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Centrum Broking
Oriental
Carbon (Buy)
CMP: ₹975.40
Target: ₹1,140
Oriental Carbon & Chemicals Ltd is as much a people driven company as it is a technology driven one. It is on these cornerstones that OCCL has been able to build its standing and reputation in the industry. Today OCCL , belonging to JP Goenka Group of companies, is one of the market leaders in the production of Insoluble Sulphur for the tyre and rubber industry around the world.
Our recent discussions with management of Oriental Carbon & Chemicals (OCCL) point out that the ramp-up of its new Insoluble sulphur (IS) line at Mundra has been faster than expected and OCCL’s market penetration efforts into a difficult US market have remained effective. Work on the fourth line is already underway and we believe that early commissioning (similar to third line) is a strong possibility again.
We expect volumes to rise strongly over FY18-19E and consolidated margins are expected to improve materially led by benefits of i) operating leverage, ii) reduced power & fuel costs and iii) turnaround of its downsized subsidiary Duncan Engineering.
We expect OCCL to steadily increase its market share in the global IS market in the next few years as it expands into new geographies (US, China). Maintain ‘Buy’ with an unchanged target price of ₹1,140 based on our conservative adjusted OCF based methodology.
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