Phillips Carbon Black

[Lajja_Shah]

PCBL Q4 FY23 Result Update:

• Guidance: Management guided for ~500 KT+ carbon black sales volume in FY24E (up 12% YoY, 445 KT in FY23) amid a new greenfield plant & expects to further grow speciality volumes to ~50 KT in FY24E vs. ~40 KT clocked in FY23. Amid healthy demand prospects, we expect sales, PAT to grow at 7.8%, 13.0%, CAGR, respectively, in FY23-25E, building in 12.2% volume CAGR. Long term growth prospects are robust amid favourable demand – supply situation in overseas markets. Exports are expected to do good especially from the US & Europe region. The company expects to maintain its margins achieved in FY23 and improve margins by around Rs. 1,000 per tonne due to product mix changes, operating leverage, and improving manufacturing efficiency.
• Expansions/Capex: The Greenfield Project in Tamil Nadu has been commissioned, and the Brownfield expansion of specialty black in Mundra is nearly ready and undergoing commissioning. The company plans to utilize 40%-50% of the Chennai plant’s capacity for this financial year. The Specialty Carbon Black - Mundra line is expected to become operational, and the company anticipates the growth momentum to continue. Additionally, there will be a capacity increase of 10,000 tonnes for the full year, representing a 25% growth. The company plans to increase capex by Rs1.5 billion in brownfield expansion and Rs1 billion in Chennai, totalling approximately Rs2.5 bn in capex for FY24. Capacity utilization at new facilities is expected to be around 40-50%.

Brokerages expect Revenues of FY24/FY25 at 6000 cr/6700 cr. Expected EPS for the respective years is Rs. 12/Rs. 15.

[behavioural_analyst]

It accounts for 9% of the value cost and 22% volume in tyre production. 46 parts of carbon black is used for every 100 parts of tyre rubber. 23 parts of carbon black is used for every 100 part of non tyre rubber

[vignesh_iyer]

If anyone attended the AGM , do share pointers for the same. AGM 23

[Sanjay7979]

KEY TAKE AWAYS FROM Q1 FY24 of PCBL ( and my insights)

1. Company has been able to increase revenue and margins.
   Yet QoQ PAT is down because of a change in tax from 22% to29% (due to end of tax subsidy on profit from power generated which was there for last 15 years.)

2. Company has been gradually improving its product mix hence yielding better margins
   Speciality Chemicals which until a few years back was 4% in FY2018 is now risen to 8% and performance chemical too share too have increased. Thus the Carbon Black, a commodity product share in overall revenue share has decreased.

3. China and Russia are no threat to Indian markets in the near term.
   Despite some imports from the above countries in India, India on a net-net basis is an exporter of CB to the tune of 1L tonnes of CB.

4. Company is focused on producing better grades of conductive chemicals for batteries. Company has an R&D team working on various specialty chemicals.

5. Company mentioned having a mechanism to avoid and absorb small shocks in crude prices to avoid inventory loss or gains. They have long contracts for supply of Carbon Black.

6)Regarding capex the Tamilnadu facility,its ready and until April was operating at 45% capacity ( which happens to breakeven production capacity). Production batches and its quality would stabilize in this quarter. Thus it would start contributing and increase the bottom line in coming quarters. Demand is firm.
Brownfield expansion of the Speciality product line of 20K tonnes in Mundra has also got commissioned.
Tamilnadu unit production would help to cater the domestic players ( tyre manufacturers) in the state.

7. Sanctions on Russia ( which exports CB to EU countries) will open some opportunities for exports for CB manufacturers in India.

8. Company sees the need for capex in the coming few years. They do have sufficient land for the next capex at Tamilnadu and Mundra, despite the capex announced or started by other players in India.
   It takes approx 2 years for a greenfield capex.

