DIWALI PICKS – 1 – ALPHA AFFAIRS

PCBL –Philips carbon black

CMP 210, Market cap ~7900cr

Mcap/Sales < 1.5, ROCE ~17%, PE ~18.5

Business, Revenues and SHP

➡️India’s largest & world’s 7th largest Carbon Black Company with strong presence in specialty chemical

➡️Existing 4 plants combined Annual capacity of 623 KTPA & green power generation plant of 98 MW

➡️Focus on RnD in Speciality chemicals -50+ scientists & technical professionals in R&D and process technology

➡️70% revenue from domestic, 30% international

➡️65% revenue from Tyre segment –Major Tyre companies are doing capex–INR 35000 crs of investment by tyre industry in last 3 years in capacity creation & debottlenecking

➡️Presence in more than 50 countries with 100 grades of Carbon black, 65+ grades of speciality chemicals, 1100+ employees

➡️Consistent promoter holding, Good FII and DII participation

➡️Company has strong experienced leadership team + Company belongs to Renowned RPG group

Strengths and Triggers

🟢Capex, expansion ongoing -Green field project at Tamil Nadu with Annual capacity of 147 KTPA & green power generation plant of 24 MW, Specialty capacity in Mundra of 20 KTPA. Brownfield Expansion at Mundra plant, Gujarat. Total Specialty Chemical capacity after all expansions – 112 KT.

🟢Favorable tailwinds as vehicle scrappage policy, Growing demand for EV tyres, SUV tyres, Acceleration in freight movement

🟢Tyre exports witnessed healthy growth of 9% in FY23 driven by growth in passenger car , agri & construction sectors and increased acceptance for Indian tyres globally. Domestic Tyre demand is estimated to grow by 8-9 % in FY24 with growth recovery in OEM and replacement segments

🟢Tyre imports are reducing

🟢Easy access to raw materials and international customers with proximity to ports

🟢Lower logistics cost on account of well spread manufacturing facilities and proximity to customers

🟢Lower risk of business interruption with multiple manufacturing location spread across India

🟢Increasing Contribution from High Margin Specialty & Performance Chemicals Portfolio

🟢Company is also focusing on digitalization in its operations like INDUSTRY 4.0: Smart factory Solutions —

a) Smart Automation in new manufacturing unit in Chennai, Tamil Nadu to generate key analytics and dashboards, eliminate human error and improve safety.

b) Adoption and deployment of best-in-class Data Security softwares and Advanced threat protection for all end users.

c) Creating Digital Infrastructure by set up of disaster recovery data centre for critical data protection, Automated tool-based backup is scheduled and monitored for all critical Cloud Servers.

RISKS

🔴Key Raw material CBFS is imported and dependent on crude oil price

🔴Major portion of PCBL’s revenue is from sale of CB to tyre manufacturers which is cyclical business

🔴Threat of imports of carbon black or Dumping by China

Disclaimer — Not a buy/sell recommendation.

Purely for studying the stock idea with risks and strengths

Your Profit, Your Loss based on your conviction