FY19 was a superlative year for PCBL with EBITA margins inching up to 20%, primarily driven by tight demand-supply situation in domestic market. With demand situation now normalised and with one-offs behind it, we expect normalcy in earnings to prevail from Q2FY19 onwards with EBITDA margin expectation of ~16% vs. 12.4% clocked in Q1FY20. We value PCBL at | 150 i.e. 5x EV/EBITDA on FY21E numbers and assign a BUY rating to stock. We drive comfort from healthy CFO yield (>15%) & return ratios profile (>15%).
PCBL has moved up the ladder and is now a capital efficient player (RoCE ~20%) clocking EBITDA margins of 15%+ with controlled leverage (debt: equity at 0.5x) and prudent working capital cycle (< 60 days). Given the present transitory phase in the auto space and steady base case earnings at PCBL we change our valuation methodology from P/E to EV/EBITDA. We value PCBL at Rs 160 i.e. 5x EV/EBITDA on FY21E numbers and assign a BUY rating on the stock. We also derive comfort from average CFO yield over FY19-21E at 16% & with limited capex spend, FCF yield placed at 5.5%.