Nocil Ltd - Research Report

 

Private Client Research

Rating

Buy

Sector

Chemicals

Company

Nocil Ltd

Reco Price
Rs. 83.55
Price Target (6 - 9 Months)
Rs. 126.00
Upside
50.81%

Date

February 22, 2017
Sensex
28864.71
CNX Nifty
8926.90

Exchange

Code

NSE
NOCIL
BSE
500730

Increased capacity utilization and revival in commercial vehicle industry will lead to future growth.

Pioneer in rubber chemicals:
Out of the total production in India (65,000- 70,000 MT), Nocil commands majority share of 55,000 MT production, and is thus the market leader in our country. The company deals in both, generic and specialized products. The competitive edge of Nocil is specialized products than generics. Generics are ruled by Chinese and Korean players. Hence, the company wants the revenue mix to be more concentrated on specialized products rather than generics. At present, revenue mix is 50:50, but in next 3-4 years it is expected to be 65:35.

Strong growth in Automobile Sector:
60‐65% of the global consumption of rubber is by automotive tyres, with the rest used in footwear production, latex products, cycle tyres and tubes, and OTR tyres among others. Consequently, tyre manufacturers constitute a significant chunk of Nocil’s clientele and It supplies to all domestic tyre manufacturers in India. Over the next three years, it is expected that the tyre demand in the Indian market will report a 6-7% volume growth, supported by a broad-based revival in Automotive OEM demand. Pick up in rural expenditure complemented by good monsoons would translate into a higher OEM demand for the rural centric two-wheeler (2W) and tractor segments. Growing fleet on ground and higher miles driven/freight moved would drive replacement sales.

The management is confident of increasing the capacity utilization at both its units, given a revival in commercial vehicle industry. Commercial vehicles use large tyres where usage of rubber chemicals is more as compared to passenger car tyres. Chemicals supplied to tyre companies formed 60% of Nocil’s business. Major tyre companies have started consolidating their operations in & around Asia, closer to the growth markets. Customers take from 6-18 months to provide approval for a specific location under specific climatic conditions & same is carried out for various locations globally. With an established track record, Nocil will benefit from this scenario.

Dahej Plant:
Post the commissioning of Dahej plant, the company has witnessed a significant improvement in its operating parameters. The plant started commercial production in March-2013. However, the capacity utilization of this plant was largely impacted by the very high imports of the product into the country due to the aggressive dumping. After the implementation of anti-dumping duty, capacity utilization has surged. Dahej plant is a zero wastage plant resulting in significant reduction in cost of production. Nocil adopted a judicious approach of promoting exports of only high value/specialized products, and staying away from high volume products with poor margins. Its focus on improving its sales-mix, by promoting some specialty and high-value products to specific customers coupled with the fall in crude prices has resulted in expansion of EBITDA margins from 4.5% in FY13 to 19% in FY16. Nocil has a strong pipeline of new generation specialty and high value rubber chemicals. It can thus expand its Dahej plant to manufacture them. Interest costs had shot up subsequent to the commissioning of Dahej plant, which the company has been able to control by utilizing the strong cash flow.

Macro developments generate positive tailwinds:
Several developments over the past few years have had a positive effect on Indian rubber chemical companies, especially Nocil. Over the last 3-4 years, the global rubber chemical industry has seen many large manufacturers restructure/exit their rubber chemical operations due to high competition from Chinese and Korean players, as they offered artificially low prices to customers. Subsequently, there were unit closures in China due to environmental concerns which resulted in a reduced supply. But, to protect the domestic rubber chemical manufacturers from the Chinese and Korean competition, the Indian Government from July 2014 levied an anti‐dumping duty (ADD) which is valid till July 2019.

Now all the major MNCs are trying to de-risk their supply chains by diversifying raw material procurement away from China, due to the risk associated with Chinese exports.

