NOCIL Limited - Undervalued

(Sarabjeet Singh) #63

A reason why the price is still depressed could be Market knows that Mafatlal and Navin Florine are interested to sell their stake anyway, so why reward them with a better price when big players can get a good stake from these guys at a better price.
Navin Flourine is now left with a small stake for sale but Mafatlal has just started :frowning:

And it seems they are selling at every rise.

Disc : Invested and averaged out in recent fall.

(manan1379) #65

promoters had informed tht dey intend to sell arround 16lakh shares and i think they hav sold close to 3lakh shares post tht announcement

(Mikesingh) #66

NOCIL promoter have had always gone through family tussles over the ownership of company and subsidiaries divison.
As per latest filing on exchanges they have made very clear about the sale. I feel one should be ready to see a complete exit of mafatlal group/group of companies stakes from NOCIL.
In such a scenarios market do wait to give much appreciation to the underlying business or not treat such uncertainities with ownership very kindly.
So one would rather stick to the business model to see if this gives us a good opportunity.
NOCIL which is going to see completion of total phase 1 cpex of 170 cr by Q3 Fy19, and commence production in and around that time has shown that the promoter tussel for stake liquidation has not impacted business activities. As per managemnt the phase II of capex is also on. Business wise they are clear leader and very good capital utilisation and reemployement of capital in own business.

There will always be few uncertainities with investments, at time one need to see a bigger picture and draw a conclusion.



SMC Global has initiated coverage on nocil with a target of ₹256

(Patrioticindian) #69

Higher import tax for radial tyres

This will be good for Indian tyre mfrs including NOCIL.

(phreak) #70

I was looking at Nocil today and noticed few risks of investing here. All positives have been listed in this thread already so going over it will be redundant.

  1. Auto sales is going down
  1. Tractor sales is going down
  1. Crude is going up and is around $80 levels. This should impact margins going forward?

  2. While I don’t think anti-dumping on Rubber Chemicals and Tyres is going away anytime soon, this regulation if it goes against, could sink the company as this is essentially a commodity business

  3. Navin Fluorine and Mafatlal have been selling relentlessly all year

This has been pointed in this thread as I see but I think this is a low-contrast effect for someone seeing their selling spread out but for me looking at this business today, this is a big red flag. It shows that the business is probably operating at its peak and the promoters are cashing out. This happened in Avanti Feeds as well and was a good sign of things to come. Promoters always know best about the business.

(RICHAJ) #71

I looked at this company few months ago but decided to pass. Here are some general rebuttals off the top of my head to your points:

1,2 While NOCIL dominates the domestic market for vulcanisation accelerants and inhibitors, the vast proportion of Indian supply is still imported. Lower auto sales may reduce the total amount of rubber chemical used but does not necessarily imply that NOCIL will suffer since the domestic supply of these chemicals is likely to increase. There was a significant supply disruption due to the Chinese pollution crack down, and the company decided not to take advantage of its customers due to this. They further believe that customers now see the value of having a second supplier.

3 I might be wrong, but in one of the concalls management said that crude derivatives form ~15% of the total cost of these chemicals, and that the industry is mature enough to pass these costs to customers with a 3 month lag.

4 It is very likely that the ADD (on PPD?) is going away by July 2019, since it has been continuing for the last 10 years or so. This is further suggested by the the reports released by the Trade Ministry as they have been reducing the scope of ADD in recent times. In a concall I believe management downplayed this saying that Chinese competitors are even undercutting the ADD, and that the worst case hit to operating margins might be 4%(?).

5 The Mafatlal family has amicably decided to unwind their cross holdings and so the ownership of NFIL and NOCIL will now be completely separate. I believe this is why there has been heavy selling these last few months.

My biggest concern was that, assuming management’s forecasts are accurate, their growth for the next 3-5 years is largely fixed. They are already at full capacity utilisation and are planning a significant capex that they believe will be fully utilised in the next 3-5 years. There is enough information to build a simply DCF and model a few scenarios. I found that in all but the most optimistic scenario of full capacity utilisation in the next 3 years the stock was over valued at PE=16. Perhaps at a PE=10 or less it might provide a margin of safety along with a decent upside.

