Phillips Carbon Black Cluster: Cannonball Recommendation: Buy Price target: Rs210 Current market price: Rs187
Price target revised to Rs210
Key points
The demand for carbon black in the domestic market is buoyant with the automobile sector continuing to record strong volume growth especially in the passenger car and commercial vehicle segments. Hence, we believe that Phillips Carbon Black Ltd (PCBL)?s strategy to expand its carbon black capacity at Mundra by 50,000 million tonne (MT) is a right move in the current scenario.
Moreover, the imposition of anti-dumping duty of up to Rs20 ($0.423) per kg by the government on imports of carbon black used by the rubber industry would safeguard PCBL from pressure on its pricing. Hence, we believe that the company would be in a better position to protect its margins.
PCBL has commenced commercial operation of 16-MW co-generation power plant at Mundra effective from December 24, 2009. The commissioning of the power plant is as per the schedule, ie by the end of Q3FY2010. In our view the new power plant would take some time to stabilise, hence we assume a plant load factor (PLF) of 75% for FY2011 and then expect the same to increase to 85% in FY2012.
In our latest interaction with the company management the latter guided towards an improvement in the utilisation level to tap the growing carbon black demand in the domestic market. Further, the company has highlighted that the imposition of anti-dumping duty would arrest the pricing pressure. The company has also guided towards effective income tax of 20% in FY2011 and 22% in FY2012.
We have increased our volume growth assumption as now we expect a higher utilisation level of 84% in FY2011 and 87% in FY2012. Moreover, we have also lowered our income tax rate assumption in line with the management?s guidance and also incorporated a lower PLF for the Mundra power plant in FY2011. Hence, our revised earnings per share (EPS) estimate stands at Rs47.8 for FY2011 and at Rs52.1 for FY2012. We highlight in this note that we are not incorporating any earnings from the plan to expand the carbon black capacity at Mundra by 50,000MT, which could provide further upside to our estimates.
The strong domestic demand environment and the company?s expectation of an up-tick in the demand from the export market increase our confidence with regards to the carbon black volume growth going forward. Furthermore, the incremental earnings from the sale of surplus power would also add significantly to the company?s bottom line. However, the increase in the feedstock cost could put pressure on the margins and remains a risk to our estimates. In line with the revision in our estimates, we have increased our price target to Rs210 (4x its FY2011E enterprise value [EV]/earnings before interest, tax, depreciation and amortisation [EBITDA]). At the current market price, the stock trades at attractive valuations of 3.9x FY2011E earnings estimate and 3.7x FY2011E EV/EBITDA.
VIEWPOINT
Glaxo SmithKline Pharmaceuticals
Q4 profit margin expands on low input cost
Q4CY2009 performance
The strong performance of the branded portfolio and specialty segments enabled GSK to post a robust set of numbers for Q4CY2009. During Q4CY2009, GSK?s net sales increased by 20.6% year on year (yoy) due to an 18% year-on-year (y-o-y) increase in the gross sales underpinned by the strong performance of its branded portfolio and specialty therapy segments and a decline in excise duty (the reduction effect).
GSK?s gross profit margin expanded by 460 basis points yoy due to a lower raw material cost. However, the staff cost and other expenses increased by a sharp 33.7% and 20.8% yoy respectively as the company is expanding its field force in the rural areas and is trying to fill up the gaps in the therapeutic areas. Despite a sharp increase in the staff cost and other expenditure the operating profit margin (OPM) expanded by 330 basis points due to an improved product mix. Consequently, the operating profit grew by 34.9% to Rs138.4 crore.
GSK?s adjusted profit after tax (PAT) increased by 19.7% yoy to Rs106.7 crore. It was slightly affected by an exceptional charge of Rs3 crore due to the retrenchment of temporary workers. The reported net profit of the company declined by 50.4% to Rs103.6 crore in Q4CY2009 due to Rs119.3 crore of extraordinary income booked in Q4CY2008. The adjusted earnings for the quarter stood at Rs12.6 per share.
No comments:
Post a Comment