PCBL Vs Rain Industries: Carbon, carbon everywhere but no one to steal (carbon compressed under high pressure and heat aka diamond). Carbon is the sixth most abundant material in the universe. And not just universe, it finds its use in a gamut of industries producing lakhs of products.
In this article, we will cover two companies that work with carbon products, i.e. Rain Industries Limited and PCBL Limited. We’ll compare them based on their business, profits, prospects and more! Let’s dive right in, shall we?
Carbon finds its applications across a variety of sectors. As a consequence, there are many players in the industry servicing the demand of the element across different verticals.
We shall be covering Rain Industries and PCBL in this article. Therefore, our scope is restricted to the segments in which these two companies operate.
The comparison style in this article is also different from the kind we usually do. This is because of two reasons.
- PCBL and Rain both work at different stages of the carbon cycle.
- Furthermore, PCBL has a narrow product line of carbon black only. Rain has three sources of revenue.
So without further ado, let us jump in.
Carbon Black (PCBL)
Whatever you see around, can contain carbon. Well, carbon is a building block of life. Similarly carbon black is the building block of a lot of materials.
Carbon black is formed by the inefficient combustion of compounds of hydrogen and carbon. These compounds can be derived from coal, coal tar, vegetable matter or petroleum products. In the industry, these compounds or raw materials are known as carbon black feedstock.
Carbon black finds its applications as a pigment agent and reinforcing agent. Now you must be scratching your head. What are these?
Let us understand the second thing first. Carbon black’s use as a reinforcing agent is in tyres mainly. In simple terms, it provides strength and keeps a tyre together.
Pigment agents are finely powdered products that impart colour to anything. At this stage, the segment gets further divided into two parts as per the use case of carbon black: performance chemicals and speciality chemicals.
As part of performance chemicals, carbon black is used in industrial hoses, conveyor belts, food boxes, plastics, etc. Under the category of speciality chemicals, it is used in pipes, cables, paints, coatings and batteries.
As per the data from Notch Consulting, India’s carbon black demand is expected to grow at a CAGR of 8% from FY20 to FY25. During the same period, the world’s carbon black demand is expected to grow at a CAGR of 6%. The reason for this difference can be understood intuitively. India being a developing economy will grow faster than the world as a whole.
Carbon, Advanced Materials and Cement (Rain Industries Limited)
Let us now try to understand the divisions of Rain Industries.
Calcined petroleum coke (CPC), coal tar pitch (CTP) and other carbon products (creosote oil, carbon black oil, & others) are key carbon products manufactured by Rain.
The crude oil refining industry and metallurgical coke industry produce various by-products. These by-products serve as raw materials for Rain. The company uses these to create the products mentioned above.
These products find their use in aluminium, steel, titanium dioxide, graphite, refractory, wood, construction and other industries.
An interesting note. Rain makes carbon black oil (aka carbon black feedstock or CBFS). This is the raw material used by a company such as PCBL to produce carbon black.
What we now know is that PCBL uses CBFS. CBFS is produced by companies such as Rain. And Rain is dependent on the petroleum and coal industry for raw materials. Therefore we can say that the profit margins are linked with the prices of energy and carbon commodities. These make up a large portion of expenses in this industry.
Furthermore, the demand is directly dependent on the industries in which the client companies operate.
The advanced material products division of Rain processes some of its carbon products, petrochemicals and other raw materials one step more. This separate line of advanced materials is high-value and eco-friendly. These products serve as raw materials for other industries: speciality chemicals, coatings, construction, automotive, and petroleum.
The estimated cement production capacity of India was 550 million tonnes in 2021. The housing sector consumes two-thirds of the cement in India. Infrastructure accounts for 20% of the total consumption and the rest is met by industrial capital expenditure.
Moving on to the cement products of Rain, it manufactures two specific kinds: ordinary portland cement (OPC) and portland pozzolana cement (PPC). OPC is mainly used for industrial structures.
PPC finds its use in the residential infrastructure segment. Cement demand is closely associated with GDP growth. Hence, this makes cement a highly cyclical industry.
If you are still with us, that’s great. We have covered the most challenging part of understanding the products and industry in depth. From this point, everything will be easy-peasy. Pinky promise. Let us jump to understanding the two companies.
Formerly known as Philips Carbon Black, PCBL is a six-decades-old small-cap company. It is a part of the RP-Sanjiv Goenka group. It is India’s largest manufacturer of carbon black. The company has a production capacity of 6,03,000 MT presently. Further, the company also produces 91 MW of green power.
PCBL earned Rs. 93 crores in revenue from selling power in FY22. This is a measly 2% of the net sales of Rs. 4,446 crores reported in the same year.
The power is generated from the heat of the gases which are by-products of the carbon black manufacturing process. The spare energy post-consumption is transferred to the state electricity power grid.
PCBL has a global presence with a client base spread across 45 countries. It has four plants located in India with two research and development centres. One R&D site is in Belgium and the other one is in India itself.
