NOCIL Limited ~ One-Stop-Shop for Rubber Chemicals in India

A lot of brokerages came out with a buy report recently. This is usually a sell signal.

2 Likes

NOCIL 3Q FY19 Investor Presentation

1 Like

NOCIL 3Q FY19 Conference call Invite

1 Like

Anyone attended todays concall

Management of Nocil is very good. I know them since many years. Very reliable and have great integrity

2 Likes

I listened to the concall, but couldn’t take notes. So the below is from what I can recollect:

  1. Q3 volumes were flat YoY, on account of lower demand as a consequence of slowdown in end user (tire industry) and also decline in prices of rubber chemicals, which resulted in customers running down their existing inventories / keeping minimum inventory and adopting Just in Time approach for meeting their requirements.
  2. NOCIL chose to protect margins at the cost of volumes. Thus, while volumes were flat, EBIDTA margins were largely in line with same quarter last year.
  3. Current year volume growth guidance, factoring in the above slowdown is expected to be ~5%. Volume growth of 10% was achieved in H1-FY 19, and flat growth in Q3, which is likely to be the case for Q4 as well. Thus, for current year as a whole, 5% volume growth is forecast.
  4. Sales realisations have declined in Q3 (by about 2-4%) and the same trend is expected to continue in Q4 as well, however, input prices have also seen commensurate decline. Thus, EBIDTA margins likely to be maintained at current level in Q4-FY 19, with flat volume growth.
  5. While management did not give out volume growth number for FY 2020, they mentioned that volume is expected to grow well into the double digits in FY 2020, on the back of additional capacities commissioned accompanied by efforts being made to tap into newer geographies and higher exports.
  6. Impact of ADD removal (assuming it is removed in July, 2019) on EBIDTA estimated at Rs. 40 cr. (on annual basis) on current capacity. On expanded capacity impact could be little higher, around Rs. 50 cr. or thereabouts.
  7. Company has commenced exports to US market from Dec 2018 / Jan 2019, starting with very small quantities, and expecting to slowly ramp-up sales in the new geography.
  8. China end user rubber chemical market also facing slowdown on account of automobile slowdown. However, no significant increase seen in Chinese imports of the rubber chemicals into India as of now. Chinese companies environmental and compliance costs have also gone up, and thus the low price realisation scenario prevailing a few years back is not likely to make a comeback.
  9. Company is positioning itself as a reliable alternate supplier of the entire basket of rubber chemicals, in the backdrop of US China trade wars and supply disruptions from China. Company management feels it is well placed to gain volumes in this scenario.
  10. Capacity commissioned last year is expected to ramp-up to optimum levels by end of this year (Dec, 2019), while the capacities expected to be commissioned by Sep/Oct, 2019 likely to be ramped up to optimum levels over a period of 3 years, from the date of receipt of customer approvals (on a conservative basis, though Company shall endeavour to do this faster). Customer approvals typically take 3-6 months.
  11. Overall, I got the impression that while there are near term headwinds, which is likely to impact Q4 as well (flat volume guidance with margins maintained at current levels), next 2-3 years outlook seems positive, as per the management commentary.

Above is based on what I understood from the call, and is subject to errors and/or misunderstandings at my end. Hence, kindly verify the same. Happy to be corrected on any of the above.

Disc: Invested

20 Likes

Nocil Ltd

Highlights Of Q3 FY19 and Nine Month FY19 Results

Financials

  • Q3 FY19
    • Revenue grew by 4 % to 261 Cr compare to 249 Cr last year same quarter
    • Value addition for the quarter ended is 144 Cr compare to 134 Cr for quarter ended Dec-17 representing a growth of 6.9 %.
    • Operating EBITDA grew by 4 % to 73 Cr compare to 70 Cr last year same quarter.
    • PBT stood at 69 Cr which was flat compare to last year same quarter.
    • PAT stood at 45 Cr which was similar to last year same quarter.
  • Nine Month FY19
    • Revenue grew by 16 % to 800 Cr compare to 682 Cr last year same quarter.
    • Exports contributes 29-30 % of the revenues
    • 50 % growth in revenue is because of volumes and 50 % of price increases.
    • Nine month value addition grew by 19.4 % to 485 Cr compare to 375 Cr for the corresponding period last year.
    • Operating EBITDA grew by 29 % to 231 Cr compare to 178 Cr last year nine month period.
    • PBT grew by 24 % to 222 Cr compare to 178 Cr last year nine month period
    • PAT grew by 26 % to 148 Cr compare to 118 Cr last year nine month period.

