Chemical India I Equities
Result Update Change in Estimates Target Reco
27 May 2013
Phillips Carbon Black
Rating: Hold Target Price: `74 Share Price: `65
Performance subdued, improvement in sight; Hold Key takeaways Sales flattish. In 4QFY13, Phillips Carbon Black reported `5.34bn in revenue (down 0.9% yoy), 5.8% below our estimated `5.7bn. Sales in the carbon black (CB) division, slipped 0.3% (to `5.16bn), while those in the power division fell 13.3% (to `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 `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 rawmaterial 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 `15m, vs `60m yoy and a `145m loss qoq. This was better than what we had estimated. On account of the `43m deferred tax credit availed of in 4QFY13, reported PAT was `49.4m. The forex loss in 4Q fell sharply, to `17.9m. Our take. Since 30% safeguard duty was imposed in Oct’12 (till Oct’13) and 25% on CB imports from China till 31 Dec’13, such imports have slid, but ` imports from Korea have now increased. The 50,000-ton Cochin 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 `74. Risks. A slowdown with original equipment manufacturers and adverse forex movement. Year end 31 March
4QFY12
4QFY13
% yoy
FY12
FY13
% yoy
5404
5354
(0.9)
21,868
22,849
4.5
EBITDA (`m)
334
296
(11.4)
2,092
736
(64.8)
EBITDA margin (%)
6.2
5.5
(65)bps
9.6
3.2
(634)bps
Sales (`m)
Interest (`m)
212
176
(16.9)
676
721
6.7
Depreciation (`m)
128
126
(1.4)
486
508
4.5
Other income (`m)
66
21
(68.3)
104
93
(11.2)
PBT (`m)
60
15
(75.7)
1034
-400
(138.7)
Tax (`m)
10
-35
(466.3)
163
(194)
(219.0)
15.8
(238.4)
-
15.8
48.5
-
50
49
(2.2)
871
-206
(123.7)
Tax rate (%) PAT (`m)
Key data
PHCB IN /PHIL.BO
52-week high / low Sensex / Nifty 3-m average volume Market cap Shares outstanding
`118/ `62 19704 / 5984 US$0.1m `2.2bn / US$40m 34.5m
Shareholding pattern (%)
Mar ’13 Dec ’12 Sept ’12
52.3 47.7 10.1 5.8 31.8
Promoters - of which, Pledged Free Float - Foreign Institutions - Domestic Institutions - Public Estimates revision (%)
52.3 47.7 10.1 6.3 31.3
52.3 47.7 10.1 6.3 31.3
FY14e
FY15e
Sales
(0.2)
(0.2)
EBITDA
(4.7)
(4.3)
EPS
(7.3)
(14.5)
Financials (YE Mar)
FY14e
FY15e
26,236
29,839
Net profit (`m)
571
1,071
EPS (`)
16.6
31.1
(376.6)
87.6
PE (x)
3.9
2.1
PBV (x)
0.4
0.3
Sales (`m)
Growth (%)
RoE (%)
9.3
15.8
RoCE (%)
9.2
12.8
Dividend yield (%) Net gearing (%)
6.1
6.1
120.5
113.5
Source: Anand Rathi Research
Girish Solanki +9122 6626 6712
[email protected]
Source: Company
Anand Rathi Shares and Stock Brokers Limited (hereinafter “ARSSBL”) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research
India Equities
27 May 2013
Phillips Carbon Black – Performance subdued, improvement in sight; Hold
Quick Glance – Financials and Valuations Fig 2 – Balance sheet (`m)
Fig 1 – Income statement (`m) Year-end: Mar
Net sales Sales growth (%) - Op. expenses EBIDTA EBITDA margins (%) - Interest - Depreciation + Other income - Tax Tax rate (%) PAT PAT growth (%) FDEPS (Rs/share) FDEPS growth (%) CEPS (Rs/share) DPS (Rs/share)
FY11
FY12
FY13
FY14e
FY15e
16,902 37 12,394 2,214 13 274 386 89 481 29 1,163 (5) 35 (19) 47 5
21,868 29 16,582 2,092 10 676 486 105 163 16 871 (25) 25 (28) 39 4
22,849 4 18,636 736 3 721 508 93 (194) 48 (206) (124) (6) (124) 9 0.5
26,236 15 20,858 1,942 7 748 566 86 143 20 571 17 33 4
29,839 14 23,423 2,630 9 775 610 93 268 20 1,071 88 31 88 49 4
FY11
FY12
FY13
FY14e
FY15e
332 4,891 5,223 5,014 569 10,806 7,842 576 27 1,736 653 10,806 33 84 33 157
345 5,773 6,118 6,554 729 13,401 8,124 724 4,418 135 13,401 34 105 51 178
345 5,567 5,911 8,210 527 14,647 9,023 724 4,210 690 14,647 34 127 69 172
345 5,984 6,328 8,310 527 15,164 8,850 724 4,906 685 15,164 34 120 63 184
345 6,895 7,239 8,610 527 16,375 9,040 724 6,215 396 16,375 34 113 68 210
Fig 4 – Ratio analysis @ `65
Fig 3 – Cash-flow statement (`m) PAT + Non-cash items Cash profit - Incr./(decr.) in WC Operating cash-flow - Capex Free cash-flow - Dividend + Equity raised + Debt raised - Investments - Misc. items Net cash-flow + Op. cash & bank bal. Cl. Cash & bank bal.
