With rising demand from tyre, plastics, inks and coatings industry in India, carbon market demand is set to explode in India as domestic production is unable to cope with and government restrictions on import of the commodity only add to the woes of the consuming industries.
Association of Tyre Manufacturers (ATMA) has appealed to the Union Government to allow duty-free import of carbon black in view of the shortage in the market while All India Rubber Industries Association (AIRIA) that represents the Rs 30,000 cr non-tyre industry is now forced to pay premium prices to source carbon black to sustain their operations. An anti-dumping duty of $250 per tonne is an obstacle for import of the commodity while domestic prices have shot up alarmingly in the past six months.
Carbon black is virtually a pure form of elemental carbon manufactured through incomplete combustion or thermal decomposition of heavy hydrocarbons. Petroleum based crude oil, coal tar,
mineral/vegetable oils, acetylene gas, natural gas, heat/electricity, and water are the raw materials used for the production of carbon black.
Amidst the high growth forecasts for carbon black demand in India, here is a look at the prospects of major players:
#Phillips Carbon Black Ltd (BSE:BSE: 506590, NSE: PHILIPCARB) Category: Mid Cap
Phillips Carbon Black Ltd, part of the US $2,5 bn RP-Sanjiv Goenka Group, is largest manufacturer of carbon black in India and one of the leading players in the world. It has modern manufacturing
facilities in Durgapur, Palej, Cochin and Mundra.
The company was established in collaboration with Phillips Petroleum, USA and started production in 1962. It upgraded its facility under technical agreement with Columbian Chemicals Company, USA. The company caters to the requirements of rubber, plastics, coatings, inks and other niche industries
globally. It produces carbon black for rubber industry and speciality black for non- rubber applications.
According to Chairman Sanjiv Goenka, the company achieved its highest ever profit before tax (PBT) of Rs 165.52 cr in 2016-17 while the Q4FY 17 PBT was also the highest ever at Rs 63.81 cr, The
company also achieved its highest ever carbon black project of 383,316 tonnes and exported 93,340 tonnes to 30 countries.
In Q3 FY18, the company has made a net profit of Rs 56.59 Cr (representing a growth of 223.93% annualised) while sales grew 26.55% to Rs 612.40 cr. On a returns perspective, 26.07% quarterly,
88.39% half-yearly looks attractive while it trails industry average in return on equity (6.12%), return on assets (3.03%), net profit margin of 3.59%. Liquidity ratios aren’t encouraging while cash flows are good.
It is trading a price earnings ratio (PE) of 22.35 indicative of moderate valuation by market. On technical charts, RSI of 52.70 indicates bullish trend, while aDX of 23.48 indicates range bound trading and MACD has witnessed a bullish crossover. A head and shoulders pattern has emerged on the charts and there seems to be consolidation at the 50 day moving average levels. After a recent drop to 953 levels, the scrip is in rebound mode on positive fundamentals.
Target: 1255 Duration: 3 weeks.
#Himadri Speciality Chemical Ltd (BSE:500184, NSE: HSCL) Category: Mid Cap
Himadri Speciality Chemical Ltd (formerly known as Himadri Chemicals & Industry Ltd ) was established in 1987 and is engaged in the manufacture of coal tar pitch, carbon black, advanced
carbon materials from coal tar, corrosion protection products and naphthalene sulphonate having varied industrial applications.
Himadri is the largest largest coal tar pitch producer with a market share of 70% catering to aluminium and graphite industries and also a leading producer of carbon black. It has a production capacity of 120,000 tons for Carbon Black. The company had entered carbon black business through forward integration to convert coal tar oil produced during distillation into carbon black.
The company improved its operations in 2016-17 as reflected in its annual results. The income from operations grew 14% to Rs 1,471 cr, volumes grew 19% to 3,56,902 tonnes. Net profit rose to Rs 81
cr compared to Rs 16 cr the previous year. Total finance cost reduced by Rs 18.58 cr due to debt repayment.
The company earned a net profit of Rs 70.14 cr in Q3 FY 18 recording a growth of 248.78% and sales rose 44.46% to Rs 500.08 Cr. On a returns perspective, 98.76% half-yearly and 253.39% annual
returns looks attractive. The scrip has recovered from a recent low of 147.25.
The company has innovated with new value-added range of speciality carbon black that caters to niche applications in tyre and non-tyre industry like moulded rubber goods, plastic master batch fiber, wire and cable piples, engineering, plastics, films, inks and coatings amongst others. The company is now a leader in supply to Moulded Rubber Goods Industry which has a specific
requirement for cleaner blacks.
On technical charts, RSI of 43 indicates bearishness, MACD has witnessed a bearish crossover signalling sell and ADX of 16 indicates range bound trading.
Target: 186 Duration: 3 weeks.
Apart from the two listed companies there are several other players contributing to the growth of India’s carbon black industry- SKI Carbon Black (India) Pvt Ltd of Aditya Birla Group, Continental Carbon India Ltd, Cabot India Ltd, Goodluck Carbon Black Pvt Ltd, Jiangxi Black Cat Carbon Black Inc, Heibei Daguangming Industrial Group, Shanghai Kargos International Trade Co, and Hebei Jingxian Xinyuan Rubber Chemical Co Ltd.
In the past few years, the production of carbon black has been lagging consumption as tyre industry and rubber based industries are growing at a phenomenal rate. In 2016-17, domestic carbon black production was 8.1 lakh tons while exports were 1.14 lakh tons and imports 84,000 tons. This was not sufficient to meet the industry demand. In 2017-18, the production stands at 8.4 lakh tons as against actual consumption of 9 lakh tons. Imports were lesser at 96,000 tons compared to exports of 1.2 lakh tons.
China is the leader in carbon black production accounting for 40% of global production. Globally, carbon black market is expected to grow from US $11.20 bn to US $ 13.79 bn by 2021 indicating a compounded annual growth rate (CAGR) of 4.6%.
With rising demand for carbon black, import restrictions and rising prices, the prospects of existing players are expected to perform better on capacity utilisation and new product launches. Investors could gain through selective exposure to stocks in this industry.