Carbon black is a pure elementary carbon in the form of a black powder produced by thermal decomposition of liquid and gaseous hydrocarbons. The largest application of carbon black is as a reinforcing agent for the manufacture of tyres. Its unique properties make it useful for pigmentation and as a conductive agent. The carbon black business segmentation is divided into rubber carbon black and non-rubber carbon black. Tyre demand in India is growing at a rapid pace and has outperformed the growth of automobile production in the last five years on the back of higher demand from the replacement market. India and Thailand are witnessing highest investments in the tyre segment within the Asia Pacific region excluding China. Utilisation levels are expected to go up as demand is outstripping supply. Phillips Carbon Black Ltd (PCBL) is a part of the Kolkata headquartered RP-Sanjiv Goenka Group and is the largest carbon black producer in the country. It was set up in collaboration with the US company, Phillips Petroleum in the year 1962. The company started production with 14,000 metric tonnes of carbon black at Durgapur. Currently, it has a production capacity of over 515,000 metric tonnes per annum along with 76 MW of green power. PCBL has a wide market presence across 30 countries, providing a complete portfolio of products to meet the specific end requirement of the paint, ink, rubber and plastic industry. It is the first company in the world to receive carbon credits. It has four manufacturing facilities at Vadodara, Durgapur, Kochi and Mundra. Since gas is the byproduct of carbon black production, it has harnessed the gas to generate electricity. This has been done by setting up captive power plants at each of the four factories, thus creating a sustainable green movement. The company reported an excellent set of Q1FY19 financial results supported by highest ever quarterly net sales of Rs 781 crore and higher net profit of Rs 97.54 crore. The bottom line was driven by shift in product mix and continuous improvement across all functions. The outlook for PCBL remains quite strong on the back of capacity expansion, robust product demand and sound financials. The company is undertaking a 56,000 tonne capacity expansion at Mundra, which is expected to be completed within the next six months. Simultaneously, a 32,000-tonne capacity expansion at Palej is progressing satisfactorily and is expected to be completed within the next one year. All this bodes well for the company to report robust top and bottom line numbers for the next six quarters. Incidentally, last year, we had recommended this stock around Rs 200 when it was at Rs 10 face value. It had zoomed to over Rs 1,200 and now quotes at Rs 240 but on the face value of Rs 2. Investors can enter at the current market value, as it is good fundamental buy for super returns over the next 18 months.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.