PCBL Chemical shares gain 25% in 6 months on supply, export optimism

ET Intelligence Group: Shares of PCBL Chemical, a manufacturer of carbon black and specialty chemicals, have risen 25% over the past six months, as investors bet on higher realisations amid tighter carbon-black supply, improving export prospects and a recovery in earnings.

Pricing of carbon black, which accounts for around 80% of the company's revenue, is expected to strengthen as disruptions at Russian refineries tighten supplies. Tighter global supply is also expected to help PCBL to expand exports to the US and Europe. The stock trades at price-earnings (P/E) multiple of 48.7 compared with the three and five-year averages of 34.5 and 25 respectively, implying a premium for the expected strong future earnings.

PCBL had diverted some export volumes to the domestic market in the first quarter, where value per tonne was higher, as elevated and erratic freight costs made overseas sales less attractive. The shift was also supported by a more favourable domestic pricing environment, as lower Russian supplies and higher-priced Chinese imports reduced the pressure from low-cost imports.

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Indian carbon black suppliers face lower tariffs in the US than competing Asian and Middle Eastern supplies. Higher duties on China are pushing US customers to diversify sourcing. The company's management expects this to create a structural opportunity to gain market share in Europe, the US and other premium markets.

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The company now expects freight conditions and tariff advantages to improve, with higher export volumes from September quarter onwards, particularly in the US and subsequently Europe. It is also focusing on higher-value products, which should support operating profit before depreciation and amortisation (Ebitda). PCBL expects its cost-optimisation programme, covering feedstock diversification, procurement and efficiency improvements, to generate ₹200-250 crore of savings over the next four to six quarters. This would provide an additional lift to profitability even without a commensurate increase in revenue.

The management has retained the guidance of a 14-15% improvement in average carbon-black Ebitda per tonne to ₹16,500-17,000 for FY27. PL Capital noted in report that this outlook may prove conservative if Russian carbon black supply continues to contract and global capacities remain offline. It expects Ebitda margin to expand to 14.1% in FY28 from 12.7% in FY26. The brokerage has upgraded the stock to 'Buy' from 'Accumulate', valuing it at 25 times FY28E earnings per share and has revised the price target to ₹391 from ₹388 earlier. The stock closed 2% higher at ₹326.9 on the BSE on Wednesday.
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