Phillips Carbon Black - strong performance; result update Q3FY08; maintain Buy

Phillips Carbon Black (PHCB IN, INR 228, maintain Buy)

Phillips Carbon Black’s (PCBL) Q3FY08 results were above expectations on the profitability front on account of better yields as well as lower-than-anticipated depreciation and interest costs; revenues (flat Y-o-Y) were in line with our estimates. EBITDA and net profit grew 39% and 206%, respectively, in the quarter.

With the new flexible pricing formula in place, PCBL is now better placed to pass on increase in raw material prices to clients, resulting in better operating margins. While EBITDA margins increased 380bps Y-o-Y to 13.8%, EBITDA/tonne increased 40% Y-o-Y to INR 5,025. The company has revised carbon black prices by 8.5-12% across various grades w.e.f. January 1, 2008, to mitigate the increase in cost of feedstock.


The 90,000 MT greenfield carbon black plant in Mundra is scheduled to commence operations in Q4FY09, whereas the expansion project at Kochi, addition of 50,000 MT, is expected be operational by Q2FY10E. The expansion of the power plant in Durgapur is likely to be completed during the current quarter.

On account of the aforesaid capex plans, tax outgo for the company is likely to reduce going forward. Based on Q3FY08 results, we are upgrading our FY08 and FY09 net profit estimates by 20% and 28% respectively.


At INR 228, the stock is trading at 7.3x and 5.9x our revised FY08E and FY09E EPS of INR 31.1 and INR 38.7, respectively. Given PCBL’s capacity expansions, anticipated increase in income from power and carbon credits, and decent valuations, we maintain our ‘BUY’ recommendation