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Accelerator
Other
Specialized
Products
Antioxidant
Antidegradant
Initiating Coverage
NOCIL Ltd
24 SEP 2019
2
Price performance
Target Price: 137
CMPPotential Upside
MARKET DATA
No. of Shares (Rs Cr)
Market Cap (Rs Cr)
Free Float
Avg. daily (6mth)
52-w High / Low
Bloomberg
Promoter holding
FII / DII
: 21%
: 16.36
: 1,733
: 63%
: 2,31,156
: 182/74
: NOCIL IN
: 33.78%
: 3.9/4.8
Shareholding pattern (%)Financial Summary
Source: Company, Axis Securities. CMP as on Sept 23, 2019
Y/EMarch
Sales(Rs Cr)
PAT (Rs Cr)
EPS (Rs)
Change (%)
P/E(x)
RoE(%)
RoCE(%)
EV/EBITDA(Rs)
DPS(Rs)
FY18 968 170 10.3 75.0 19.0 15.5 20.7 12.1 2.5
FY19A 1,043 185 11.2 8.8 18.8 13.6 20.8 11.8 2.5
FY20E 1,126 213 12.9 15.4 8.8 14.1 19.1 5.9 1.7
FY21E 1,261 244 14.8 14.5 7.7 14.4 19.3 5.1 1.7
June 19 Mar19 % Change
Promoters 33.8 33.8 (0.06)
FPIs 3.9 4.2 (7.80)
DII 4.8 5.1 (6.50)
Others 57.6 56.9 1.19
Company Report
Suvarna Joshi – Sr. Manager - Research suvarna.joshi@axissecurities.in | (+91 22 4267 1740)
Specialty Chemical
NOCIL Ltd
: 114
0
40
80
120
160
May-18 Oct-18 Apr-19 Sep-19
BSE Sensex NOCIL
Buy24 SEP 2019
“Leader in its segment”
3
Investment Rationale
Company Report
NOCIL Ltd.
Sector: Specialty Chemicals
NOCIL’s dominantposition in thedomestic rubberchemicals marketand fast growingexport market
Growth in the tyreindustry leadingto increase inrubber demand;further enhancingRC demand
High entrybarriers led bystrong technicalexpertise andlong customerapproval cycle
Continuous R&Dand foray intonewer andhigher marginvalue addedproducts
NOCIL Ltd, part of AMG (Arvind Mafatlal Group) of Industries, is the largest Rubber Chemicals (RC) manufacturer in India. It is a
leader in domestic rubber chemicals market with ~40% share and ~5% global market share. It manufactures accelerators,
antioxidants, pre-vulcanizing inhibitors and post vulcanising stabilizers. While accelerators and antioxidants each account for ~45%
of revenues, other specialized products collectively account for ~10% of revenues. NOCIL has two plants, one each in Navi Mumbai
and Dahej with production capacity of 55,000 MT (as of Mar’19, includes intermediates meant for captive consumption). It is an
approved vendor at most tyre majors domestically & globally as it possesses strong technical expertise and a wide product range.
We expect revenues and earnings to grow at 9% and 13% CAGR respectively over FY19-21E which will be driven by
We initiate coverage with BUY rating and a target price of Rs. 137 i.e. ~21% (implies ~9x Sept 21E earnings)
Robust capacityexpansion, doublingfrom 55,000 MTPA,enabling the companyto cater to growingdemand from tyremanufacturers
24 SEP 2019
4
Investment Rationale
NOCIL has positioned itself as the market leader in domestic rubber chemicals industry with ~40% share and
has been successfully operating in the business for over 4 decades
In the global market, it has ~5% share and is strengthening its grip in the industry with its wide range of
products and superior technical knowhow and competency
Recently introduced TBBS (a new accelerator), which has enabled NOCIL to complete its product offerings
(currently 22 products) making it a one stop shop for rubber chemical requirements
Established player in growing rubber chemicals industry
The rubber chemicals industry derives ~65% of its demand directly from the tyre industry. Rubber chemicals
constitute ~4-5% of the total volume in the manufacturing of tyres
The global tyre production is expected to grow at a CAGR of 3.9% over FY18-23E, with the domestic
production likely to increase at a faster rate with a CAGR of 8.5% over the same period
Due to this growth in tyre industry, the demand for domestic rubber chemicals is expected to grow at a CAGR
of 5.6% over FY18-23E, benefitting NOCIL due to its global presence and wide product range
Growth in tyre industry to uplift rubber chemicals demand
NOCIL, at the start of FY19, announced to expand its capacity from 55,000 MT to 1,10,000 MT to capitalize
on the healthy end user demand
The expansion plan is to be completed in two phases, the first already completed and commenced production;
the second phase is set to be commissioned in H2FY20
This expanded capacity will enable NOCIL to cater to the increasing demand in domestic market (which it was
not able to counter due to near optimum utilization) and expand its global base with an asset turn of ~2x that
would aid Revenues growth over the next 2-3 years
Massive capacity expansion to drive volume growth
Company Report
NOCIL Ltd.