(SMondal15) #72

I think for point no 1 NOCIL has some dominance in Indian market. Its market share is 56% in India.

Regarding ADD …only 20 product from NOCIL’s basket are under ADD.Chinese player have upgraded its manufacturing factory for pollution concern so without ADD also NOCIL can compete.

If we belive India will be 3rd heighest auto producr by 2030…probably NOCIL is not bad choice.The lower you can add…its better

(Rudra Chowdhury) #73

Everything being said and done regarding reduction of cross holdings, it is pretty obvious management would not dump large stakes without this being an opportune exit price. As seen with numerous such examples from the past.

A commodity business priced at high multiple at peak margins is always dangerous.

Having said that, NOCIL will again look interesting at the right price - given most of the new tyre capex is coming in and around Asia, this can be looked at as a long term compounder.

(nil_71) #74

It’s greatest moat is ADD till JUly 2019. Also rupee depreciated a lot + almost all CAPEX ending in 2018-19

(Akbar Khan) #75

My thoughts for NOCIL and tyre sector in general.
The huge investments that have been made and continue to be made on Roads is one of the highlights of this Government and cannot be denied.
Now with this vast expansion of road network, we are sure to see more vehicles on the roads. Driving between cities is lot easier and convenient now.
The improvement in road network in the form of better highways and expressways imply increase in speeds at which these vehicles travel.
Higher speeds lead to higher wear and tear of tyres leading to demand.
We have already seen expansions announced by almost all tryre manufacturers.
NOCIL has also announced expansion in sync with them.

#76 (Page No 6)

(Bharat) #77

Festive seasons is near. May be we can witness good growth in October - November. Anyway these are mere speculation and up down happens in short term but for long term , auto industry looks to be a great sector due to increase in rural income and consumption.

Definitely higher crude prices is a concern and Nocil being B2B player will find it little tough to pass on the prices. But if you hear past management concall , management has said that the customer takes around 18 months time to fix the supplier so it is not possible for customers to frequently change their suppliers and thus NOCIL can pass some of the increase in raw material cost to the customers.
Regarding the ADD , around 50% of revenue is covered under ADD and it is likely that ADD will be continued but if not , that is surely a risk but it can again be compensated with the MOAT the company enjoys (18 month finalisation period by tyre companies).

This is surely a concern but management has clarified that they need funds for their own business and want to remove the cross holdings.

As with the Capex plans of many of the tyre manufacturers , NOCIL looks a good buy for short to medium term !
Disc: Invested

(django) #78

But no management is ever going to say “i am not so bullish on the business and hence i am cashing out” : )
So we should focus more on actions of management than the provided reasoning.

Discl. Invested. Not adding.

(Chandragupta) #79

Promoters of cyclical companies do not “cash out” just because there is a cyclical upturn. They know the very fact of their selling will depress stock prices and negate the benefit their stocks may get of any cyclical upturn. Further, the promoters have much more emotional attachment to their companies than outside investors who may sell just to book profits. I do not know why the promoters here are selling, but it may simply be that they need the money for something else. If they are not interested in the business, they can find a strategic buyer and exit in totality; they will get a far better price. The business has lot of moat characteristics like high entry barriers, high switching costs etc. besides a good industry outlook. On the whole, NOCIL seems like a good business stuck with a bad promoter.

(Disc: Have a small tracking position)

(Bharat) #80

The selling are by Mafatlal Industries Ltd and Navin Flourine and both these are listed companies having other businesses which may require funds.
As per AR 2017 , Mafatlal Group have undergone a business restructuring in which Mr. Hrishikesh A. Mafatlal and Mr. Vishad P. Mafatlal have split their businesses.
NOCIL has come under Mr. Hrishikesh and he has brought his son also on the board.

