PCBL stock records new all time high, up 4170% in a decade, is there more steam left?

Extending its strong uptrend, shares of PCBL surged 10.19% to register an all-time high 244.90 apiece in today’s trade. This has propelled the stock to achieve a remarkable gain of 84% in the current year, marking its best annual performance since CY17.

Looking at the long-term performance, the shares have provided a return of 204% in the last three years and in the last ten years, the shares have delivered a whopping return of 4,170%, rising from 5.62 per share to its current position 238.40. From now on, the stock still has room to grow further, according to the projections made by the analysts at JM Financial.

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PCBL is one of the largest carbon black manufacturers in India and a strong global player with a significant customer base in more than 45 countries. Carbon black, which is the main raw material in automotive tire production, is produced using carbon black feedstock (CBFS) and tar oil.

JM Financial believes that PCBL is well positioned to benefit from a number of structural tailwinds including rising coal tar prices (and, in turn, carbon black oil prices) due to higher utilization of coal tar towards synthetic graphite manufacturing , limited resource expansions in the North. In America and Europe, lower steel production, and a shift from traditional blast furnace steel plants to electric arc furnace steel plants, will further increase coal tar prices, he noted.

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Also, there was a 40% shortage of virgin carbon black in Europe before the war in Ukraine, and demand for carbon black was set to outstrip supply in North America. Therefore, JM Financial believes that carbon black players such as PCBL will be competitive in exporting to these geographies.

In addition, the brokerage notes that the company is making progress in the specialty and performance black segment, with an emphasis on conductive and superconducting carbon blacks used in EV batteries. These, once brought in, will help the company shift gears towards better profitability, the brokerage indicated.

The brokerage also expects that the company could explore entering the CNT market, as its peers have done, through inorganic additions. It projects PCBL to register a volume CAGR of 12% over FY23-26E, particularly through the introduction of the Chennai Greenfield facility and the existing two specialty black lines in the Mundra facility.

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JM Financial expects to improve EBITDA/Kg PCBL 18/kg by FY27E from 11–16/kg over FY20–FY23 as he believes the company’s capacity mix increases towards specialty blacks at 15–16% of total capacity in FY25–26E. As a result, EBITDA is likely to grow 10.9 billion (14% CAGR over FY23-26E) and PAT is likely to reach 6.2 billion (12% CAGR over FY23-26E), according to brokerage projections.

Given these positive factors, JM Financial initiated coverage on the stock with a ‘buy’ rating, setting a target price of 290 apiece, implying an upside potential of 22% from the stock’s current trading price of 238.40.

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According to the brokerage, the valuation premium to its Chinese peer (Jiangxi Black Cat Carbon), which is trading at 13x CY25E EPS, is justified since Chinese players are at a disadvantage due to higher feedstock costs.

In addition, PCBL’s growing share of specialty black, along with the upcoming superconducting carbon black, is paving the way for multiple rerating from a traditional commodity to a semi-specialty play, the brokerage said.

Disclaimer: The opinions and recommendations of the individual analysts presented in this article are. These do not reflect the views of the Mint. We encourage investors to check with certified experts before making any investment decision.

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Updated: 17 November 2023, 01:35 PM IST

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