Oriental Carbon Chemicals Ltd Oriental Carbon and Chemicals Starts commercial production of the first phase in the 5,500 million tonnes per annum capacity of its project for insoluble Sulphur production at the Special Economic Zone at Mundra in Gujarat. With expectations of growth in global and domestic markets and capacity expansion, OCCL is expecting its revenue to grow by 50% by 2020. Oriental Carbon is the sole producer of insoluble sulphur, which is a key raw‐material for manufacturing of tyres.
OCCL is functioning at more than 90% capacity utilisation as mentioned by the company in concall post Q2FY17.
The company’s plan to enter into new geographies augers well. Initial responses from North American and Chinese costumers have been encouraging. Phase 1 expansion of SEZ Mundra by 5500 MTPA is on schedule as envisaged by us in our initiating report released on . Going ahead we are expecting double digit growth on topline from Q4FY17.
On global front, OCCL’s revenue pick up would be driven by entry into new markets like North America and China. Exports to Europe have remained stable and it still remains one of the main export markets for OCCL.
The company management is confident of double digit growth in domestic demand for insoluble sulphur with rising investments in India from domestic and international tyre companies.
Valuation We believe the capacity expansion in SEZ Mundra along with positive response from North American and China market will remain key catalyst for the stock.
We had initiated coverage on OCCL on June 20, 2016 at the price of Rs. 509, since then the stock has moved up 55%. At CMP of Rs 790, OCCL is trading at PER of 16.6x and 13x its FY17E and FY18E EPS. We have BUY rating with target price of Rs.863 (13.5x FY18E).
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