PCBL stock records new all time high, up 4170% in a decade, is there more steam left?

Extending its strong upward trend, shares of PCBL zoomed 10.19% to register a historic high of ₹244.90 apiece in today's trade. This propelled the stock to achieve a substantial gain of 84% in the current year, registering its best yearly performance since CY17.

Looking at the long-term performance, the shares have delivered a 204% return over the last three-year period and over the last decade, the shares delivered a whopping return of 4,170%, climbing from ₹5.62 per share to the current position of ₹238.40. Going forward, the stock has still room to grow further, according to the projections made by the analysts at JM Financial. 

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PCBL is one of the largest carbon black manufacturers in India and a strong global player with a significant customer base in more than 45 countries. Carbon black, which is the main raw material in the production of automotive tyres, is produced using carbon black feedstock (CBFS) and tar oil.

JM Financial believes that PCBL is well-placed to capitalise on several structural tailwinds that include elevated coal tar prices (and, in turn, carbon black oil prices) because of the higher use of coal tar towards synthetic graphite manufacturing, limited capacity expansions in North America and Europe, lower production of steel, and a shift from traditional blast furnace steel plants to electric arc furnace steel plants, which will further increase coal tar prices, it noted.

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Also, there was a 40% shortage of virgin carbon black in Europe before the war in Ukraine, and demand for carbon black was set to cross supply in North America. Thus, JM Financial believes that carbon black players like PCBL will be competitive in exporting to these geographies.

Besides this, the brokerage points out that the company is upping the ante in the specialty and performance blacks segment, with an emphasis on conductive and superconductive grade carbon blacks used in EV batteries. These, when introduced, will help the company change gears towards better profitability, the brokerage highlighted. 

The brokerage also anticipates that the company could explore entering into the CNT market, like its contemporaries have done, through inorganic expansions. It projects PCBL to register a 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.

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JM Financial anticipates PCBL’s EBITDA/Kg to improve to ₹18/kg by FY27E from 11–16/kg over FY20–FY23 as it believes the company's capacity mix increases towards specialty blacks at 15–16% of overall capacity in FY25–26E. As a result, EBITDA is likely to grow to ₹10.9 billion (14% CAGR over FY23–26E) and PAT is likely to reach ₹6.2 billion (12% CAGR over FY23–26E), as per the brokerage projections.

In light of these positive factors, JM Financial initiated coverage on the stock with a 'buy' rating, setting a target price of ₹290 apiece, suggesting an upside potential of 22% from the stock's current trading price of ₹238.40. 

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According to the brokerage, the valuation premium to its Chinese peer (Jiangxi Black Cat Carbon), which is trading at 13x CY25E EPS, is justified given that Chinese players are at a disadvantage due to higher feedstock costs.

Moreover, PCBL’s increasing share of specialty blacks, along with the upcoming superconductive carbon black, is paving the way for a multiple re-rating from a traditional commodity to a semi-specialty play, the brokerage stated. 

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.