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What’s Driving Investor Interest in Phillips Carbon Black Ltd (NSE:PCBL) ? Stock UP 20% in last 3 Months.

Established in 1960 in partnership with Phillips Petroleum Company, Phillips Carbon Black Limited (NSE: PCBL) is part of the RPSanjiv Goenka Group. It is the largest carbon black producer in India and the seventh largest in the world with a total installed capacity of 603,000 MT per annum (with dedicated special carbon black capacity of 72,000 MT).

These production units are located in close proximity to ports and key national markets; and are supported by cutting-edge technology that helps seamlessly transition between alternative raw materials, use resources efficiently, provide a wide selection of grades and meet high quality standards.

Carbon black is used in the production of rubber-based products mainly as a stiffening agent in tires and in the production of industrial rubber goods and in the production of products that do not contain rubber, including specialty chemicals (mainly where carbon black acts as a pigment, UV stabilizer, improving product durability and also as conductive agent). PCBL offers 75+ grades of carbon black, including 40+ specialty grades from R&D investments.

The company is further increasing its capacity through a greenfield project in Chennai (through a wholly-owned subsidiary) with a capacity of 147 KT and a green energy capacity of 24 MW and a brownfield expansion at Mundra with an estimated specialty chemicals capacity of 40 KT. It offers a broad product portfolio of carbon black with applications – tires (65%), performance chemicals (27%) and specialty chemicals (8%).

The company gradually climbed the value chain and expanded its portfolio of high-performance, value-added grades for rubber and special ferrous applications. Its customers include some of the most important domestic and global tire manufacturers. In addition, the company has established itself as a key player in the specialty black segment worldwide.

The company has strengthened its competitiveness by growing its global presence, diversifying its product portfolio and continuously improving its operational performance. Certified by the American Society for Testing and Materials (ASTM), PCBL’s broad portfolio of customized, high-performance products addresses specific customer requirements.

Over the decades, the company has built scale, expanded its global footprint and established world-class research and development facilities to meet diverse customer requirements. It has a strong focus on research and development through centers located in India and Belgium, which drive the development of new qualities and process innovation. Leveraging an efficient supply chain and distribution network, PCBL has built its presence in more than 45 countries.

PCBL reported robust revenues of 1409 cr, up 40.4% year-on-year, mainly due to better execution with an increased share of special volumes of black goods. The domestic market saw a slight year-on-year volume growth of 5.5%, while export volume saw a year-on-year decline of 11.2%.

The weakening of export demand was mainly caused by fears of inflation. Total volume reported during the quarter was 109,377 MT -3.8% quarter-on-quarter. Specialty carbon black sales volume increased by +35.5% YoY to 9,867 MT, with an increased share of total volumes to 9% in Q1FY23 compared to a 6.7% share in Q1FY22.

Carbon black realizations came in at Rs 125,611/tonne, up 19.8% quarter-on-quarter on better product mix and higher crude prices.

The energy segment recorded a strong year-on-year growth of 57.6% to 53.1 kr. Electricity generation increased to 144 million units during the quarter with external sales volume of 86 million units. With rising electricity demand in the country and subsequent increase in electricity tariffs, PCBL’s average realization against electricity sales jumped from Rs 2.65 kilowatts to Rs 4.06 per kilowatt unit year-on-year.

Despite a sharp rise in oil prices, its strong margin was led by high spot carbon black prices due to global supply issues and a higher share of high-margin special grade carbon black.

Capacity expansion of 147 kt at the Greenfield project (in Tamil Nadu) through its 100% subsidiary PCBL (TN) ltd is on track and expected to be completed by December 2022. Commercial production is expected to start after stabilization in  3–4 months. Work on the mudra brownfield project for special carbon black is on schedule and one line (phase 1 – 20,000 tonnes) is expected to be operational by March 2023.

The 7 MW power plant at Kochi is in the commissioning phase after which the power generation capacity will be increased from 91 MW to 98 MW. Management remains focused on expanding its product portfolio of high-performance, high-margin grades for both rubber and specialty ferrous applications. Management has maintained its guidance of 10,000 tonnes per year of specialty carbon black volume growth over the next few years.

PCBL expects to benefit from the completion of a strong investment cycle by the domestic tire industry and remains positive on the momentum of automotive demand growth. Greenfield expansion provides growth visibility in the rubber and specialty carbon segments.

Adding power to existing facilities would likely add to the balance sheet. Its R&D investments have helped it move up the value chain in Specialty Chemical & Rubber Blacks. Research and development was the main reason not only for the significant improvement in profitability, but also for maintaining it at higher levels.

Management trusts the niche trades and has managed an incremental volume of 10,000 MT per year for at least a few years. In the long term, the management strives to increase the share of special black in total volumes with the aim of further strengthening its margin.

PCBL continues to focus on improving its operational efficiency and improving its product mix and with continued development in the Indian automotive and energy industries, a healthy and diversified position, effective management execution and a lean balance sheet, we can expect a healthy upward movement in Phillips Carbon Black Limited (NSE: PCBL).

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