Sector: Specialty Chemicals
24 SEP 2019
5
Investment Rationale
NOCIL has established itself as a ‘one stop shop’ for rubber chemicals with its complete portfolio of products. It
has presence in over 40 countries and enjoys strong & long lasting business relationship with most of the major
global tyre manufacturers
It recently started supplying to the US market (2nd largest tyre manufacturer in the world) with an initial export
quantity of 500KT. The entry to the US market presents huge growth opportunity to NOCIL and its expanded
capacity would help penetrate this market at a brisk pace
Global Presence and Diversified Customer Base
Rubber chemicals industry possesses high entry barriers. High capex, exceptional technical knowhow, long
gestation period (~2-3 years) to set up the production unit and gain customer approval make it difficult for any
new player to enter the market
Moreover, NOCIL’s strong product expertise coupled with its technological edge creates a strong entry barrier
for any new entrant in the market in terms of pricing and delivery of quality products
This enables NOCIL to enjoy ~40% domestic market share with only 2 smaller domestic competitors
High entry barriers in the rubber chemicals industry
NOCIL’s Revenue/EBITDA/PAT grew at a CAGR of 10%/27%/34% over FY15-19 and its EBITDA/PAT
margins have grown from 15.8%/7.9% in FY15 to 28.1%/15.2% in FY19 respectively
This was driven by increase in capacity utilisation, improvement in operational efficiencies & product mix and
imposition of antidumping duty
On the back of its robust earnings growth and cash flows, NOCIL was able to clear its entire debt in FY18
(from ~Rs. 131 cr in FY14) and currently is a debt free company
Debt-free company with strong financials
Company Report
NOCIL Ltd.
Sector: Specialty Chemicals
24 SEP 2019
6
1228 12891462 1520
1707 1803
2711
0
500
1000
1500
2000
2500
3000
2013 2014 2015 2016 2017 2018 2023E
(in
Lakh
uni
ts)
Domestic Tyre Production The tyre industry contributes 3% of India's manufacturing GDP and0.5% of the total GDP
The Indian tyre industry has grown at a CAGR of 8% over the last5 years (against 4.4% globally) led by demand in OEM &replacement segment which is expected to grow at a CAGR of8.5% over CY18-23E
This estimated growth is supported by 1) rising domestic vehicledemand due to increased consumerism and the underpenetrateddomestic OEM market 2) the government’s push for infrastructureand 3) imposition of Anti Dumping Duty (ADD) on radial tyres fortrucks and buses from China
Indian automobile sales have grown consistently at ~10% p.a.over FY08-18, driving demand for tyres from OEMs. This growthadds on to the on-road vehicle population in India, fuelingreplacement demand
Although, the Auto industry is witnessing a slowdown currentlymajor tyre manufacturers continue with their capacity expansionsindicating long term demand trends remaining healthy
According to the management, Indian tyre companies haveremained committed to a capex of ~Rs 150-180 bn over the nextfew years in the wake of this expected rise in demand. The globaltyre industry has also planned ~$10 bn towards expansion plans
Given this rise in demand for tyres and rubber chemicals beingirreplaceable part of the manufacturing process, demand for thesechemicals is also expected to grow steadily with NOCIL sweetlypositioned to gain further share in the industry
Company Report
NOCIL Ltd.
