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PCBL’s 3QFY24 earnings print was significantly better than our and consensus expectations on account of a jump in per kg profitability amid higher-than-anticipated volumes. Despite lower specialty volumes, higher profitability could have been on account of i) higher export share, ii) positive operating leverage, iii) better product mix within non-specialty, and iv) some reversible gains owing to supply tightness. Hence, going forward, we build in slight moderation in per kg EBITDA albeit higher than our previous estimates. This along with faster-than-anticipated volume ramp-up of newer capacities has led to upgrade of our FY24/25/26 EBITDA by 9%/9%/7% and EPS by 11%/11%/9%. We maintain BUY with a revised Mar’25 TP of INR 355/share as we believe PCBL is likely to continue to benefit from strong sector tailwinds while focusing on diversification.

* Steady volume growth continues: PCBL's 3QFY24 consolidated gross profit came in 11% ahead of JMFe, at INR 4.9bn (up 12%/54% QoQ/YoY) as revenue came in 12% above JMFe at INR 16.6bn (up 11%/22% QoQ/YoY) while gross margin was marginally lower than our expectation at 29.7% (vs. 29.9% of JMFe and 29.5% in 2QFY24). As a result, despite higher other expenses and employee costs, EBITDA came in 14%/15% above JMFe/consensus at INR 2.8bn (up 17%/71% QoQ/YoY). Further, on account of lower tax rate and higher other income, PAT was 18% above JMFe and stood at INR 1.5bn (up 21%/52% QoQ/YoY). During the quarter, PCBL's overall sales volume came in 2% ahead of JMFe at 136.1kt (up 5%/34% QoQ/YoY) owing to strong ramp-up of new capacities in Tamil Nadu (TN). Specialty volume was lower at 14.4kt (vs. JMFe of 17.0kt and 15.6 kt in 2QFY24). The TN plant has achieved 50% capacity utilisation and the company expects it to gradually reach optimum utilisation over the next couple of quarters.

* Jump in per kg EBITDA likely on account of higher share of exports: During 3QFY24, PCBL’s per kg gross margin was higher at INR 36.2/kg (vs. JMFe of INR 33.2/kg and INR 33.7/kg in 2QFY24). Further, despite higher cost of servicing, EBITDA/kg was higher at INR 20.5/kg (vs. INR 18.3/kg in 2QFY24). Although the share of specialty blacks was lower during the quarter at 11% (vs. 13% in 2QFY24), we believe higher share of exports (42% in 3QFY24 vs. 37% in 2QFY24) could have been one of the drivers of higher per kg profitability, besides positive operating leverage. In our view, within standard blacks, the company would also have been able to sell higher volume of some of the premium grades such as N220, which has 10-15% premium to other grades such as N660, N330, etc. Moreover, we believe that any improvement due to supply tightness of certain grades could reverse in the coming quarters.

* Raise EBITDA estimates by 7-9%; maintain BUY: Factoring in 3QFY24 results, we raise our volume estimates along with per kg EBITDA. As a result, our FY24/25/26 EBITDA estimates are revised upwards by 9%/9%/7% and EPS estimates are revised upwards by 11%/11%/9%. We expect PCBL to register 12% EPS CAGR over FY24E-26E. We maintain BUY with a revised Mar’25 TP of INR 355/share (from INR 330/share earlier).

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