DSIJ Mindshare

Stock Pick From The Engineering Sector

Low Priced Scrip is hidden gem, today's underdog, a stock with future potential that is expected to fetch returns within 1 year. This is a stock picked carefully based on a fundamental analysis of the company.

The company recommended as the Low Priced Scrip for this issue is a leading manufacturer of carbon black, which is majorly used in tyre manufacturing.

Phillips Carbon Black - A Dark Horse

HERE IS WHY

  • It is a high dividend yielding stock available at an attractive valuation.
  • Elaborate capex plans have been drawn up to expand the capacity, which in turn will help in meeting the higher demand going forward.
  • Its presence in the power sector adds strength to its overall business model.

There are certain counters that are good investment bets but don’t manage to catch the fancy of investors. Phillips Carbon Black (PCBL), which belongs to the RP Goenka Group, is one such counter. There are various compelling factors that back our recommendation of PCBL.

The company’s consistent dividend payment history with a dividend yield of 4.16 per cent and the capacity expansion scheduled in the first two quarters of FY13 are among the primary factors that add strength to our conviction in this stock. The best part is that not a single share among those held by the promoters is pledged. On the valuations front too, the scrip is placed well, with its FY12 earnings discounting the CMP of Rs 96 by just 3.80x. Even the EV/EBITDA stands at less than 4x, making it a good value buy at the current levels.

BEST OF LAST ONE YEAR

Name of Company

Reco.

CMP(Rs)

 Gain%

PTC India

45

61

35.56

Omkar Specialty Chem.

58.5

72

23.08

Dena Bank

80.5

96

19.25

Power Grid Corp. of India

96

110

14.58

IDBI Bank

81

91

12.35

GIC Housing Finance

84

93.5

11.31

Manjushree Technopak

80

88

10

Syndicate Bank

99.1

104

4.94

CMP as on June 26, 2012

PCBL manufactures carbon black, which is majorly used in tyre manufacturing, with its current capacity standing at 360000 metric tonnes per annum (mtpa). It also has a 58 MW power generation capacity. The carbon black segment contributes to about 96 per cent of its revenues and the remaining is contributed by power. However, at the PBIT levels, the contribution from carbon black stands at 59 per cent, while 41 per cent comes from the power segment.



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Going forward, PCBL has planned for expansion in both the segments. While it has already added 12000 mtpa of carbon black capacity at Durgapur in FY12, a further 5000 mtpa of capacity will be added in Cochin by Q3FY13. The company is also expected to commission an additional 8 MW capacity in power by the end of Q2FY13. The FY13 capex is estimated to be around Rs 75-80 crore, which will be funded mainly through internal accruals and marginally from debt. Its debt level, which is currently at around Rs 650 crore, may increase marginally in FY13. However, the debt-to-equity ratio is expected to remain below 1.

Share Holding Pattern as on 31/03/2012

 

Indian Promoters

52.26

Mutual Funds and UTI

7.65

FII's

11.42

Private Corporate Bodies

11.04

Government

1.67

General Public

15.96

GRAND TOTAL

100

On the financial front, as mentioned earlier, its performance for the quarter ended March 2012 has not been very good. Due to a slowdown in offtake, the sales volumes of carbon black declined marginally (4.10 per cent YoY and 4.20 per cent QoQ), and the bottomline took a beating due to the higher operating expenses as well as forex losses. However, at Rs 69281/mt, the net realisations were good, up 27.60 per cent on a YoY basis and 0.80 per cent QoQ.

If we consider FY12 as a whole, the sales volumes were up by 1.90 per cent to 314348 mt. The realisations too were up by 27.50 per cent to Rs 667089/mt over the preceding year. However, during the fiscal, the realisations in the power segment were marginally down to Rs 3.04 per unit as compared to Rs 3.19 per unit in FY11. But we feel that with the demand for power increasing, the realisations are set to improve in the future. The additional capacities will help in putting better numbers on the board. Even in the case of carbon black, we feel that the worst is already priced in, and an improvement can be expected going ahead. The near double-digit growth in the auto sector that is predicted by the industry body SIAM is also expected to drive growth for this company.

The company posted a topline of Rs 2186.79 crore and bottomline of Rs 87.12 crore in FY12 as against Rs 1695.70 crore and Rs 116.28 crore in FY11. PCBL has been consistent in terms of dividend payment, and on the valuation fronts, it is trading at 3.80x. We recommend a ‘buy’ from a 12-18 month perspective.

LAST FIVE QUARTERS (Rs /CR)

 

Mar ' 12

Dec ' 11

Sep ' 11

Jun ' 11

Mar ' 11

Sales

540.47

514.91

563.86

567.58

444.17

Other Income

6.57

0.2

0.39

0.52

1.07

Operating Profit

33.39

45.47

46.38

76.92

63.46

Interest

21.16

13.65

12.48

10.54

8.05

Depreciation

12.8

11.95

12.08

11.76

9.59

Net Profit / Loss

5.05

19.64

20.83

41.61

33.29

Equity Capital

34.47

34.47

33.22

33.22

33.22

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