Share capital Reserves & surplus Shareholders’ fund Debt Deferred Tax/ others Capital employed Fixed assets Investments of which liquid Working capital Cash Capital deployed No. of shares (m) Net Debt/Equity (%) W C turn (days) Book value (Rs/share)
Source: Company, Anand Rathi Research
Source: Company, Anand Rathi Research
Year-end: Mar
Year-end: Mar
FY11
FY12
FY13e
FY14e
FY15e
Year-end: Mar
FY11
FY12
FY13e
FY14e
FY15e
1,160 386 2,019 404 1,615 1,373 242 233 1,052 (540) 198 323 330 653
871 486 1,517 2,683 (1,166) 768 (1,934) 203 226 1,540 148 (518) 653 135
(206) 508 99 (208) 307 1,407 (1,100) 40 39 1,655 555 135 690
571 566 1,137 695 442 393 49 210 56 100 (4) 690 685
1,071 610 1,681 1,309 371 800 (429) 160 300 (289) 685 396
P/E P/BV EV/EBITDA EV/Sales Cash P/E Dividend Yield (%) Dividend Payout (%) RoE RoCE Debtors (Days) Inventory (Days) Creditors (Days) Working Cap (Days) Asset Turnover (x) Debt/Equity (x)
1.9 0.4 3.0 0.4 1.4 7.7 16.7 27.5 18.6 71 49 163 33 2.2 1.0
2.6 0.4 4.1 0.4 1.7 6.1 18.4 15.4 13.3 76 51 148 51 2.7 1.1
(10.9) 0.4 13.3 0.4 7.5 0.8 (9.7) (3.4) 1.6 85 69 160 69 2.5 1.4
3.9 0.4 5.1 0.4 2.0 6.1 28.1 9.3 9.2 81 70 165 63 3.0 1.3
2.1 0.3 4.0 0.4 1.3 6.1 15.0 15.8 12.8 84 65 158 68 3.3 1.2
Source: Company, Anand Rathi Research
Source: Company, Anand Rathi Research
Fig 5 – PB band
Fig 6 – Segment-wise revenue break-up (FY13)
(`) 400
2.0x
Power 4%
350 300 1.5x 250 200
1.0x
150 100
0.5x
50
Carbon black 96%
Source: Bloomberg, Anand Rathi Research
Anand Rathi Research
Feb-13
Oct-12
Jun-12
Feb-12
Oct-11
Jun-11
Feb-11
Oct-10
Jun-10
Feb-10
0
Source: Company, Anand Rathi Research
2
27 May 2013
Phillips Carbon Black – Performance subdued, improvement in sight; Hold
Result highlights Fig 7 – Quarterly results Quarterly results
4QFY12
4QFY13
% var
3QFY13
% var
4QFY13e
% var
Sales EBIDTA
5,404.4 333.9
5,353.7 295.8
(0.9) (11.4)
5,454.8 145.2
(1.9) 103.7
5,682.2 306.4
(5.8) (3.5)
PBT
60.0
14.6
(75.7)
(144.8)
(110.1)
3.4
325.5
PAT
50.5
49.4
(2.2)
7.6
550.0
2.4
1,956.9
% Chg
FY13
21,963
Source: Company, Anand Rathi Research
Fig 8 – Segment results (`m)
4QFY13
Revenue - CB
% Chg
3QFY13
5,166
5180
0%
5,252
-2%
187
216.10
-13%
203
-8%
886
5,354
5,396
-1%
5,455
-2%
22,849
24%
(128)
-272%
-45.6
-22%
905.8
- Power Total PBIT
4QFY12
- CB Percent of Revenue - Power
221
178
4.3%
3.4%
184
215.60
Percent of Revenue
98%
100%
Total
404.1
393.9
Less: Interest
-2.4% -15%
0%
236 116%
3%
102%
108.3
273%
860.2
233.3
188
24%
152
53%
721.3
Less: Other net unalloc. Exp
156
173
-10%
101
55%
539.3
PBT (Before extraordinary items)
14.6
32.3
-55%
-144.8
-110%
-400.4
Source: Company, Anand Rathi Research
Operating performance down CB sales were flat yoy. The EBIT margin in this division increased by 83bps yoy, to 4.3%. Capital employed in this division declined sharply, by `1.5bn qoq, to `8.16bn. Volumes declined 6.9% yoy, to 69,600 tons. Export volumes grew 24% yoy. Exports improved sharply due to more sales to the US and Turkey. With the anticipated economic revival in the USA and China and stabilization in the euro zone, carbon-black feedstock (CBFS) prices are expected to rise. In the power division, volumes declined 23% while realisations rose 16%. Sales in the power division declined 13.3%, to `0.19bn. On account of the safeguard duty imposed, imports from China dropped; however, imports from Korea increased. Fig 10 – RM/sales increase yoy, but down qoq