9. Company stays cautious about global demand and expects domestic demand to be firm.

10. Post the Tamilnadu plant going onstream with near to full capacity utilization, the tax rate again likely to drop from 29%/31% levels to 22% about levels.Can expect a tax rate of 25% for next quarter.

The way I connect dots
A) Since Russia would be imposed by more sanctions to export CB to EU countries, global demand can remain firm. Russia exporting to India is not feasible due to logistic costs and CB landing prices from CHINA to India being much higher, both Russia and China don’t seem to be a threat for the domestic or export business of PCBL.
The current tailwind in the tyre industry augurs well for the domestic demand of CB.

B) Increased efforts on R&D and improving product mix, plus long contracts for CB to tyre companies, should help PCBL for sustained and relatively stable OPMs.

C) The conductive speciality chemical of high grade and purity, looks a good optionality trigger.
The company do produce battery chemical of lower grade which is used in Lead Acid batteries.

D) Tax rate going down from 29% to 25% itself will impact positively the bottom line looks very much possible in next quarter.

E) The stabilization of production from the new TN plant and sales to companies would enhance the revenues and PAT in coming quarters in a gradual manner.

F) Debt declined further by 50cr in this quarter

The only spoiler could be,if any sharp & sudden movement in crude prices.
Secondly if any global slowdown due to maco risks.

Disc : I am invested
This is my first post on VALUEPICKR

[Lajja_Shah]

[Jitendrapd94]

PCBL Ltd Q2FY24 Concall Highlights

PCBL | CMP: INR 198 | Mcap: INR 74.76bn

Volume is expected to grow 12% to 13% over the next 4-5 years.

Capex of INR 12.8bn would bring additional revenue of INR 17bn – INR 18bn per annum going forward.

EBITDA per tonne is expected to reach INR 20,000 by FY27E.

Europe exports are expected to double in the next 2 years.

Revenue

Revenue is expected around INR 16bn to INR 17bn per quarter if crude remains stable.

Margin

Specialty chemical black margins are 2-2.5x of Tyre margins.

Volume

Volume growth is expected around 12% to 13% over the next 4 to 5 years.

Domestic sales volume stood at 82,276MT and International sales volume stood at 47,835MT in

Tyre volume stood at 79,793MT, Performance chemicals volume stood at 34,744MT, and Specialty chemicals volume stood at 15,574MT in Q2FY24.

In the Chennai facility, production volume is around 9,410MT (~50% utilization) and sales volume is around 9,008MT in Q2FY24. Overall, the Chennai facility sales volume was around 14,000MT in H1FY24.

Specialty chemical volume is expected around 50,000MT to 55,000MT in FY24. Q3FY24 volumes are expected to be better.

Capacity & Utilization

The capacity stood at 7,72,000 MTPA as of Q2FY24. The company is expected to ramp up utilization in the next 3 to 4 months. The maximum capacity achievable is around 6,25,000 MTPA (~81% utilization).

The Chennai facility is expected to reach around 80% capacity utilization in the next 3 to 4 quarters. The approvals are expected to come from Tyre manufacturers which will ramp up production.

Specialty chemicals capacity stood at 92,000MT and another 20,000MT is expected to be added going forward.

Around 90,000MT rubber facility is expected to be commissioned in the next 1-2 years.

The company has commenced a 12MW captive power plant in Chennai and the total captive stood at 112MW. Another 12MW is expected to commence going forward.

Capex & Incremental Revenue

Chennai greenfield facility capex is around INR 9.5bn and incremental revenue is expected around INR 14bn. Mundra facility capex is around INR 3.3bn. Mundra facility has two phases. 1st phase capex is around INR 2bn and Incremental revenue is expected around INR 2.2bn going forward.

Maintenance capex is around INR 120mn to INR 130mn per plant which comes around INR 600mn to INR 650mn maintenance capex annually.

Patents

The company has received two patents and started manufacturing for 2 grades. The initial market potential is around 2,000MT-3,000MT and is expected to reach 6,000MT-7,000MT over the medium term. the specialty products contribution realization is around $1,200 - $1,300 per tonne.

