IIFL Sec has a BUY on Philips Carbon Black with the following View,
PCB is all set to ride the boom in domestic tyre industry. To meet the rising demand, PCB is expanding its capacity to 410,000 tons in FY11 from 360,000 tons currently (up from 270,000 tons in FY09). Additionally it is foraying into Vietnam market by setting up a plant with a capacity of 65,000 tons.
PCB currently has 60.5MW of power generating capacity (feedstock comes from off-gases emitted from its carbon black plants). While a portion of the power is used for captive consumption, the remaining is being sold on power exchanges.
Extremely Low P/EThe automobile industry is expected to remain buoyant. 2w sales are rising, several small car launches in near future, CV demand looking strong and a supportive replacement market will ensure high utilization of future capacity. Power segment provides an added kicker. PCB is expected to report revenue CAGR of 23% during FY10- 12E. Higher contribution from power segment will expand OPM by 270bps resulting in PAT CAGR of 21% during the same period. P/E of 4.3x FY11E earnings of Rs51.8 is extremely attractive. BUY with a six-month price target of Rs250.
