July 19, 2024
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Stock Market

Can PCBL’s Revenue Continue to Grow at a CAGR of 20%?

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Stock Market

Can PCBL’s Revenue Continue to Grow at a CAGR of 20%?

Throughout history, our quest for crude oil has evolved from surface discoveries to sophisticated drilling techniques deep underground. This ancient organic matter is refined into essential fuels and chemicals. From this process emerges a carbon black, one of the byproducts.

It isn’t just a byproduct; it’s a versatile substance pivotal in modern manufacturing. It is used in various industries. Carbon black’s role expands beyond traditional uses. In renewable energy, it bolsters the structural integrity of wind turbines and solar panels. Advancements in nanotechnology even hint at its potential in next-gen electronics and energy storage.

From its origins as a residue of refining, carbon black exemplifies innovation. It’s not just about extracting resources but maximizing every molecule’s potential. In this article, we will look at PCBL which operates in the Carbon Black Industry.

Company Overview Of PCBL

PCBL (Philip Carbon Black Limited) was incorporated in 1960. The company is under the RP-Sanjiv Goenka Group. They are one of the top carbon black manufacturers in India, with a strong presence in over 50 countries. There are four plants which are at Durgapur (West Bengal), Palej (Gujarat), Kochi (Kerala), and Mundra (Gujarat).

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They have R&D plants in Ghislenghien (Belgium) and in Palej (Gujarat). Recently, in 2023, PCBL commissioned its fifth plant in Chennai. In 2023, the company opened its fifth plant in Chennai. The company started with 14,000 MT per annum of capacity to the current 7,70,000 MT per annum.

The company’s product line includes tyres, conveyor belts, industrial hoses, food plates, electric wire, print ink, camera bodies, and automobile components. PCBL has over 120 customers for speciality chemicals, with over 65 different grades.

Industry Outlook

The scale of India’s carbon black market is expected to reach 0.98 million tonnes by the end of this year. It is expected to reach 1.21 million tons over the following five years, representing a CAGR of more than 4.15% over the forecast period. Because of its efficiency and high productivity, the furnace black process is ideal for producing high-quality carbon black.

It offers extensive control over its qualities, such as particle size and structure. It is commonly employed as a filler and pigment in a variety of particle sizes and structures in plastics, inks, paints, and coatings. The carbon black produced during the process is mostly used in vehicle tyres for a variety of functions.

For example, it helps to transmit heat away from the tyre’s tread and belt area, reducing thermal damage and increasing tyre life. Thus, the tyre sector significantly influences the demand for the process type. During production, the furnace black process improves environmental and worker safety. The fully enclosed facility reduces the emissions of process gases and dust, lowering health concerns.

One of the primary drivers driving the market is increasing demand from the tire industry, which consumes more than 70% of carbon black. The growing adoption of electric vehicles is projected to create opportunities for India’s carbon black market.

How prominent is Carbon Black to the World?

Carbon black is produced by burning hydrocarbons with a controlled amount of oxygen in a boiler. The incomplete combustion creates a lot of heat and emits carbon dioxide. The carbon particles created from this process are a fine black powder. It is widely used in a variety of materials, including rubber, inks, paints, and plastics. However, this is produced from burning fossil fuels to create a material useful for many other industries for product durability.

We see it everywhere in our life. This is used in vehicle tyres, shoes, printer ink, and other applications. Carbon Black is one of the ingredients in most major industries to easily transport, manufacture, and sell.

Financial Overview And Segments Of PCBL

PCBL reported Rs. 6,420 crore in operating revenue in FY24, up from Rs. 5,774 crore in FY23. This was an 11.18% increase YoY. Net profits improved by 11.08% to Rs. 491 crore in FY24 compared to Rs. 442 crore in FY23. The company’s revenue has grown at a CAGR of 21.20% over the last three years. Similarly, net profit CAGR growth was around 15.43% during the same period.

They can maintain reasonably consistent operating margins. There is constant growth in terms of both revenue and net profit. The majority of the expenses are the cost of materials consumed, which accounts for roughly 70% of revenue.

In FY24, the PCBL earned the majority of its revenue from Carbon Black, which accounted for approximately 92.37% of total revenue, followed by Power (3.94%), and Chemicals (3.67%). Net Profit as per segments Power has better net profit margins compared to carbon black.

In FY24, PCBL generated 28% of its revenue from household, industrial, and institutional cleaning, 18% from industrial water treatment, 50% from oil and gas, and the remaining 4% from other sources.

Peer Comparison

PCBL is one of the largest players in the carbon black industry. Some of the market’s listed companies include Rain Industries, Himadri Speciality Chemicals, and Goa Carbon. Goa Carbon trades at a lower price-to-earnings ratio than its peers.

PCBL is trading around 20 times. PCBL’s dividend yield is also higher, but it is not as high as Goa Carbon’s yield ratio. The RoE of PCBL is around 15%, whereas Goa Carbon is around 34.54%. Debt-to-equity is in a higher range for PCBL than its peers.

Himadri Speciality also operates in other segments and has a decent financial ratio but commands a higher P/E compared to all its peers. However, for Rain Industries, the company is barely profitable due to high debt and low earnings.

Overall, PCBL commands a higher Mcap and is around 10x bigger than Goa Carbon. PCBL is still growing but not at the pace of its peers. Goa carbon is smaller in size and has better ratios.