Phillips Carbon Black - Performance subdued, improvement in sight; Hold - Anand Rathi

Sales flattish. In 4QFY13, Phillips Carbon Black reported Rs. 5.34bn in revenue (down 0.9% yoy), 5.8% below our estimated Rs. 5.7bn. Sales in the carbon black (CB) division, slipped 0.3% (to Rs. 5.16bn), while those in the power division fell 13.3% (to Rs. 0.19bn). Despite a 6.9% yoy drop in sales volumes, to 69,600 tons, realisations increased from the pass-through of the steep rise in cost of raw material. Export volumes grew 24% yoy. 1QFY14 volumes are expected to be slightly better than those in 4QFY13.

EBITDA margin at 5.5%. EBIDTA came at Rs. 296m, just 3.5% below our estimate and 11.4% lower yoy. The EBIDTA margin was 5.5%, 65bps lower yoy, declining as the company was unable to fully pass on the increase in raw-material costs. After two quarters of losses, the margin in CB has been good and is expected to improve from now. In 1QFY14 the power division's average realization would be in line with its 4QFY13 figures.

QoQ, PBT turns from loss to profit. PCB reported PBT of Rs. 15m, vs Rs. 60m yoy and a Rs. 145m loss qoq. This was better than what we had estimated. On account of the Rs. 43m deferred tax credit availed of in 4QFY13, reported PAT was Rs. 49.4m. The forex loss in 4Q fell sharply, to Rs. 17.9m.

Our take. Since 30% safeguard duty was imposed in Oct'12 (till Oct'13) and 25% on CB imports fromChina till 31 Dec'13, such imports have slid, but imports from Korea have now increased. The 50,000-tonCochin plant CB expansion has been completed in May'13. An MoU has been obtained from the Tamil Nadu government to set up a new CB and power plant; environment clearances are in progress. In view of global developments, project work at Vietnam is under review. We value the stock at a target PE of 4.5x FY14e earnings. We maintain a Hold, with a price target of Rs. 74. Risks. A slowdown with original equipment manufacturers and adverse forex movement.

Source : Equity Bulls

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