Philips Carbon Black - buy on dips and embrace a safe stock in these turbulent times

Phillips Carbon Black Limited,[ PCB ] part of the RPG Group, pioneered the carbon black industry in India. It is now the leading producer of carbon black in the country.

Initially, the company had a technical tie up with Phillips Petroleum company, USA which ended in 1978. Subsequently, in 1988, PCBL entered into a technical agreement with Columbian Chemicals Company, USA, and acquired access to the modern state-of-the-art Carbon Black technology. This resulted in the company gaining flexibility, product range, production capacity and energy conservation. The company is not only the largest exporter of Carbon Black from India but also one of the largest in Asia in its field. Phillips Carbon Black (PCB), a leading manufacturer of carbon black, is well poised to ride the boom in the domestic tyre industry

Carbon Black is also used across wide industrial segments and finds application in:

• Colouring agent for ink and paints
• Resin and film colouring agents
• Electric Conductive Agent
• Electronic equipment related materials

And don’t forget that so long as Xerox machines are used extensively in public and private offices and by CBI, Auditors and various Interrogation Departments [ thanks to the ongoing continuity of scams on our soil as well as across continents ] the demand for carbon black can only rise and hardly fall – after all carbon black is also used as black pigment for inkjet ink or toners. And don’t forget that our babus love to take out photocopies of voluminous documents and sometimes photocopies of photocopies, in case the first set of photocopy gets lost!. Add, then there is always the endless demand for taking cost free personal photocopies and the orders for toners just shoots up in geometric proportions. Wow, that sounds too good for existing and prospective shareholders of Philips Carbon Black.

For fiscal FY10, topline was Rs.1344 crores and PAT was Rs.122 crores. [ previous fiscal FY09 Rs.1200 crores and loss of Rs.64 crores ] During IHFY11, the total revenues were Rs.911 crores and PAT was Rs.52 crores. I guess the company will cross Rs.1500 crore mark of turnover in FY11.

The company having a Marketcap of just Rs.477 crores is available at a very attractive PE 3.89. The Price/Book Value is just 1 at CMP of Rs.143. Moreover the Dividend Yield is 3.48, Face Value being Rs.10. The 52 week range is Rs.242.45 / 148. The company’s Return on Capital Employed and Return of Equity in FY10 stood at 22 and 45 respectively. The Debt Equity Ratio is 1.81 which is backed by Interest Cover of 4.07. The Gross Asset base has increased by Rs.387 crores in FY10 over FY 09. 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. Power segment to be the mone

Thus the company not only enjoys economies of scale but it is well poised to capture the huge export potential due to shutting down of plants in the USA, Europe and Japan due to environmental issues.

The downside risk is low but upside potential is pretty good. Promotors have a 45.83 per cent and Institutional Holding is 26.32 per cent. Due to complex national and international complications, the markets are likely to slide further in which case PCB may become available at less than its 52 week low. Go for it and hold it for 1-2 years in order to get good returns from this scrip.

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd