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On well charted growth path, healthy gains ahead…

About the stock: PCBL Ltd (erstwhile Phillips Carbon Black) is the leading manufacturer of carbon black, which is used as a reinforcement material in tyres

PCBL also derives ~8% of sales volume from speciality carbon black, which fetches high margins and finds application in paints, plastics among others

It has a healthy margin profile (15%+), a capital efficient business model (RoCE>15%) with limited leverage on b/s (~0.3x debt: equity as of FY22)

Q4FY22 Results: PCBL reported a muted performance in Q4FY22

Net sales for Q4FY22 were at | 1219 crore, up 5% QoQ, primarily driven by 10% QoQ growth in carbon black realisations at ~| 106/kg amid ~4% QoQ drop in sales volumes at 112 KT. Speciality grade volumes - 9,350 tonne

EBITDA in Q4FY22 was at | 137 crore with EBITDA/tonne at ~| 12,167/tonne. PAT for the quarter came in at | 90 crore, down 19% QoQ

For FY22, total carbon black sales volume was at 454 KT, up 17% YoY with EBITDA at | 656 crore (up 26% YoY) and PAT at | 427 crore (up 37% YoY)

What should investors do? PCBL has been one of our early finds wherein it grew ~3x in the past five years (~| 40 in April 2017 to ~| 120 as of April 2022).

We maintain our positive view and retain BUY rating on the stock

Target Price and Valuation: Revising our estimates and rolling over valuations to FY24E, we value PCBL at unchanged target price of | 160 i.e. 12x P/E on FY24E EPS

Key triggers for future price performance:

Healthy double digit growth on anvil. We expect sales, PAT to grow at 26%, 17%, CAGR, respectively, in FY21-24E, building in 11.4% volume CAGR

With greenfield expansion (~150 KT) under execution and successful strides made in the speciality carbon black domain, long term growth prospects are robust amid limited competition in overseas markets

Trades at inexpensive valuation of <10x P/E on FY23E EPS of ~| 11.8/share

Alternate Stock Idea: In midcap, small cap coverage, we also like VST Tillers.

It is a leader in domestic power tiller space and a key beneficiary of import restrictions in the category. Successful launches in higher HP tractor space

Capital efficient, cash rich b/s. BUY with a target price of | 3180

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