PCBL stock gains 50% in August, biggest monthly increase in 14 years; is the rally set to continue?

Shares of PCBL (formerly Phillips Carbon Black), a leading carbon black manufacturer, have seen a remarkable upward trajectory over the past few months. The stock's momentum accelerated significantly in August, breaking multiple records and reaching new all-time highs.

In August alone, the stock price soared from ₹328.50 to ₹487 per share, reflecting an impressive 50% gain—the company's largest monthly increase in 14 years. This stellar rally propelled the stock past the ₹500 apiece milestone for the first time, reaching a fresh peak of ₹509.40 per share.

The stock has delivered sustained returns growth over various time frames. Over the past year, PCBL's share price jumped by 186%. Over three years, it surged by 306% and over five years, it gained 771%.

Over the last decade, the shares have skyrocketed by an astounding 3,100%, underscoring the company's strong performance and investor confidence.

Rising demand for carbon black

Analysts have maintained a positive outlook on the company, driven by the rising demand for carbon black, a market in which the company is one of India's largest manufacturers and a strong global player with a significant customer base in over 45 countries.

Several factors are currently contributing to the growth of the global carbon black industry, including the expanding automotive tyre sector in developing economies, increasing demand for speciality carbon black, advancements in manufacturing techniques, and widespread applications in plastics production, inks, and paints & coatings.

While maintaining its focus on carbon black, the company is also diversifying its revenue streams, a strategy that analysts view favourably. In March, the company entered into a joint venture agreement with Kinaltek Pty Limited, an Australian firm renowned for its expertise in nano silicon technology for battery applications.

This partnership aims to capitalise on the lucrative opportunities in the rapidly growing battery application market, particularly in sectors such as electric vehicles.

Additionally, the acquisition of Aquapharm Chemicals Private Limited (ACPL), a Pune-based speciality chemicals company, marks a significant milestone for the company. This acquisition, the largest by the RPSG Group, represents a transformative entry into the global speciality segments of water treatment and oil and gas chemicals.

It aligns with the company's vision of becoming a trusted global player with a diversified speciality chemical portfolio. With a strong customer base in the FMCG and oil and gas industries, this acquisition opens up new horizons for the company, diversifying its business across various end markets, according to its FY24 annual report. 

Diversification drive

In a recent note, domestic brokerage firm JM Financial has raised its target price on the stock to ₹635 apiece from ₹445 while maintaining a 'buy' rating. It anticipates that by FY29, carbon black and power will account for around 70% of PCBL's EBITDA, a decrease from nearly 100% in FY24, indicating an increased contribution from other business segments.

According to the brokerage, PCBL has finalised the addition of 3,000 MT of capacity for nano silicon materials, with a planned investment of ₹500 crore. These materials, which can enhance energy density and charging rates in batteries, are expected to generate significant revenue—potentially ₹110 crore by FY27 and ₹260 crore by FY29.

Regarding the outlook for carbon black, the brokerage highlighted that India's carbon black exports have been rising while China's exports have remained stable. JM Financial projects that PCBL will achieve a 12% CAGR in carbon black sales volume, driven by increased competitiveness and capacity expansions.

Additionally, the brokerage expects PCBL's carbon black EBITDA per metric ton, adjusted for Brent crude prices and rupee depreciation, to reach ₹19/kg by FY29, up from ₹16/kg.

JM Financial also expects PCBL's carbon black EBITDA to grow to ₹1,330 crore by FY27E and ₹1,790 crore by FY29E, up from ₹840 crore in FY24. The brokerage has revised its EBITDA estimates for FY25, FY26, and FY27 upward by 5%, 8%, and 11%, respectively, following greater clarity on battery chemical capacities and the ramp-up of Aquapharm.

Overall, JM Financial forecasts a 28% and 26% profit after tax (PAT) CAGR for FY24-27E and FY24-29E, respectively.

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.