Sector: Specialty Chemicals
16890 17760 18680 19400 20160 20950
25367
0
5000
10000
15000
20000
25000
30000
2013 2014 2015 2016 2017 2018 2023E
(in
lakh
uni
ts)
Source: Axis Securities, Notch report, Smithers Rapra
Global Tyre Production
Source: Axis Securities, ATMA, ICRA.
24 SEP 2019
Growth in tyre industry to uplift rubber chemicals demand
7
36%
40%
98%
64%
60%
2%
0% 20% 40% 60% 80% 100%
T&B
LCV
PV
Radial Bias
Tyre Mix in India
Radial tyres require
~1.3x-1.4x rubber
chemicals as compared to
bias tyres
Over the last few years, there has been a shift towards radialtyres from bias tyres in the domestic market as radial tyresprovide various technical advantages (reduced fuelconsumption, less rolling resistance etc.) & longer life
The PV segment has adopted the use of radial tyres to almost fullcapacity but the CV segment remains highly underpenetrated interms of usage of radial tyres
Radial tyres weigh ~30% more than the bias tyres, and hencerequire more rubber chemicals. As the shift towards radial tyrescontinues in CV segment (currently ~40% tyres are radial), thedemand for rubber chemicals is expected to rise
This augurs well for NOCIL with its expanded capacity andstrong relationship with top domestic tyre manufacturers
Government proposed ADD on import of radial tyres for trucksand buses from China to provide a level-playing field to domesticmanufacturers. The duties range between US$245-452/ton for aperiod of five years
T&B constitute ~13% of the total OEMs in India with only ~36%radialisation
With the imposition of ADD, the demand for domestic radial tyresis expected to increase along with the existing shift towardsradialisation. This would add to the rising demand of rubberchemicals and hence benefit NOCIL
Anti Dumping Duty (ADD) on Chinese tyres
13%23%
4% 54%
5%1%
T&BPVTractors & Farm Equipment2W/3WLCVIndustrial, Construction & Aircraft
Company Report
NOCIL Ltd.
Sector: Specialty Chemicals
22%
18%60%
Domestic OEM Export OEM
Replacement
Source: ATMA, Company, Axis Securities.
24 SEP 2019
Tyre Industry Volume Split
Tyre industry dynamics
8
Rubber Chemicals Industry
65% 35%
Tyre Non Tyre
What are Rubber Chemicals?
Rubber Chemicals
Accelarators Antioxidants Antidegradants
Pre/Post
Vulcanising
Agents
Insoluble
Sulphur
NOCIL’s Products
VULCANISATIONCURING PROCESS
NATURAL/SYNTHETIC RUBBER Sticky
Soft & Brittle
Deteriorates quickly
CURED RUBBER Harder
More Durable
Resistant to Chemicals
Smoother Surface Material
INSOLUBLE SULPHUR
ANTI-OXIDANT
OTHER VULCANSING AGENTS
RUBBERACCELERATOR
Source: China Sunshine Annual Report.
RUBBER PRODUCTS
Manufacturing Value Chain
Rubber Chemicals are commodity products that are used in theproduction of various rubber products. They are added duringproduction to affect a product’s elasticity, strength, durability,hardness, flexibility and resistance to wear. Rubber Chemicals areused in various rubber products including tyres, automobile parts,surgical gloves, shoe soles and other rubber products.
Company Report
NOCIL Ltd.
Sector: Specialty Chemicals
95%5%
Rubber Rubber Chemicals
Rubber chemicals have small but irreplaceable part in tyre manufacturing
Source: Axis Securities
Tyre Industry constitute major part of rubber chemicals demand
24 SEP 2019
9
Rubber Chemicals Industry
255.8 263.4 268.0 274.6 282.8 291.3
359.6
0
50
100
150
200
250
300
350
400
2013 2014 2015 2016 2017 2018 2023E
(in
Lakh
Tonn
es)
15.3 15.9 16.9 16.7 17.618.8
24.6
0
5
10
15
20
25
30
2013 2014 2015 2016 2017 2018 2023E
(in
Lakh
Tonn
es)
Global Rubber Consumption
Indian Rubber Chemicals Industry to grow at a faster rate
Demand for rubber chemicals is hugely dependent on the growth
of rubber consumption. Rubber chemicals constitute a meagre 4-
5% volume in overall rubber processing, but remain an
indispensable part in the process
The global rubber consumption has grown at 2.6% CAGR over
the last five years and is expected to grow at ~4.3% CAGR over
the next 4-5 years on the back of consistent growth in tyre
demand. This is expected to create an incremental demand of
~38-40 KT of rubber chemicals annually
China and Korea are the two top producers of rubber chemicals
in the world (controlling ~75% of the market); however, Korea
depends entirely on China for intermediates. India has ~7% share
Indian rubber chemicals industry is expected to grow at a faster
rate of 5.6% than the world primarily due to :
Indian tyre industry is expected to grow at a brisk rate as the
automobile sector in India still remains vastly underpenetrated
Stringent pollution norms in China has caused rubber chemicals
demand to shift from China to India.