(Bharat) #82

Good Numbers from Nocil
Revenue 271 Cr vs 227 Cr Q2Fy18
Revenue 540 Cr vs 464 Cr H1FY18
PAT 52.8 Cr vs 38 Cr Q2 FY18
PAT 103.6 Cr vs 72.6 Cr H1 FY18

  • NOCIL released Investors Presentation on the Financial Highlights for the Q2 and six months ended 30th September 2018 and Conference Call for H1FY19 - Day/Date: Thursday, November 1, 2018 Time: 04:30 pm

NOCIL Q2 FY18-19 Earning Presntation.pdf (2.0 MB)

(Bharat) #84

Looks Interesting !

Source: Investor Presentation

Anyone if attending the concall tomorrow and know how to ask question , please ask below few things :

  1. Promoters (Basically Navin Flourine and Mafatlal Ind ) have sold a lot of holdings . Promoter hold is also getting down every quarter. Where can we expect it to settle.
  2. Does company able to get any new client due to China Problem. Also as company earlier informed that the customer takes 18 months time to approve the supplier , how many new clients company has added in last 1 year or can be added in coming 1 year. What is the proportion of sales to the biggest client the company has.

(Bharat) #85

NOCIL Concall 1/11/2018
These are my personal notes from my understanding and can have some errors !

  • Growth both in terms of Volume and Value

  • Focus on Long term Customer Relations + Better product Mix + Cost Optimization

  • All ongoing projects are on Schedule. 1st Phase of Mumbai Plant got commissioned and reached 100% Capacity Utilization within 3 Months , Dahej Expansion will come by end of this Quarter.

  • 10+ % Volume Growth Guidance

  • Though Crude prices have risen , the Key Raw Material like Aniline and Benzene derivatives have softened due to demand supply scenario but Company passed on the benefits of lower Raw Material prices to its customers.

  • Worldwide tire manufacturers are expanding their capacity to a tune of Rs. 55000 Cr , Indian Companies have Capex of around Rs 10000 Cr -12000 Cr which will come in 1 year opening up significant opportunities for the company.

  • China may remain a major supplier but their cost will be increased much due to high labor cost and environmental norms

  • Exports increased by 120 Cr (H1 FY18) to 155 Cr (H1 FY19). Working capital to remain around 120 Days.

  • US has levied 10% additional duty on Chinese rubber chemicals effectively from 24th September 18 and an additional 15% duty will be imposed effectively from 1st January 2019.

  • Difficult for China to hold position in US . Nocil existing clients like Yokohama Rubber and Sumitomo rubber are opening up the gates for their US based plants and this opportunity was not available earlier.

  • China can circumvent some products from other countries but the volume can not be significant. Mostly customer prefer to buy through origin

  • Effect of ADD going away in July will be 4% of EBITDA. But management is confident of an extension in the ADD.

  • Business looks very lucrative as of now from Balance Sheet point of view due to 30% OPM Levels but entering and sustaining in the business is tough. Customers take high time to approve as well as regular technological developments are needed. 15 Yr back , 80% of business was controlled by 3 Big Players. Now 1 has gone out completely , 1 has only 1 product reduced from 15 and the third one has not done any major Capex in past few years. Major reason for this is that the business goes to cycles and tests patience and thus may not look lucrative all the time. Difficult to dislodge existing player.

  • Margins will remain at around same levels for December Quarter

  • 25% of revenue from Specialized rubber Chemicals which are high Margin business.

  • Current Plant capacity utilization is around 97-100% .

  • By September 2019 , the Capacity of the Plant will be doubled due to the ongoing completion of Capex.

  • Promoter split businesses in 2016. Navin flourine has 38 Lakh Shares of which 30 Lakh have been sold and rest have come under non promoter category. Mafatlal Ind has plans to sell around 16 Lakh Shares between May 2018 to May 2019 of which around 2.5 Lakh shares have been sold till date. They may or may not sell the 16 Lakh shares as depending on their business needs.