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    Buy Phillips Carbon Black, target price Rs 135: ICICI Direct

    Synopsis

    The brokerage likes Phillips Carbon Black for its capital efficient business model.

    buy sell gettyGetty Images


    ICICI Direct has given a buy rating to Phillips Carbon Black with a 12-month target price of Rs 135. The share price moved down by -2.29 per cent from its previous close of Rs 109.35. The stock’s last traded price is Rs 106.85.

    Carbon black finds major application in the tyre industry where it is used as a reinforcement agent and constitutes 23-25 per cent of tyre by weight. Tyre industry derives 30 per cent of its demand from the OEM market and the rest 70 per cent from the replacement market, which is steady state and recurrent in nature. It is more dependent on movement of goods and people as well as general economic activity. With economic activity recovering post relaxation of nationwide lockdown amid Covid-19 outbreak, the brokerage expects replacement market demand to limit degrowth in the overall tyre industry and consequently support carbon black sales. Phillips Carbon Black, by virtue of being the market leader in this segment, is expected to benefit from this trend. However, de-growth in FY21E is inevitable, says the brokerage.

    Investment Rationale

    In order to safeguard domestic industry, the government has imposed an anti-dumping duty (ADD) on import of carbon black from China into India to the tune of $400/tonne. The duty is due to be revised in November 2020. In all likelihood, it is expected to get extended amid government emphasis on self-reliance (Atmanirbhar). It does not lead to an immediate rise in realisations or margins but guarantees volume offtake for domestic manufacturers, a tad better pricing and operating leverage benefits. Domestic carbon black consumption is pegged at around 8 lakh tonne with 15-20 per cent of carbon black consumption being met through imports.

    The brokerage likes Phillips Carbon Black for its capital efficient business model where RoCE is over 15 per cent, controlled leverage on B/S (debt: equity at 0.4 times in FY20) as well as robust cash flow generation.

    The brokerage maintains a buy rating on the stock with a target price of Rs 135 valuing it at 5.5 times EV/EBITDA (8.5 times implied P/E) on FY22 numbers.

    PAT & EPS Trend
    Philips Carbob Black-ICICIDirectJuly72020



    Financials

    For the quarter ended March 31,2020, the company reported consolidated sales of Rs 700.38 crore, down -8.88 per cent from last quarter sales of Rs 768.65 crore and down -23.95 per cent from last year's same quarter sales of Rs 920.99 crore. The company reported net profit after tax of Rs 72.97 crore in the latest quarter.

    Promoter/FII Holdings

    Promoters held 53.56 per cent stake in the company as of March 31, 2020, while FIIs held 12.01 per cent, DIIs 2.65 per cent and public and other 31.78 per cent.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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