Target: ₹320

CMP: ₹250.15

In our view, PCBL’s stock price is not factoring in the value of its recently acquired Aquapharm business. Besides, PCBL’s recent JV with Kinaltek takes it further away from its traditional carbon black business.

Aquapharm’s biodegradable chelating agents (such as GLDA, HEIDA, and PESA) are rapidly replacing traditional agents (such as EDTA, DTPA). Aquapharm has been ramping up its GLDA sales in Asia where it has a strong presence. Further, basis our understanding, it has started the approval process for PESA in the European market. As per various industry estimates, the GLDA market is expected to register about 10 per cent CAGR over the next five-seven years. With strong market traction for its biodegradable agents, we believe that Aquapharm is well placed to take advantage of such favourable demand dynamics. We believe that with strong scale advantage in phosphonates (in which HEDP is the largest product) Aquapharm could register well above the 6-7 per cent industry revenue CAGR. Besides strong scale advantage in the phosphonates portfolio, Aquapharm is scaling up its biocide (methylene bis thiocyanate) and polymers (phosphino carboxylic acid, polymaleic acid) product portfolio.

Going forward, we expect this momentum to continue and Aquapharm could register 13 per cent/15 per cent revenue/EBITDA CAGR over FY24E-26E.

On the funding part, we have clarity that PCBL would fund the Aquapharm acquisition with debt at this juncture. We build in 10 per cent interest cost for ₹3,500 crore debt (assuming PCBL doesn’t pay out dividend and uses ₹300 crore cash for this acquisition)

We ascribe 25x December 2025 target P/E multiple and arrive at ₹30/share equity value of Aquapharm. Hence, our December 2024 TP of PCBL is revised to ₹320/share (from ₹290/share earlier).

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