This multibagger stock is play on carbon black for Li-ion batteries, says JM Financial

JM Financial has initiated coverage on a multibagger stock PCBL Ltd, which it says is a play on carbon black for Li-on batteries. PCBL, JM Financial said, is well placed to capitalise on several structural tailwinds such as higher feedstock price in China and tight demand-supply situation amid limited capacity additions in ex-Asia regions. In addition, JM Financial said PCBL is upping the ante in the specialty and performance blacks segment with emphasis on conductive and superconductive grade carbon blacks used in EV batteries.

"These, when introduced, will help the company change gears towards better profitability. We estimate 14 per cent/12 per cent EBITDA/EPS CAGR over FY23-26E PCBL’s increasing share of specialty blacks, along with the upcoming super conductive carbon black is paving the way for a multiple re-rating from a traditional commodity to a semi-specialty play," it said.

Shares of PCBL hit a fresh record high of Rs 219.40 in Thursday's trade. At this price, the stock is up 103 per cent over its 52-week low of Rs 108.05 hit on March 29 this calendar. JM Financial sees the stock at Rs 290, up 32.17 per cent over its record high level.

PCBL is the world's seventh largest carbon black company with three major product segments namely Tyres, Performance blacks and Specialty black. JM Financial said PCBL has increased its R&D focus on the specialty and performance blacks segment with emphasis on conductive and superconductive grade carbon blacks used in EV batteries. It noted that Carbon black demand for Li-ion batteries is likely to more than quadruple by 2030 -- from 20KTPA currently to 84 KTPA.

"This, in our view, would be a huge spectrum shift for the company given these grades have 14-15x better realisation compared to the traditional grade. Besides, we believe company could also explore entering into the carbon nanotube (CNT) space which can be used in Silicon/Graphite anodes," JM Financial said.

JM Financial said PCBL has structural tailwinds such as elevated feedstock price for Chinese players due to higher use of coal tar towards synthetic graphite for EV batteries, ) lower availability of coal tar due to shift towards electric arc furnace, and limited capacity additions in developed nations due to higher compliance costs.

"Further, we believe European sanctions on Russian imports starting July 2024 would further create an export opportunity for Asian players. We initiate coverage on PCBL with a BUY and a December 2024 target of Rs 290 per share (based on 18 times December 2025E EPS," it said.

JM Financial expects PCBL to clock volume CAGR of 12 per cent over FY23-26, thanks to the introduction of the Greenfield Chennai facility and the current two specialty black lines in the Mundra facility. It sees PCBL’s Ebitda per Kg to improve to Rs 18 per kg by FY27 from Rs 11-16 per kg over FY20-FY23. This is on hopes that the capacity mix may improve towards specialty blacks at 15-16 per cent of overall capacity in FY25/26.

"As a result, Ebitda is likely to grow to Rs 1,090 crore (14 per cent CAGR over FY23-26E) and PAT is likely to reach Rs 620 crore (12 per cent CAGR over FY23-26E).

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