PCBL Ltd: Company Stock Analysis

Ventura: 16 Feb 2024

PCBL Ltd, India’s premier carbon black producer and the 7th largest worldwide, is experiencing substantial growth, driven by favourable market dynamics and strategic diversification. The decline in Chinese carbon black market share, due to stringent measures taken on Chinese carbon black in America and Europe, along with reduced feedstock supplies in China, has benefited PCBL. Additionally, American firms are not expanding their carbon black capacities and increasingly sourcing it from India & Southeast Asia. Furthermore, the Russia-Ukraine conflict has escalated production costs in Europe, leading to a shift towards Asian suppliers, with India emerging as a preferred choice due to logistical advantages. In 2023, the global market for carbon black stood at 14.5 mn tonnes and it is expected to grow at 3.3% CAGR reaching 18.2 mn tonnes by 2035, presenting a significant export opportunity for PCBL.

Domestic demand for carbon black is increasing, driven by the expansion of tyre manufacturing capacities, reduced tyre imports from China, heightened demand for PV/CV/tractor tyres, specialized tyres for EVs and rising tyre exports due to anti-dumping duties on Chinese tyres.

PCBL is diversifying into performance & specialty blacks, aiming to improve its revenue profile & enhance profitability, as these segments offer better margins compared to the rubber black segment. The demand for specialty & performance blacks is improving in India due to rising manufacturing activities supported by ‘Make-in-India’ & ‘Atmanirbhar Bharat’. PCBL is also developing superconductive grade blacks for lithium-ion batteries, offering higher profitability. Since the product is in the testing stage, we have not considered it in our projections.

Moreover, PCBL expanded its specialty product portfolio by acquiring a 100% stake in Aquapharm Chemicals Pvt Ltd (ACPL), a key player in phosphonates for water treatment and detergent manufacturing, for INR 3,800 cr (1.9X/10.6X/13.7X of ACPL’s FY23 revenue/EBITDA/PAT). This acquisition positions PCBL favourably in the water treatment sector, with ACPL maintaining a robust EBITDA margin of +20%.