PCBL shares climb 5% on Rs 3,800 cr acquisition; stock target Rs 279, says Nuvama
PCBL’s focus on driving products catering to batteries for EV, coupled with this ACPL acquisition, would rerate its business model and margin profile, Nuvama said.
- Nov 29, 2023,
- Updated Nov 29, 2023 9:32 AM IST
Shares of PCBL Ltd (erstwhile Phillips Carbon Black Ltd) climbed over 3 per cent in Wednesday's trade after the company board approved the acquisition of Aquapharm Chemicals for a consideration of Rs 3,800 crore. There are hopes that the acquisition would upgrade PCBL's business model, margin profile and drive re-rating on the counter, even as some near-term pressure on balance sheet is likely.
Following the development, the stock rose 4.6 per cent to hit a high of Rs 266 on BSE. Nuvama Institutional Equities has upped its target on the stock to Rs 279 from Rs 209 earlier.
"We forecast PCBL to be in transition to move up its product basket while continuing to drive share of value added and speciality. Though organically, it is focused on driving share of speciality black versus carbon black, we believe its further focus on driving products catering to batteries for EV coupled with this acquisition would rerate its business model and margin profile. As the stock is trading at a significant discount to speciality chemicals (16x EV/EBITDA versus 6x assigned to PCBL), we value the stock at 8x with a target of Rs 279," Nuvama said while maintaining its ‘BUY’ on the stock.
ACPL with FY23 sales and Ebitda of Rs 2,000 crore and Rs 420 crore is valued at 9.1 times EV/Ebitda. Given the global weakness and margin pressure, Nuvama expects FY24 to see moderation in profitability at Rs 350 crore.
As acquisition will be funded via debt, internal cash flows, Nuvama expects year-end debt for PCBL to go up to Rs 4,000 crore with expected average interest cost of 9-9.5 per cent.
"Though management is confident of the deal being earnings accretive, we expect it to drag earnings near FY24E/25E, given industry weakness. Expect net debt/Ebitda to cross 3.5 times with debt/equity of 1 time in FY24," Nuvama said.
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Shares of PCBL Ltd (erstwhile Phillips Carbon Black Ltd) climbed over 3 per cent in Wednesday's trade after the company board approved the acquisition of Aquapharm Chemicals for a consideration of Rs 3,800 crore. There are hopes that the acquisition would upgrade PCBL's business model, margin profile and drive re-rating on the counter, even as some near-term pressure on balance sheet is likely.
Following the development, the stock rose 4.6 per cent to hit a high of Rs 266 on BSE. Nuvama Institutional Equities has upped its target on the stock to Rs 279 from Rs 209 earlier.
"We forecast PCBL to be in transition to move up its product basket while continuing to drive share of value added and speciality. Though organically, it is focused on driving share of speciality black versus carbon black, we believe its further focus on driving products catering to batteries for EV coupled with this acquisition would rerate its business model and margin profile. As the stock is trading at a significant discount to speciality chemicals (16x EV/EBITDA versus 6x assigned to PCBL), we value the stock at 8x with a target of Rs 279," Nuvama said while maintaining its ‘BUY’ on the stock.
ACPL with FY23 sales and Ebitda of Rs 2,000 crore and Rs 420 crore is valued at 9.1 times EV/Ebitda. Given the global weakness and margin pressure, Nuvama expects FY24 to see moderation in profitability at Rs 350 crore.
As acquisition will be funded via debt, internal cash flows, Nuvama expects year-end debt for PCBL to go up to Rs 4,000 crore with expected average interest cost of 9-9.5 per cent.
"Though management is confident of the deal being earnings accretive, we expect it to drag earnings near FY24E/25E, given industry weakness. Expect net debt/Ebitda to cross 3.5 times with debt/equity of 1 time in FY24," Nuvama said.
Also read: Canara Bank shares in focus today as RBI approves stake sale in subsidiary
Also read: Stock recommendations for November 29, 2023: HCL Tech, Max Financial Services and Praj Industries