Wednesday, February 27, 2013

Quarterly Update - Phillips Carbon and NBCC

Some developments have been taking place in both these companies I track. Hence, the update..

Phillips Carbon - Pain continues..

I had written about Phillips Carbon some time ago. After that, the December 2012 quarterly result has come in. The company reported a totally subdued performance (to be honest, I was expecting a much worse result). I had mentioned some risks in the earlier write-up, many of which have started playing out. Following points may be noted:

  • CBFS (raw material) prices continue to be high. Over the last one year, they have really spiked up. Although the carbon black prices have also increased, it has not been enough to cover the raw material price increase. The situation is not expected to improve anytime soon and one can expect the next 2-3 quarters to remain subdued. The following table gives a bit of perspective on the matter.





Ratio: Roughly 56 kg of carbon black can be obtained from 100 kg of CBFS. Prices given are blended of domestic as well as foreign and hence cannot give us a 100% perfect view.. * indicates approximate price. 
  • The company's power sales continue, but at lower realisations. Merchant power rates are also not exactly going through a great time.
  • There is slowdown in the auto sector, which trickles down to a slowdown for the carbon black sector. The company is currently trying to develop its export sales, but given the slowdown in Europe and the China-angle, that seems quite difficult.
  • There is an interesting comment in the Q3FY13 investor presentation. Post imposition of safeguard duty on Chinese carbon black, "imports in India from China have reduced, however, total imports in India continue to remain the same." :-) That's interesting!
  • I believe the company will skip dividend this year/declare nominal dividend. So please dont look at the "5.3% dividend yield" based on last year's dividend, shown on most financial websites.
  • Debt will prove a further drag on performance, specially in a cyclical downturn like the one at present.
All-in-all, nothing great is expected to happen here in the near term. In fact, if auto sales slow down further, the company's performance would nose-dive further. The imposition of safeguard duty does help, but the other risks will undo that help!!



NBCC - Comfort increases..

I had written about NBCC some time ago. My initial thought was to approach this more as a 2-3 quarter trade, since I had discomfort with certain risks which I had highlighted. Post the Q3FY13 result, the management held a concall, which gives me more comfort about the company. Following are some developments regarding NBCC..
  • The current quarter result was not upto the mark due to certain one-time expenses charged during the quarter. Pension charges of Rs.20 cr and EDC, IDC charges of Rs.5 cr were charged during the quarter, due to which the profitability looks subdued.
  • During the present FY, the company has purchased 3 additional land parcels (4 acres in Alwar, 4 acres in Lucknow and 2 acres in Ghaziabad) for a total of Rs.100 cr. 
  • The company has not yet booked any revenues for the New Okhla project. The booking will happen in FY14. In Q4FY13, the management expects to book Rs.100 cr revenue and Rs.33 cr PAT for their Gurgaon projects.
  • In the PMC business, in case of any delay or quality issues in the construction etc, it is the contractor who is penalised if need be. NBCC has no liability on itself. Its position stays protected. 
  • For FY14, the management has guided PAT of Rs.225-250 cr.
  • Company currently has Rs.1100 cr of cash, out of which Rs.300 cr is theirs and the rest are advances received. 
  • As per norms, the company has to distribute minimum 20% of the profits as dividend. NBCC has been paying out roughly 25%. On the guided profit, that works out to roughly Rs.5 dividend for FY14. 
  • Most importantly, when asked whether the PMC business may be opened up to non-government companies (in which case, NBCC's role will become irrelevant), the management seemed quite confident that under the existing structure, there is no visible threat of the same in the near future. This gives me quite some comfort.
Of course, I intend to hold the stock at least till the New Okhla real estate project's revenue booking happens. But this is one stock I would hold, but actively track. Any negative development on the business front or the capital allocation front would warrant a review of whether to continue holding the stock. 

Cheers and happy, safe investing!!






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7 comments:

Narayanan said...

Apollo tyres shares their carbon black prices every quarter. So that can be used as an external source for verifying prices. The prices per kg are 65, 70, 73, 75, 85, 80, 80 from 1QFY12 to this quarter in that order. If Apollo declares results ahead of Phillips we may even get some sense of the pricing before the results.

Neeraj Marathe said...

Thnx Narayanan,
Yes i agree that one can get a bit of sense with it..but the problem is that we do not know for sure whom Apollo buys from; india or china. Also, 30% plus of PCBL's sales are exports, which have different realisations. We never know the mix for sure..
But yes, i do agree that one can draw a guesstimate based on the source you have referred to. Thnx..
Cheers!
Neeraj

Anil Kumar Tulsiram said...

Yeah, overall results looks better in the sense that atleast at EBITDA level [after excluding forex] there is around 30crs of profits though I guess half of it is driven by power sales. What I could not understand and little worried is their statement that imports remained same. I guess it might be because anti dumping order came into effect sometime in October 12 and imports might have surged before that.

Neeraj Marathe said...

Hi Anil,
Yup, possible. Lets see what the situation is in Q4..
cheers!
Neeraj

KD said...

Can you provide a link to the concall.. cant' seem to locate it

pratik said...

Neeraj,

Can you please give some guidance as to what percentage of the portfolio can we keep for nbcc...
Ps: i have done study and convinced on the story was confused about the portfolio allocation aspect, hence i require your help.
Please let me know sir. A range would also help.

Neeraj Marathe said...

Hello Pratik,
Well, portfolio allocation is a very relative thing. It totally depends on you..e.g. i believe more in the concentrated portfolio approach, where there are few stocks which have larger positions in the portfolio. Others believe in the diversified portfolio approach where there are many stocks and the size of each position is smaller..
So really, its about your comfort and the approach you follow or believe in. There is no right or wrong here..
Hope this helps..
Cheers!
Neeraj