Stock Data

CMP (Rs)
82.50
Face value (Rs)
10
52 Week Range (Rs)
85.45 - 37.65
Market cap (Rs Crores)
1348.74
Price To Book Value (x)
2.85
P/E Ratio (x)
11.53
EV/EBIDTA (x)
9.55

One Year indexed Stock Performance

Nocil LtdSensex
Nocil Ltd
Performance (%)
1m
6m
12m
36m
Absolute
10.22
32.64
95.50
470.93
Sensex
6.44
11.19
21.34
38.70

Shareholders

(in %)
31-Dec
Promoter
37.35
Public
62.65
Others
0.00
Total
100

+91 22 6639 3000
research@stockaxis.com

 

Industry

Rubber chemicals find their application in rubber-based industries such as tyres, tubes, moulded & extruded components, belting, footwear etc. Although these chemicals form a very small component of the consuming industries’ inputs (3% of the rubber consumption), they are very critical from quality and productivity angles. The demand for rubber chemicals is directly linked to the overall rubber consumption (Natural & Synthetic Rubber) which in turn is linked to the level of economic activity. The single largest rubber-based industry viz. the tyre industry, is directly dependent on the transportation & automobile sector. Performance of the Rubber Chemicals industry is therefore, largely dependent on the performance of the Tyre and Automobile industry.

Profile

Nocil is a part of Arvind Mafatlal Group, a well-known business house in India with diversified business interest. Nocil is the largest rubber chemical manufacturer in India with wide range of rubber chemicals for use in Tyre & other rubber application industries. Nocil has customer relationship with clients in around 40 countries. The company has a strong pipeline of new generation rubber chemicals. The company has two plants, one in Navi Mumbai set up in 1980-81 and the other at Dahej (Gujarat) set up in March 2013. The Navi Mumbai plant (located at Trans Thane Creek Industrial Area) has a capacity of 45,000 MT and produces only finished goods whereas the plant at Dahej which has 10,000 MT capacity produces only intermediates.

Profit & Loss Statement:- (Consolidated)
(Rs Crores)
Particulars
Mar 14
Mar 15
Mar 16
Mar 17
Mar 18E
Income:-
  • Net Sales
  • Growth (%)
  • Total Expenditure
  • EBITDA
  • % Margin
  • Other Income
  • Operating Profit
  • Interest
  • PBDT
  • Depreciation
  • Profit Before Taxation & Exceptional Items
  • Exceptional Income / Expenses
  • Tax
  • Profit After Tax
  • Adjusted EPS
  • 596.14
  • -
  • 533.77
  • 62.37
  • 10.46
  • 10.83
  • 73.20
  • 17.39
  • 55.82
  • 18.74
  • 37.08
  • -2.03
  • 11.19
  • 23.85
  • 1.48
  • 719.00
  • 20.61
  • 605.73
  • 113.27
  • 15.75
  • 3.97
  • 117.25
  • 16.51
  • 100.73
  • 14.50
  • 86.24
  • 0.00
  • 29.14
  • 57.10
  • 3.55
  • 715.21
  • -0.53
  • 575.83
  • 139.37
  • 19.49
  • 3.53
  • 142.91
  • 9.34
  • 133.57
  • 14.63
  • 118.94
  • 0.00
  • 40.68
  • 78.26
  • 4.87
  • 740.00
  • 3.47
  • 580.00
  • 160.00
  • 21.62
  • 8.50
  • 168.50
  • 2.40
  • 166.10
  • 14.60
  • 151.50
  • 0.00
  • 50.74
  • 100.76
  • 6.27
  • 800.00
  • 8.11
  • 630.00
  • 170.00
  • 21.25
  • 9.00
  • 179.00
  • 2.70
  • 176.30
  • 15.60
  • 160.70
  • 0.00
  • 53.03
  • 107.67
  • 6.70
Source: Stockaxis Research, Company Data

Valuation

With major tyre companies shifting their supplies to India from China, Nocil stands at an advantageous position. Also the company has all the compliance in place which the Chinese companies lacked. With the anti-dumping duty levied globally and is in effect until CY19 and ramp up of Dahej facility in place, Nocil is expected to be benefitted

We Initiate ‘BUY’ on attractive valuations with Target Price of Rs 126 based on 18.80x FY18E EPS. The stock trades at 13.30x FY17E and 12.50x FY18E EPS.

 

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