Segment-wise, 62% of revenue comes from tyre manufacturers. Performance chemicals and speciality chemicals make up 28% and 10% of revenue respectively. The exports make up 26% of the total revenue.
The company’s diversification efforts have yielded well over the past. The share of chemical revenue has increased from 25% in FY15 to 35% in FY21. During the same period, the EBITDA increased from 8.8% to an impressive 19.8%.
Rain is a low-cost producer of industrial carbon products, chemicals and cement. As part of its carbon division, the company manufacturers calcined petroleum coke (CPC) and coal tar pitch (CTP). The chemicals or advanced materials division produces basic chemicals, advanced chemicals and in-house engineered products.
Rain’s most of the 18 facilities are located outside India. It has a production capacity of 2.1 million tons of calcined petroleum coke making it one of the largest players in the world.
It has 4 million tons of cement manufacturing capacity. The company’s cement business accounts for 7% of Rain’s consolidated revenues. Its cement operations are restricted to South India. The company markets the product under the Priya Cement brand.
Financial Metrics of PCBL vs Rain Industries
PCBL Vs Rain Industries – Revenue Growth
We are almost at the end of the article. Here we will cover the numbers of both companies to get a better handle on them. But we must note one point.
Rain Industries’ financial year starts on 1 January and ends on 31 December. However, PCBL follows the fiscal year in the usual fashion. Therefore, wherever we mention results saying last fiscal year, it will mean ending 31 December for Rain and 31 March for PCBL, respectively.
The latest data for both companies is available. Thus, for Rain recent figures are as of the year ended 31 December 2021 and for PCBL they are 31 March 2022.
PCBL’s turnaround story started in the middle of the previous decade. The company saw a management change. Till that point, it was indebted and bleeding cash. It used to manufacture low-value products till then. The new blood visioned a high-value strategy for the company which morphed it into a global leader in carbon black.
PCBL’s revenues have grown at a CAGR of 12.97% over the last 7 years. Rain has lagged behind in the net sales growth which averages out to only 5.17% for the same period.
PCBL Vs Rain Industries – Net Profit Growth
The net profit of PCBL has grown at an impressive CAGR of 59.81% over the previous 7 years against Rain’s 8.72% average growth figure.
PCBL Vs Rain Industries – Profit Margins
It is evident that the net profit margins of Rain are lower than that of PCBL. It is because of the high operating and financial leverage of the company. Its interest coverage ratio was 3.67 for the year ending December 31, 2021. The high-interest charges brought down the net profit margin significantly.
PCBL Vs Rain Industries – Debt to Equity Ratio
Highly indebted companies are a riskier bet. PCBL trumps Rain Industries on debt-to-equity ratio. For the fiscal year ended 31 March 2022 the mid-cap carbon black manufacturer reported a debt/equity ratio of 0.26. It is a very safe figure.
Though Rain’s debt levels are high it is interesting to note the company’s management has been paying back debt for the last 5 years. It has come down to 1.39 from the scarier figure of 1.86 in 2017. Furthermore, it has a history of sustainable cash flows and servicing the debt adequately.
PCBL Vs Rain Industries – Expansion Plans
Both companies have been consistently reinvesting profits in property, plant and equipment. This can result in better growth and strong earnings going forward.
However, we must not lose sight of Rain’s revenues. The absolute quantum of capital expenditure is much larger for Rain as it is 3 times that of PCBL in terms of revenues. Thus, lowering debt levels and soaring reinvestment of profits make a very strong case for Rain.
PCBL Vs Rain Industries – Return on Capital Employed
Previously PCBL has demonstrated a better return on capital employed by its management. For the year ended 31 March 2022, its ROCE stood at 18% and return on equity stood at an impressive 16.26%.
However, this also means there might not be more headroom for growth at PCBL. All the information might be already reflected in the stock price. For the last three years, its dividend payout ratio has averaged 42%.
Relatively high-dividend payout ratio for a mid-cap stock, strong ROCE coupled with low debt levels do say the company may grow at a consistent rate.
While Rain has the potential to outperform in relative terms with a diverse product portfolio, ROCE improvement will be led by lower debt levels and huge capital expenditures.
PCBL Vs Rain Industries – Key Metrics
|Face Value (₹)||1||2|
|Market Cap (₹ Cr)||4348||5062|
|Promoter’s Holdings (%)||51.38||41.14|
|Net Profit Margin (%)||9.6||4.69|
|Dividend Yield (%)||4.34||0.42|
|Price to Book Value||1.66||0.79|
|7-Year Stock Returns (CAGR)||21.98||71.39|
We are now at the end of our presentation. What we can say is that PCBL’s turnaround story has not only been impressive, but rewarding also. The company has come a long way in the last decade. Furthermore, with its low debt levels, revenue & profit growth, ROCE says it may reach higher highs.
But Rain Industries is not behind either. Though some figures are messy, the decisions taken by management to pay back debt and spend aggressively on CAPEX hint at strong gains ahead.
Time has all the answers in the stock market. So, let us wait to see how these companies perform. Till then, save more and keep investing.