This shift in demand will result in rise in demand for Indian
players. NOCIL is expected to benefit more due to its ongoing
capacity expansion.
Company Report
NOCIL Ltd.
Sector: Specialty Chemicals
Source: CEICDATA.com, Company, Axis Securities.
Source: Company, Grand View Research, Axis Securities.
24 SEP 2019
10
Company Background
NOCIL Ltd., part of Arvind Mafatlal Group, was incorporated in1961 under the name National Organic Chemical IndustriesLimited
It is India’s largest rubber chemicals manufacturing companywith a domestic market share of ~40% and global market shareof ~5% with exports to more than 40 countries
It is one of the most diversified rubber chemicals company in theworld with a product portfolio of 20+ and manufacturesaccelerators, anti-degradants, antioxidants, pre-vulcanizationinhibitors and post vulcanization stabilizers with a combinedrated capacity of 55,000 MT at its two plants in Navi Mumbaiand Dahej. It’s products find applications in the manufacturingof tyres, footwear, cycle tubes, conveyor belt, latex etc.
It has a wide product range, global presence, technicalexpertise and a trusted supplier to many global players
33.8%
46.3%
0.3% 6.4%
13.2%
Promotors Public FII DII Others
29%
71%
Exports Domestic
45%45%
~10%
Accelerators Antioxidants Other Specialized Products
Key Clientele
Shareholding PatternProduct wise Revenue Break up Geographic Revenue Mix
Company Report
NOCIL Ltd.
Sector: Specialty Chemicals
Source: Company, Axis Securities.
24 SEP 2019
11
Product Accelerator Antidegradant AntioxidantPre Vulcanization
InhibitorPost Vulcanization
Stabilizer
Brands
PILCURE MBT, PILCURE MBTS, PILCURE ZMBT, PILCURE F,
PILCURE CBS, PILCURE MOR,PILCURE NS, PILCURE ZDC, PILCURE TMT, PILCURE
ZDBC, PILCURE SDBC, PILCURE ZBZDC
PILFLEX 13PILNOX TDQ, PILNOX TDQ (HP), PILNOX SP
PILGARD PVI PILCURE DHTS
% of revenue ~ 45% - 50% ~ 45% - 50% ~10%
Application
To speed up the process of vulcanization. With the use of accelerators, vulcanization can be
done in 1-2 hours instead of ~45 hours
To deter aging of rubber. To develop rubber’s resistance to heat,
oxidation, sunlight and mechanical stress
Inhibits oxidation and used as a stabilizer in
rubber
Prevents premature vulcanization of rubber
during processing
To improve thermal stability of cross links in
rubber products
Wide Product Range make NOCIL a ‘one-stop shop’
Company Report
NOCIL Ltd.
Sector: Specialty Chemicals
Source: Company, Axis Securities.
24 SEP 2019
12
Manufacturing Plants
Set up in 1976 Located in Trans-Thane Creek
industrial area in Navi Mumbai,Thane – Belapur’s industrial zonedesignated for the chemicalindustry, about 40 kms away fromMumbai
State-of-the-art technology for themanufacture of the entire range ofRubber Chemicals for Tyre & otherRubber Products
Commercialized operation inMarch 2013
Located about 45 kms fromBharuch, Gujarat
Location has synergistic chemicalsand petrochemicals industry andexcellent connectivity with Dahej &Hazira Port
Fully Automated continuousprocess plant developedcompletely with in-housetechnology
Navi Mumbai
Dahej
Capacity (MT) Navi Mumbai Dahej
Pre-expansion 43,000 12,000
Post-expansion 55,000 55,000
Company Report
NOCIL Ltd.
