ICICI Direct recommends buy of PCBL for 45% gain potential

PCBL has, over the years, with indigenous R&D efforts has developed grades in specialty carbon black (SCB) domain, which is a high margin product (typically ~3-4x normal trye grade carbon black). Speciality grade carbon black volumes grew 42% YoY to 57KT in FY24. On a high base, SCB volumes are expected to grow at a CAGR of 14% over FY24-27E to 85KT in FY27E. This is structurally positive for EBITDA/tonne profile at PCBL

PCBL reported a healthy performance in Q2FY25. Total operating income came in at ₹ ₹ 2,163 crore with carbon black sales volumes at 149 kt (up 14% YoY, down 3% QoQ. EBITDA for the quarter stood at ₹364 crore with margins at 16.8% (up 10 bps QoQ). Consequent PAT for Q2FY25 stood at ₹123 crore, flat YoY. Speciality carbon black sales volume stood at 17K tonne (~11.5% of sales vol.).

With organic levers of growth amidst changing business profile in favour of more speciality chemical play, healthy margin & RoE profile (~15%+), robust cash flow generation, we retain BUY rating on PCBL. We value PCBL at ₹600 i.e. 24x P/E on FY27E. We believe the current correction in stock price offers good entry point for long term wealth generation.