Buy This Chemicals Stock For 46% Upside Suggests ICICI Direct

About the company:

The company here we are talking about is Philips Carbon Black and is into manufacturing carbon black that is used as a reinforcing material for manufacturing tyres. The company also gets its sales volume from speciality carbon black, which fetches high margins and finds application in paints, plastics among others. Other positives about the company’s financials are low leverage with debt/ equity ratio standing at 0.3x. Other than that it has a healthy margin profile (15%+), a capital efficient business model

(RoCE>15%).

Q2FY22 Results:

The company’s results for the September quarter stood strong with sales volume of carbon black registering growth QoQ. PCBL reported a robust performance in Q2FY22. Consequent PAT in Q2FY22 was at Rs. 121.5 crore, up 16.5% QoQ.

Advice to investors by the brokerage on the stock

The company in the last 5 year has gained almost 5 times from a stock price of Rs. 45 in November 2016 to Rs. 225 currently. “We maintain our positive view and retain BUY rating on the stock Target Price and Valuation: We value PCBL at | 320 i.e. 12x P/E on FY23E EPS.”, says the brokerage firm.

Triggers for future performance

Tyre ancillaries will witness growth on account of cyclical recovery in CV segment as well as amid increasing demand for personal mobility driving sales

in the 2-W & PV segment.

• Healthy double digit growth is foreseen. We expect sales, PAT to grow at 23%, 21%, CAGR, respectively, in FY21-24E, building in 11.4% volume CAGR

• With greenfield expansion under execution, long term growth prospects are robust amid limited competition in overseas markets

• Trades at inexpensive valuation of

Alternate Stock Idea:

In mid, small cap coverage, we also like VST Tillers & Tractors iterates the brokerage firm. It is a leader in domestic power tiller space and a key beneficiary of import restrictions in the category. Successful launches in higher hp tractor space. Capital efficient, cash rich b/s. BUY with a target price of Rs. 3180.

Disclaimer:

The above stock has been picked from the brokerage report of ICICI Direct. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.