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Research House : Crisil Research
Company : Phillips Carbon Black
Fair value : Rs.57
Current market price : Rs.35
Fundamental Grade : 3/5 (indicating “good fundamentals” relative to all listed securities)
Valuation Grade : 5/5
Crisil Research has revised the fundamental grade of Phillips Carbon Black Ltd, India’s largest carbon black manufacturer, from 4/5 to 3/5.
Structural changes in the global carbon black market and a significant increase in cheap imports from China due to high raw material prices at home and sluggish demand have hampered Indian players’ margins and utilisation rates, and consequently, their profitability.
Further, Phillips Carbon Black generates 60 per cent of its domestic revenues from the tyre industry which has witnessed a slowdown in FY13. However, the company's leading position in India should help it overcome the short- to medium-term challenges.
CRISIL Research expects carbon black demand to improve with a revival in the tyre manufacturing industry (biggest user of carbon black). Further, the company’s focus on cost-reduction measures and increased contribution from power sales are expected to improve its profitability from the current levels. Revenues are expected to grow by 4.6 per cent to Rs 2,410 crore in FY14 and by 18.3 per cent to Rs 2,850 crore in FY15. EBITDA margins are expected to be 5 per cent in FY14 and 6.2 per cent in FY15.
We expect the company to report a loss of Rs 28 crore in FY14 due to forex losses. For FY15, we project PAT of Rs 27 crore. We have used average of the price to earnings (P/E) and price to book (P/B) methods to arrive at a fair value of Rs 57.
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