Phillips Carbon – Good Investment at Below Rs.100

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At the current market price, will you invest in Phillips Carbon?

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Latest Results

(in Cr.)
Jun-11
Mar-11
FY10-11
Revenue
567.58
444.17
1,695.84
Net Profit
41.61
33.29
116.28
EPS
12.53
10.52
35.43
Cash EPS
16.07
12.91
46.62
OPM %
13.64
14.53
13.83
NPM %
7.33
7.49
6.86
 
 
 
 

Share Price Movement

 
 
 
Weekly H/L
133.7
110.05
Monthly H/L
146.4
110.05
52 Weeks H/L
225
110.05
 
( 15 Oct 10 )
( 18 Nov 11 )
Delivery / Var+ELM %
61.54
14.25

Share Price Movement

Source

Phillips Carbon


Q1 results good

Phillips Carbon has produced good results for the quarter ended 30.06.11 as compared to the quarter ended 31.03.11. Revenue has increased from Rs.444.17 crore to Rs.567.58 crore. Revenue for the whole year 2010-11 was at Rs.1695.84 crore. Net profit increased from Rs.33.29 crore to Rs.41.61 crore. Net profit for the whole year 2010-11 was at Rs.116.28 crore. Operating profit margin declined marginally from 14.53% to 13.64%. Net profit margin also declined marginally from 7.49% to 7.33%. The company is manufacturing carbon black. The shares of Phillips Carbon are traded in the Indian stock markets at Rs.113.65 now (Bombay Stock Exchange 18.11.11). The highest price recorded by the shares of the company in the last one year is at Rs.225 (15.10.10) and the lowest price is at Rs.110.05 (18.11.11). In other words, the current market price is very close to the lowest price recorded by the company in the last one year. This gives a temptation to the investors to invest in the shares of Phillips Carbon at the current market price. Is this expectation justified? Let us analyse.

Q2 results not good

The company belongs to R P Sanjiv Goenka Group of companies. The company’s Q2 results are not good compared to the corresponding period of the previous year. Phillips Carbon reported a 14% drop in its net profit to Rs.21 crore. When compared to Q1, the drop is 50%. But net sales have increased by 36% to Rs.559 crore. There is a nearly 50% increase in the raw material cost that has affected Phillips Carbon. Because of this, profits have dropped sizeably. Phillips Carbon is India’s largest carbon black producer. Its profits would have been still more affected but for the saving grace that it reported increased realisation from its captive power plant.

Capacity expansion and Greenfield project

Phillips Carbon has embarked on expansion of its capacity in the Cochin plant in Kerala and Mundra plant in Gujarat. It has also embarked on a debottlenecking at its Durgapur plant in West Bengal. The two expanded plants will add the capacity of the company to 472000 tonnes per annum and 78.5 MW of power respectively. Phillips Carbon is also planning to set up a production plant in Chennai city. It has plans to invest Rs.450 crore in the SIPCOT Industrial park. Tamil Nadu government has allotted 60 acres of land in SIPCOT industrial park, Thervoy Kandigai. This will be the company’s largest plant if completed. The capacity being visualised is at 1.5 lakhs tonnes per annum with a 20 MW power unit. At present, Phillips Carbon’s Durgapur plant with a capacity of 1.3 lakhs tonnes per annum is the largest.

Spreading its wings to overseas

Phillips Carbon is also setting up a Greenfield plant in Vietnam. It is also scouting for opportunities to acquire companies in Germany. In 2010-11, Phillips Carbon produced a record export growth of 67%. Phillips Carbon paid a dividend of 50% last year. The company chose Tamil Nadu for establishing a large plant because Tamil Nadu is emerging as an automobile hub of India next to Gujarat. The company is already setting up a plant in Gujarat at Mundra.

Tire manufacturers are already suffering

Phillips Carbon has completed land acquisition in Vietnam. The proposed production facility in Vietnam will have 55000 tonnes per annum capacity with a 12 MW captive power plant. It will generate power through cogeneration. The company’s total investment will be $63 million. Goenka and his family will own about 80% stake in the company while the remaining 20% will be held by a local firm. Carbon black is mainly consumed by tire manufacturers. The company cannot pass on the hike in the raw material prices to the tire manufacturers as tire industry is already treading on thin margins due to dumping of Chinese tires in India.

Postpone investment

The shares of Phillips Carbon at the current market price of Rs.113.65 should not be acquired right now Investors should wait for the next quarter results ending 31.12.11 and see how the margins of the company have fared. In the mean while if the share price drops to below Rs.100, it is an ideal share to acquire for medium term and long term holding for decent gains as the company has several plus points mentioned below:

  • Phillips Carbon is India’s largest carbon black manufacturer
  • Phillips Carbon is a global player
  • Phillips Carbon’s exports are increasing
  • The depreciation of rupee against dollar is a major advantage to the company
  • The share price is very close to its yearly lowest price
  • The company has a reputed management
  • It is a profit making dividend paying company
  • It has rewarded investors in the past
  • Phillips Carbon is expanding its capacity, anticipating future growth

Phillips Carbon is setting up a Greenfield plant in Chennai which has become an automobile hub in India. So there will be ready demand for its products

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