Sector: Specialty Chemicals
Navi Mumbai Plant Dahej Plant
Due to increase in production capacity at Dahejplant, overhead optimization can be expectedmaking it more cost efficient. Hence, the newcapacity in Dahej would help NOCIL sustain itsmargin profile
Source: Company, Axis Securities.
24 SEP 2019
13
Experienced Management
• Executive Chairman and Promotor Director
• B. Com. (Hons.); Attended the Advanced Management
Programme at the Harvard Business School, USA
Mr. Hrishikesh A. Mafatlal – Promotor & Chairman
• B.Tech in Chemical Engineering from IIT Madras
• Associated with the company in various marketing capacities for
almost 37 years
Mr. R.M. Gadgil – President – Marketing
• Post Graduate & Ph.D. in Science
• Associated with the company for 35 years in various
R&D capacities
Dr. Chinmoy Nandi – Vice President (R&D)
• Chemical Engineer with Diploma in Management Studies
• Associated with the company for 34 years
Mr. Rajendra Desai – Vice President (Operations,Corporate HR & Personnel)
• M.Tech in Chemical Engineering from IIT Kanpur
• Associated with the company for nearly 40 years in various
technical capacities
Mr. S.R. Deo – Managing Director
• Ph.D. in Analytical Chemistry with 27 years of experience
• Associated with the company since 2007
Dr. Narendra Gangal – Vice President (QA, Analytical& Outsourced Research)
• Chartered Accountant with over 30 years of experience
• Associated with the company since 2005
Mr. P. Srinivasan – Chief Financial Officer
Company Report
NOCIL Ltd.
Sector: Specialty Chemicals
Source: Company, Axis Securities.
24 SEP 2019
14
Domestic Tyre players are expanding capacity
Apollo Tyres will spend Rs. 4,500cr in the next 2 years
To set up a Rs.1,800-crore plant in
Andhra Pradesh for producingpassenger car radials
Expanding truck and bus radial(TBR) tyre capacity to 11,500units/day from 9,000 units/day
MRF plans to invest around Rs 800-1,000 crore every year on productsand brown field expansion.
Greenfield facility in Gujarat andChennai worth Rs. 4,500 cr each isbeing set up
CEAT will spend Rs. 2,000-2,200cr in next 2 years
To increase its existing output by35-40%
To set up a greenfield unit forpassenger car radials
JK Tyre’s board recently approvedfund raising of ₹1,000 cr to supportexpansion of its capacity
Contemplating greenfield orbrownfield capacity expansion forTBRs as its capacity utilisation isclose to 100%
Company Report
NOCIL Ltd.
Sector: Specialty Chemicals
Source: Axis Securities, Company Reports
24 SEP 2019
15
NOCILs capacity Expansion to boost growth
Expansion Timeline
Pre Expansion Capacity : 55,000 MT
Phase 1(a) – Expansion at Navi Mumbai has beencommissioned and commercial production startedfrom Q1 FY19.
Phase 1(b): Expansion at Dahej has beencommissioned after successful trial runs fromDec’18.
For expansion of its production facilities for RubberChemicals (including intermediates captivelyconsumed towards manufacturing of rubberchemicals) at Dahej/Navi Mumbai
This phase of expansion is expected to commencecommercial production by the end of Oct’19
Post Expansion Capacity : 1,10,000 MT
PHA
SE
1 –
Rs.
17
0 c
rore
sPH
ASE
2 –
Rs.
25
5 c
rore
s
Gradual increase in capacity; completion by H2FY20
Company Report
NOCIL Ltd.
Sector: Specialty Chemicals
To capitalize on growth prospects, NOCIL announced to doubleits capacity with a capex of Rs. 425 cr. This plan is expected tobe completed by H2FY20 and the entire capital expenditure willbe funded by Internal Accruals. Before the expansion, NOCIL wasworking at 90-95% utilization
With asset turn of ~2x, capex upon completion shall enableNOCIL to potentially double revenues over the next 2-3 years
This expansion will help the company to expand its productportfolio and given the growth prospects, will assist it to reach outto new customers and geographies
NOCIL would be able to increase its global market share and themanagement asserts that there is further scope for multiplecapacity expansions.
