbon Black drastically increases the desirable qualities of the rubber. For instance, in tyres, Carbon Black works as a reinforcing filler and increases the durability and strength of the end product.    

Interestingly, Philips Carbon Black Limited(PCBL) has been engaged in manufacturing Carbon Black for over six decades. With presence in more than 40 countries and seventh global rank, it is the largest exporter of Carbon Black from India. Carbon Black is the main raw material in the production of automotive tyres and is produced using carbon black feedstock (CBFS) and tar oil. PCBL was set up in association with Phillips Petroleum, a US-based company and the company started its operations in 1962.

Okay apart from Carbon Black, what are the other products the company manufactures?

The company manufactures Carbon Black which accounts for 93% of total sales volume & Specialty Carbon Black that accounts for the rest 7%. Carbon Black has wide applications as it is used in tyre treads, bus & truck tiye tread and ultra-high wear resistant rubber products. It is also used as reinforcing filler in tyre belt ply, tyre inner liners, tubes, profile compounds, molding, hoses, hose covers, shoe soles and heels and conveyor belts.

Whereas, Specialty Black is primarily used as a pigment in plastics, inks, coatings and many other applications. It is also used for high technology applications like fiber, rechargeable batteries, premium automotive coatings, conductive and ESD

The company operates under various different grades for its product categories:

1. Bleumina:

It is a series of medium and high-coloured carbon black, which is used in car exteriors and interiors to improve the aesthetic appeal and durability of the products. 

2. Nutone: 

It is a new range in Specialty Blacks that is available in powdered form. It is used for printing ink applications such as offset ink, liquid ink and inkjet, owing to its color strength and gloss. Nutone series is also used in coatings, adhesives and sealants due to its low viscosity, good stability and dispersion. 

So, what’s the traction like?

PCBL holds a leadership position in the domestic carbon black industry as it is the largest carbon black manufacturer in India and seventh largest global player with a significant customer base in 45+ countries. With more than 1800 employees, it is strategically located at state-of-the-art plants at Durgapur (West Bengal), Palej (Gujarat), Mundra (Gujarat) and Kochi (Kerala), it has also set up R&D centres at Palej (Gujarat) and Ghislenghien (Belgium).

Its key clients include major companies like MRF, Apollo, JKTyre, TVS Tyres, CEAT, Nexen Tyre, Goodyear, Michelin, etc. Currently, its top 10 clients of the company account for nearly 65% of total revenues.

Are they expanding their current production capacity?

The company is planning various expansions:

1. Brownfield expansion at Mundra plant, Gujarat:

PCBL is targeting an estimated Specialty Chemical Capacity of 40 KT with an estimated Project Cost of INR 320 Cr dividend into two phases where the company is targeting Phase I commercial production by 31st March 2023.

2. Greenfield Expansion in Tiruvallur (SIPCOT Industrial Park), Tamil Nadu:

It is also targeting Carbon Black Capacity of 147 KT with an Estimated Project Cost of INR 800 Cr and Power Capacity of 24 MW (Green Power) which could start commercial production by 31st December 2022. 

What about the Financials?

What’s the conclusion?

Phillips Carbon is a part of RSPG group which is among the fastest growing conglomerates in India.  Now, Phillips Carbon Black has a strong global footprint as well as it is one of the largest players in the domestic carbon black market. With stable operating margins, the company has a sustainable amount of debt with sufficiently strong cash balances which further reduces the risk of leverage. The automobile sector which suffered a huge slowdown initially due to Covid and later due to chip shortage is expected to see a revival in the near term. With prestigious clients under its hood, this would fuel the demand for the tyres as well as various other products of PCBL. Additionally, HDFC Mutual fund also acquired around 20 lakh shares of the company in the month of October 2021 via its scheme HDFC Balanced advantage fund which instills more confidence in the company for the users who are exploring for the long term view. 

Does the company intrigue you? Click on the video below to listen tune in to the latest concall of the company