300% spike in 365 days! This stock has more steam left

NEW DELHI: Despite a 290 per cent surge in last one year, it seems there is no stopping the Phillips Carbon Black stock.

The company, which is looking to gradually move up the value chain by expanding its product portfolio to high-performance high-margin grades for rubber and specialty black applications, has been seeing an improvement in bottom line year after year, even though it is yet to see healthy sales growth.

Analysts said the planned de-bottlenecking of its four plants and a Rs 200 crore capex are likely to boost volumes of the company, which operates at around 95 per cent capacity. A move towards specialty segment is seen to be raising margins.

The scrip has risen 290 per cent in last one year and 440 per cent in last three years. At around Rs 450 apiece, the stock trades at 21 times its trailing 12-month EPS.

Shares of the Sanjiv Goenka group firm has gained on falling carbon black (CB) imports in India, thanks to anti-dumping duty, ease in Chinese dominance on account of higher coal-tar prices and low input cost due to weaker crude prices.

Carbon Black is reinforcing filler used in rubber compounds. It alone accounts for over 20 per cent of tyre manufacturers’ raw material cost.

The company is looking to expand its focus on specialty black for use in industries such as paints, plastics, inks and coatings, electronic components and toners.

“The change in product mix towards the higher-margin specialty black would aid margin expansion. The product fetches higher realisations than normal-grade CB and generates much higher margins. The segment now contributes nearly 2 per cent to overall volume and 9 per cent to gross margin,” said Anand Rathi Financial Services.

The brokerage noted that de-bottlenecking would raise the company’s capacity by 15,000-18,000 tonnes, while brown-field expansion would add 24,000 tonnes of normal-grade CB and 12,000 tonnes of specialty-grade CB.

“We expect capacity expansions to lead to a 11 per cent CAGR growth in volumes over FY17-19,” it said, raising the target price for the stock to Rs 547 from Rs 508 earlier.

In an interview to ET Now, Rajesh Agarwal of AUM Capital said falling crude oil prices and anti-dumping duty in China bodes well for this company.

“With ever-increasing demand from tyre manufacturers, we think going forward this company will report good numbers. Capacity is likely to be expanded in next two years funded entirely through internal accruals and we feel FY19 EPS would come in around Rs 45. Even if we give 12-times earnings multiple, we expect a target of Rs 540 over the next nine to 12 months,” the brokerage said.