Why is this a downside, its a growing company, OCF is +ve which is being used to invest along with debt. Too much of unutilised cash will not help in compounding.
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I am referring to the downside where expected acquisition and demand donāt come through with high debt.
I would like this risk as long as upside is excellent. But looking at cash positions, within 5 year timeframe, does not seem there is any FCF left to Owners.
Do you think I am being overly pessimistic?
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One cannot predict the future, there is always the risk of an unforeseen event occurring. However, if you glance through the past few concalls, you will notice that the managementās assumptions for investing in capex (carbon black + specialty black) and the acquisition are fairly conservative in nature. It would be useful to track quality of execution rather than debate the reasoning for the capex.
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Brent crude falls below $70 for the first time in 3 yearsā¦Direct beneficiary is PCBL
Disc:Invested
Raw material is pass through.
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Infact,
Volatility and Fall in RM is usually not profit accretive.
- cost of inventory is higher while finished goods are market linked leading to margin compression .
- In falling RM scenarios, end customers usually postpone buying in bulk in anticipation of further fall in their buying price. They usually maintain just in time inventory till prices again show uptrend.
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PCBL Limited Q2 FY25 Earnings Conference Call Summary
Financial Performance:
- Consolidated sales volume for carbon black increased by 14% year-on-year to 148,000 tons in Q2 FY25.
- Consolidated revenue from operations increased by 45% to ā¹2,163 crores, driven by better realization, higher sales volume, and revenue from the recently acquired Aquaform Chemicals.
- Consolidated EBITDA grew by about 53% year-on-year to ā¹369 crores.
- EBITDA per ton in the carbon black business further increased to ā¹2,324.
- Power generation increased by 25% year-on-year, with external sales volume rising from 103 million units in Q2 FY24 to 126 million units in Q2 FY25.
Margin Guidance:
- Management believes current margins are sustainable and sees potential for further improvement due to changing product mix, improving operating leverage, and ongoing efforts to enhance manufacturing efficiency and yields.
- Margins are expected to expand in a lower freight rate environment.
- Aquaform Chemicals is expected to achieve an EBITDA margin of around 25% by FY29.
- The battery chemicals business is projected to have an EBITDA margin of around 50%.
Business Segment Performance:
- The tire segment accounted for 82,83 tons of sales volume in Q2 FY25.
- The performance chemicals segment reported sales volume of 49,836 tons.
- Aquaform Chemicals reported steady performance with revenue of ā¹362 crores and EBITDA of ā¹50 crores in Q2 FY25.
- Aquaformās capacity utilization remained above 75% during the quarter.
Management Guidance for the Future:
- PCBL is implementing cost optimization and operational efficiency measures at Aquaform Chemicals to improve capacity utilization and performance in the coming quarters.
- The company is undergoing an aggressive capacity expansion program in carbon black, water treatment, detergents, and oil and gas chemicals under Aquaform.
- PCBL expects to commission specialty carbon black projects in Mundra and Dhamra in Q3 FY25, with the second phase of the Tamil Nadu expansion planned for Q4 FY25.
- The company aims to reach 1 million tons of carbon black capacity by FY27-28 and is evaluating options for a proposed Greenfield capacity expansion.
- A joint venture, Nanovea Technologies Limited, has been established with EV India Private Limited to develop nano silicon products for lithium-ion battery anodes.
- PCBL plans to ramp up global sales volume from FY26 onward, with a significant focus on European markets.
Key Risks in the Business:
- Global business environment remains turbulent, with freight rate volatility and uncertain global economic conditions impacting margins.
- Aquaform Chemicalsā oil and gas chemicals business is facing headwinds due to a challenging market in the US, leading to lower capacity utilization and margin pressure.
Industry Outlook:
- The carbon black industry presents a large market opportunity, with the global market size estimated at 15 million tons and a long-term growth rate of around 3.5%.
- Demand in India is expected to increase significantly in the next five years.
- Chinaās carbon black industry is consolidating, and future capacity additions in China are expected to be limited.
- Russiaās carbon black exports are facing challenges due to sanctions, limiting their capacity expansion plans.
- These factors create a favorable environment for Indian manufacturers like PCBL, with significant growth opportunities in both domestic and export markets.
Disc: Invested
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Government of Andhra Pradesh has vide its notification (āNotificationā) accorded approval for allotment of 116.62 acres of land, subject to de-notification of the Naidupeta SEZ in favour of the Company
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One need to carefully watch the debt of this company and track how they are gonig to reduce
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Agree, debt is really a problem and with all these expansion and acquisitions, I donāt think its gonna come down soon. I exited today with some modest gains.