EBITDA Source: Company, Anand Rathi Research
Anand Rathi Research
EBITDA margin (%)
Raw material cost
Q4FY13
60 Q3FY13
0 Q2FY13
65 Q1FY13
1,000 Q4FY12
70
Q3FY12
2,000
Q2FY12
75
Q1FY12
3,000
Q4FY11
80
Q3FY11
-5
4,000
Q2FY11
Q4FY13
Q3FY13
Q2FY13
Q1FY13
Q4FY12
Q3FY12
Q2FY12
Q1FY12
Q4FY11
Q3FY11
Q2FY11
Q1FY11
Q4FY10
Q3FY10
Q2FY10
0
85
Q1FY11
5
5,000
Q4FY10
10
(%) 90
Q3FY10
15
(` m) 6,000
Q2FY10
(%) 20
Q1FY10
(`m) 900 800 700 600 500 400 300 200 100 0 -100 -200
Q1FY10
Fig 9 – EBITDA margin improves qoq
Raw material cost as % of sales
Source: Company, Anand Rathi Research
3
27 May 2013
Phillips Carbon Black – Performance subdued, improvement in sight; Hold
Valuations Though the short-term outlook is not good, the stock is available at attractive valuations. At this price all the negatives have been already priced in. We maintain a Hold rating, with a price target of `74. We value the stock at a target PE of 4.5x FY14e earnings. Risks
Anand Rathi Research
Volatility in key raw material prices. PCB imports most of its key raw material, CBFS. Prices strongly co-relate with those of crude oil. Though a pricing mechanism is in place, any sharp increase in the price of CBFS, if not passed on to end-customers, would eat into margins.
Capacity utilization. Capacity has been constantly increased over the years. If optimal utilization is not forthcoming, profitability would be substantially affected.
Forex fluctuation. Nearly 90% of the raw material is imported; hence, any depreciation in exchange rates may squeeze margins.
4
Appendix Analyst Certification The views expressed in this Research Report accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. The research analysts are bound by stringent internal regulations and also legal and statutory requirements of the Securities and Exchange Board of India (hereinafter “SEBI”) and the analysts’ compensation are completely delinked from all the other companies and/or entities of Anand Rathi, and have no bearing whatsoever on any recommendation that they have given in the Research Report. Important Disclosures on subject companies Rating and Target Price History (as of 27 May 2013)
320
Phillips Carbon Black 1 2 3 4 5 6 7 8
270 2
1
220 170
4 3
120
6 7 5
70
Date 19-Jul-10 20-Oct-10 1-Feb-11 22-Feb-11 24-Sep-12 5-Nov-12 7-Jan-13 10-Mar-13
Rating Buy Buy Buy Buy Hold Sell Hold Hold
TP (`) 278 272 261 246 110 105 105 81
Share Price (`) 206 209 134 134 92 105 94 67
8 Apr-13
Jan-13
Jul-12
Oct-12
Apr-12
Jan-12
Jul-11
Oct-11
Apr-11
Jan-11
Oct-10
Jul-10
Jan-10 Apr-10
Jul-09
Oct-09
Apr-09
Jan-09
Jul-08
Oct-08
Apr-08
Jan-08
20
The research analysts, strategists, or research associates principally responsible for the preparation of Anand Rathi Research have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues. Anand Rathi Ratings Definitions Analysts’ ratings and the corresponding expected returns take into account our definitions of Large Caps (>US$1bn) and Mid/Small Caps (
US$1bn) Mid/Small Caps (
Buy >15% >25%
Anand Rathi Research Ratings Distribution (as of 28 Feb 2013) Buy Anand Rathi Research stock coverage (184) 65% % who are investment banking clients 4%
Hold 5-15% 5-25%
Sell <5% <5%
Hold 27% 2%
Sell 8% 0%
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