Incorporated in March 1960, Phillips Carbon Black Ltd is part of the RPG group. Not only is the company the largest domestic manufacturer of carbon black, it is also Asia’s largest exporter of Carbon Black. Phillips Carbon Black has come a long way since its inception in 1960. PCBL started production from December 1962 by the oil furnace technology; the most widely accepted manufacturing process of carbon black patented by its then collaborator and world carbon black leader, Phillips Petroleum Company, USA. The collaboration ended in 1978. However, PCBL continued its progress by virtue of the ingenuity of its technologists, engineers and sustained R&D activities. In 1988 PCBL entered into a technical agreement with Columbian Chemicals Company, USA, and acquired access to the modern state-of-the-art Carbon Black technology. This resulted in the company gaining flexibility, product range, production capacity and energy conservation.

Products & services:

Company is a leading domestic producer of carbon black with more than 35% market share and a product portfolio comprising of more than 20 carbon black grades. PCB's plants are dispersed over 3 cities, but are strategically located near the coastal areas. Currently, the Durgapur plant has an installed capacity of 140,000 TPA, the Baroda plant has 95,000 TPA, while the Cochin plant has 35,000 TPA. The company has taken advantage of the newly introduced Electricity Act of 2003 to set–up a 12 MW co-generation power plant at its Baroda plant using the off gas. After meeting the internal demand for production of carbon black, the surplus power is being sold to the GEB Grid.

Carbon black is a black powdery substance and is a key input in the manufacture of tyres. It acts as a reinforcing agent and provides abrasion resistance and ductile strength to tyres. Carbon black is available in three grades - soft, hard, and super hard. Approximately 64% of carbon black consumption is from the tyre industry, 33% usage is from re-treading, rubber hose and non-tyre applications, and the balance 3% comes from printing ink and PVC master batches (known as specialty blacks for wherein mostly imported carbon black is utilized).

Phillips Carbon Black signed a joint venture (JV) agreement between its nominee and subsidiaries of Vietnam National Chemical Corporation at Ho Chi Minh City in Vietnam. The JV for setting up carbon black facility of 1,00,000 MT and co-generation power plant of 16 MW in phases in Vietnam. By 2010-11 the company’s capacity of carbon black would move to 5,00,000 ton per annum from 2,70,000 ton at present from both greenfield and brown field expansion plans. Beside, Vietnam, a greenfield project was also planned at at Mundra in Gujarat that would add 90,000 ton per annum. Cochin was expanding its capacity by 50,000 ton. The captive power capacity of PCBL would become 80 mw. The total cost involved for the expansion would be Rs 6 billion and would be financed in 1:1 debt equity ratio. The equity part would be generated through internal accruals. Post expansion, PCBL’s global ranking would be sixth from ninth now.

Valuation:

Phillips Carbon Black is in the process of restructuring by improving efficiency and decreasing workforce. The sale of power and cost savings associated will give significant boost to the profitability. At current market price, stock is trading at an attractive valuation of 5.6 P/E multiple of its FY2010 estimated earnings. We are recommending investors to buy “Phillips carbon black” with a medium to long term investment prospective.