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PCBL is India’s largest and the world’s 7th largest carbon black company with three major product segments: i) Tyres; ii) Performance blacks, and iii) Specialty blacks. Established in 1960, PCBL has grown to become a leader in the carbon blacks segment; it has entered into non-tyre products through its performance blacks segment and also forayed into specialty blacks (non-tyre and non-rubber) used in plastics, toners, inks and batteries.

Its customers include more than 120+ customers across 50+ countries with 100+ grades of carbon black. PCBL has a capacity of c. 770KTPA spread over its five plants across India, namely Mundra, Palej, Kochi, Durgapur and the new greenfield project in Chennai, with all plants in close proximity to ports. The Palej and Mundra facilities have specialty black manufacturing units while the legacy plant focuses on tyre applications. After all expansions, PCBL will have a total capacity of c.790KTPA, of which 112KTPA will be dedicated to specialty blacks.

We initiate coverage on PCBL with a BUY rating and a Dec’24 TP of INR 290/share (based on DCF implied 18X Dec’25E EPS), implying 35% upside. Key risks: i) highly dependency on tyre and auto sector industry ii) RM volatility, iii) capex ramp-up teething issues, and iv) issues in commercialising super conductive grades.

Close to commercialising Carbon black for Li-ion batteries: PCBL has increased its R&D focus on the specialty and performance blacks segment with emphasis on conductive and superconductive grade carbon blacks used in EV batteries. Carbon black demand for Li-ion batteries is likely to more than quadruple by CY30 (from 20KTPA currently to 84 KTPA in CY30). This, in our view, would be a huge spectrum shift for the company given these grades have 14-15x better realisation compared to the traditional grade. Besides, we believe company could also explore entering into the carbon nanotube (CNT) space which can be used in Silicon/Graphite anodes.

EBITDA/PAT CAGR expected at 14%/12% over FY23-26E: We expect PCBL to register volume CAGR of 12% over FY23-26E especially through the introduction of the Greenfield Chennai facility and the current two specialty black lines in the Mundra facility. We expect PCBL’s EBITDA/Kg to improve to INR 18/kg by FY27E from ~11-16/kg over FY20-FY23 as its capacity mix increases towards specialty blacks at 15-16% of overall capacity in FY25/26E. As a result, EBITDA is likely to grow to INR 10.9bn (14% CAGR over FY23-26E) and PAT is likely to reach INR 6.2bn (12% CAGR over FY23-26E).

Initiate with BUY and TP of INR 290 per share: We believe PCBL has structural tailwinds in place including i) elevated feedstock price for Chinese players due to higher use of coal tar towards synthetic graphite for EV batteries, ii) lower availability of coal tar due to shift towards electric arc furnace, and iii) limited capacity additions in developed nations due to higher compliance costs. Further, we believe European sanctions on Russian imports starting Jul’24 would further create an export opportunity for Asian players. We initiate coverage on PCBL with a BUY and a Dec’24 TP of INR 290/share (based on 18X Dec’25E EPS).

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