Key Highlights

  • Recently commissioned the expansion capacities which were planned at Dahej plant. With this company program of Phase-1 of Rs 470 Cr has been completed.
  • Global tyre industry has already commissioned a CAPEX of 10 bn dollars for future growth. Company 30 % revenue come from exports so upcoming tyre expansion capacity is a huge opportunity for company.
  • Last year there was issue in rubber chemical supply due to environmental issues in China now this disruption has compelled most of the tyre industries to look on more reliable supply chain which is out of China so company have big advantage and with change in view in terms of supply chain will boost export market for company.
  • In domestic market there is short term disruption and in a very short period Indian auto industry will take off. Long term outlook is very positive. Indian auto industry already announce CAPEX worth 18,000 Cr. CAPEX program are going on as per planned. And growth will continue as expected.
  • Demand scenario
    • Global rubber consumption stands at about 29 Mn tons and it is expected to grow at 4 %. Now growth of rubber chemical will be proportional to rubber chemicals. There company see a huge potential for the growth of chemical market in domestic as well as global scenario. In view of this company has decided to invest 425 Cr as CAPEX and company is certain that the potential for rubber chemical business will be growing. Also seeing large portion of Non-Chinese demand and therefore company have planned this CAPEX.
  • CAPEX of 170 Cr has been commissioned and cumulative budget allocated by the board was 425 Cr out of this till December company spend 225 Cr and with further commitment of 225 Cr already in pipeline.
  • Company have started supply with volume of 500 tons per annum from January 2019.

Outlook

  • Prices seems to be bottom out and now in next quarter price rise will be seen in upward direction.
  • Ramping up of 100 % capacity utilization will be there after 3 years of new launches.
  • Company expect 2-2.5 % realization dip in Q4FY19 also.
  • Company is going to commissioned 250 Cr by October and the volumes will be available so company will have opportunity to expand in export market. As global tyre Industry is looking for a reliable supplier other than China.
  • Volume growth expansion will be more than double digit in FY19-20.
4 Likes

Why are Promoters keep pledging their stocks? It has increased in Feb. If business is so good then why? Or something is not good in company ?

US President attack Preferential Trade With India, I believe NOCIL has recently exporting to US market and will these news have any extra tariff being imposed on NOCIL for exporting chemical to USA ?

As clarified in last concall by Nocil management US exports forms very small part of their overall business

The management also told they plan to increase export to USA for a question asked by Mr. Ashish in the concall.

Poor results!!
Though mgt was indicating flattish trend for Q4 but its quite below expectation.
Added to this if ADD is removed it will be a HOWLER!!
On the other side if its not removed & capacity will be doubled this year then it might give huge gains from hereon…

1 Like

Operating leverage cuts both ways. Tyre industry has been undergoing slowdown since about Oct/Nov. Large capacities at this stage are going to be harmful for the company (with or without removal of ADD, with - definitely a lot more so). We must always be very careful when insiders sell and give vague reasons.

4 Likes

Auto markets is undergoing a slowdown. Auto Company numbers as well as Tyre Company Numbers are reflecting that. As the business depends on Auto Sector , it is bound to have the effects on it.
For the full year , Sales have grown at 5% and Profit growth is around 8%. Not good to compare numbers on Quarterly basis in my opinion.

Regarding ADD , if there will be instances of dumping and domestic industry will be suffering , it will most likely to be continued. If ADD is removed that means domestic companies are able to give fight to the imports and are not much in disadvantage . Selling by the insiders (Another promoter company for its business) have been discussed in length here so everyone may have his view of looking towards that.
I am optimistic for the business for medium term. There are reports of international Tyre companies trying to reduce their dependence on China and looking for alternate sources. Aggressive Expansion plans of domestic tire companies are also in line for next 3-5 Years. I believe that company has great potential for capturing the market and looks good to me for a medium term (3-5 Yrs) perspective.

Disc: Invested , Biased.

3 Likes

The problem is that some players in China are resuming their operations and there will be near term headwinds in terms of reduced ASP.
Though it might be blessing in disguise that increased Chinese capacity might lead to increased dumping which might aid continual of ADD.
Near term seems challenging but on medium term basis looks in accumulation zone.

1 Like

Sales have grown 7.78% when you adjust for excise.

Cyclical nature is a part and parcel of this segment, the entire thesis of NOCIL makes sense only because of the aggressive expansions undertaken, which, is seen as a major value generator going forward (in 1.5-2 years), also the expanded capacity is seen as to offset any potential negative impacts of non-renewal of the ADD.

Key part is, to enjoy the fruits of those expansions in next 2 years, investors have to face one major event in July (ADD expiry) apart from those daily doses of updates on China!

Disc. Invested with some 2-3 years view hereon.

I have major doubt on theory of Expansion. If you cannot sell the existing capacity then whats the use of Expansion. As you can see sale has come down. Second, one has to find out the reason of fall of sale from past 2 quarters, is it temporary headwind or cycle reversal.

1 Like

Not defending, but, just putting a few points -

  1. In a B2B business, more important is not sales growth, rather it’s the margin.
  2. Expansion is required based on the existing level of utilization, if present level is optimal/maximum, the business may face major capacity constraint once things brightens up.
  3. Further, for a long established business (typically in B2B segment), sometimes some sticky customer may ask for significantly large supply which the co can’t meet unless it keeps some ‘buffer capacity’ in place.
  4. With OPM levels at 29% avg for last 5 quarters, it was clear that the co was peaking out to the sky!, it’s absolutely normal for a few tough quarters in between.
  5. In a segment where NOCIL operates, things use to stay volatile as even a quarter becomes a very long period and a lot of things can change.
4 Likes

Does this include rubber chemicals also, which was initially scheduled for January but was deferred?