Source: Company, Axis Securities.
55,000 59,400
73,150 82,500
110,000
0
40,000
80,000
120,000
FY18 Q1FY19 Q3FY19 Q4FY19 H2FY20
in M
T
24 SEP 2019
16
Strategic Advantages
Global Supplier
of Choice
Wide Range of ProductsPresence across a wide range ofrubber chemicals i.e. 22 in itsproduct basket
Environment Friendly Processes
Continuous investments done toadopt various innovativeenvironmental technologies forlong-term sustainability
Product Testing & Validation
Approved & Registered vendorwith all major domestic andforeign tyre players offeringtechnical support to customersfor rubber products andprocess development.
Non-Chinese Dependable PlayerNon-Chinese Dependable & qualityplayer with committed plans forfuture growth
Pipeline of new-gen RubberChemicalsDevelopment of niche productsusing innovative tech & greenchemistry concepts and new gen.environmentally sustainableprocesses for growth
High Entry Barrier
Customers take about 6-18months to give approval for aspecific location under specificclimatic conditions & same iscarried out for variouslocations globally
Company Report
NOCIL Ltd.
Sector: Specialty Chemicals
Source: Company, Axis Securities.
24 SEP 2019
17
SWOT Analysis
SWOT
Dependable & quality player inRubber Chemicals Industry
Strong Customer relationships withgood technical support
Wide product basket
Guarded technology reflective ofprocess patents received by NOCIL
Capacity addition in RC
Experienced management team
Slowdown in Chinese chemicalindustry due to pollution norms,resulting in shifting of demand toIndia
For NOCIL, export market stillremains highly untapped. Withincreased capacity, it can leverageand increase its global marketshare
Although a big player in the
domestic market, NOCIL has a
relatively smaller presence in the
global rubber chemicals market
Dependence on tyre industry
Removal of Anti-Dumping Duty may
create pressure on volumes and
margins
Sharp exchange rate fluctuations or
volatility in crude oil prices
Company Report
NOCIL Ltd.
Sector: Specialty Chemicals
Source: Axis Securities.
Strengths Weaknesses
Opportunities Threats
24 SEP 2019
18
Peer Comparison
40%
6%4%
50%
NOCIL Lanxess India
PMC Rubber Imports
Indian Rubber Chemicals Market
68%
7%
7%
18%
China India Korea Others
Key Chinese Players
China Sunshine Co. Ltd.
Jiangsu Sinorgchem Technology
Shandong Yanggu Huatai
Chemical Co. Ltd.
Changde Dingyuan Chemical
Industrial Ltd.
Dongying Bo Chen Chemical
Co. Ltd.
NOCIL is the domestic
market leader with only
two competitors.
Majority of the demand is
still fulfilled by imports
dominated by China
Sunshine (global market
leader)
31% 31% 32% 31% 31% 30% 30% 30%27%
6%8% 8%
13%
25%
19%
25%
21%19%
0%
5%
10%
15%
20%
25%
30%
35%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
NOCIL China Sunshine
Operating cost for China Sunshine is consistently increasing Since China’s decision to implement stricter pollution norms, costsfor Chinese chemical manufacturers have increased considerably,forcing several smaller players to shut down
This has benefitted Indian manufacturers as Chinese competitiveedge in terms of cost and pricing has reduced to a fair extent.Moreover, the Chinese economy is facing major challenges withgrowth for the first time in decades, which is also impactingits specialty chemicals industry. The banking system in China isundergoing several changes as well, which makes financingdifficult for local manufacturers and therefore production scale
Moreover, global tyre manufacturers are looking for geographicalderisking which along with the slowdown in China has helpedNOCIL to increase its sales volume and profit margins
Global Rubber Chemicals Market Share
Source: Axis Securities.
NOCIL Ltd.