Exports

In exports, around 70% of sales from Asia Pacific remain from other countries. The company is exporting to more than 50 countries.

Europe has larger potential and the company is focused on supply chain improvement. Europe volume is around 3% to 4% and expected to be 2x in the next 2 years.

Realization

EBITDA per tonne is around INR 18,427 in Q2FY24 and is expected to reach INR 20,000 by FY27E.

Other highlights

The company is focused on adding capacity every year.

The company is supplying battery chemicals to 2nd and 3rd generation batteries.

Tamil Nadu facility is efficient from a tax point of view.

Outlook: PCBL volume is expected to grow 12% to 13% over the next 4 to 5 years. The capex of INR 12.8bn in Chennai and Mundra facilities would bring additional revenue of INR 17bn to INR 18bn per annum going forward. Europe exports are expected to double in the next 2 years.

[abhikjha]

Significant jump in share price today… any specific reason?

[Utsav_Anand]

The market appears to be taking into account the future earnings per share (EPS) generated by the inclusion of new plants in Chennai and Mundra. This anticipation has led to a perceived reevaluation of the company’s market capitalization. Currently, the stock is trading at a ratio of 1:1 in comparison to the market capitalization to revenue, which seems relatively lower compared to industry peers. The addition of these plants is expected to contribute positively to the company’s overall revenue, and investors seem to be factoring in the potential impact on the stock’s valuation.

[abhikjha]

RP-Sanjiv Goenka Group's PCBL to acquire Aquapharm Chemicals for ₹3,800 cr

[YashSodha]

Against Rs 730 Cr of EBITDA by PCBL for FY23, Aquapharm had EBITDA of Rs 417 Cr. Also, EBITDA margins at c. 20% are higher as compared to 13-14% of PCBL.

[abhikjha]

Thanks for sharing. Looks like a good deal. Where did you get these info?

[YashSodha]

@abhikjha Sourced from MCA filings of Aquapharm.

[Fundocrat]

There are around 500 crore cash with them. The Debt/Equity ratio further up.

[Utsav_Anand]

PCBL or the company they are acquiring

[Jitendrapd94]

The Board of Directors of PCBL Limited (“Company”), has at the Meeting held on 29 November 2023, in-principleapproved the term sheet for entering into a joint venture with Kinaltek Pty limited (“Kinaltek”). The Company shallown 51% of the shareholding in the joint venture company (“JV Company”), and shall be infusing a consideration ofUSD 16,000,000 in the JV Company and a commitment to infuse funds up to USD 28,000,000 in stages in the JVCompany, for setting up a manufacturing facility (“Proposed Transaction”);

The Company has entered into a term sheet to form a JVCompany with Kinaltek (an Australian company, which has developed nano silicon technology for battery application).The Company shall own 51% shareholding in the JV Company which will have the intellectual property and know-how of
products for battery application and a pilot plant for the same.

[parthgoyal]

ACPL as a company is good, 53% of their revenues come from Phosphonates and ACPL ranks as the second largest producer of the same, globally along with 31% gross margins and around 20% EBITDA margins.

That’s a big thing.

However, this is completely unrelated to the existing business of PCBL. They have no expertise in running it. They would have to carry on the existing management of ACPL and then learn from them how to run it.

Yes, the valuations at which they acquired are good but what’s the point if you don’t know how to run it. Isn’t it diworsification?

[vinay_shinde]

I guess , PCBL is trying to diversify the product folio as they are iterating on to explore in speciality chemicals + battery chemicals .

[abhikjha]

As it happens in most of the acquisitions, I think they will retain core team of the acquired company to run the business as usual.

[Hitesh_Thoria]

Do we have any clarification from the management if they are going to retain the old management or bring new management into ACPL?

[Jitendrapd94]

Special Conn call on 28.11.2023