Sector: Specialty Chemicals
Company Report24 SEP 2019
19
Margin Profile
6.3%
11.1%14.9%
18.0%21.5%
27.4% 28.1%
0%
5%
10%
15%
20%
25%
30%
35%
FY13 FY14 FY15 FY16 FY17 FY18 FY19
EBIDTA %
NOCIL has managed to increase its margins over the years andhas established a strong margin profile on account of:
Shifting of product mix from generic to specialty applicationover the last 5 years
Setting up of Dahej plant which is more cost effective thanthe Navi Mumbai plant. Due to increase in productioncapacity at Dahej plant, overhead optimization can beexpected, which would assist in sustaining margin profile.
Imposition of ADD on rubber chemicals imported fromChina. 6 of NOCIL’s product are covered under ADD andcontribute ~50% of the total revenues
Further, the strong margin profile has been aided by operatingleverage and cost optimization
Margins have consistently improved aided by superior product mix
88%75%
12%25%
0%
20%
40%
60%
80%
100%
2013 2018
Generic Specialty
Key Risk: ADD review
50%
50%
Revenues Contribution
6 products with ADD
Rest of the products
In 2014, Government levied anti-dumping duty (ADD) on import ofcertain chemicals from China, which included 6 of NOCIL’sproducts. This ADD was effective till July 2019 post which it will bereviewed for renewal
The management states that on the imposition of the anti-dumpingduty, the EBITDA margin improved 4%. In case of a non-renewal ofADD, we expect a similar reduction (400 bps) in the margin. Inour forecasts, we have considered a bearish case and taken intoaccount the suspension of ADD
Despite removal of ADD, we believe NOCIL will sustain healthymargin profile (+25%) due to 1) cost effective Dahej operations, 2)increased focus on export and 3) rising share of higher marginspecialty products
Company Report
NOCIL Ltd.
Sector: Specialty Chemicals
Source: Company, Axis Securities.
Shift to specialty products and ADD have benefitted NOCIL
24 SEP 2019
20
Effective Financials
Bottom-line has grown consistentlyNet Revenue to grow at a CAGR of 10% over FY19-21E
Return ratios to remain healthyProfitability to see sustained improvement
Company Report
NOCIL Ltd.
Sector: Specialty Chemicals
Source: Company, Axis Securities.
113 139
159
265 293
314 357
57 78
97
170 185 213 244
0
100
200
300
400
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Rs.
Cr
EBITDA PAT
71
9
71
5
74
2
96
8
1,0
43
1,1
26
1,2
61
0
200
400
600
800
1,000
1,200
1,400
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Rs.
Cr
13.8
10.2 10.6
15.5 13.6 14.1 14.4
16.5
13.7 13.4
20.7 20.8 19.1 19.3
0
5
10
15
20
25
FY15 FY16 FY17 FY18 FY19E FY20E FY21E
ROE (%) ROCE (%)
15.8
19.521.5
27.4 28.1 27.9 28.3
7.910.9
13.1
17.6 17.7 18.9 19.4
0
5
10
15
20
25
30
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
EBITDA Margin (%) PAT Margin (%)
24 SEP 2019
21
Valuation
Valuation
We estimate NOCIL to post revenues at a CAGR of 9% and profits
at 13% over FY19-FY21E
It is well positioned in the global market with marquee customer
base, robust margins, strong balance sheet, diversified product
portfolio and technological edge
We value NOCIL at 9x FY21E given the growth prospects to arrive
at a target price of Rs 137; upside of 21%
12mth fwd P/E (x) Key Risks & Concerns
Removal of ADD from its products could impact the company’s
EBITDA margins
Slowdown in the automobile sector could affect the tyre industry
and hence, rubber chemicals demand
Delay in the commissioning of the expanded capacity could affect
sales volumes and thus earnings
P/E Band
Source: Company, Axis Securities.
Company Report
NOCIL Ltd.
Sector: Specialty Chemicals
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50
100
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250
Mar-1
3
Aug
-13
Jan-
14
Jun-
14
Nov-
14
Apr-1
5
Sep
-15
Feb-1
6
Jul-1
6
Dec
-16
May-
17
Oct
-17
Mar-1
8
Aug
-18
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19
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19
Price 4x 8x 12x 16x
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5
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15
20
25
Mar-1
3
Aug
-13
Jan-
14
Jun-
14
Nov-
14
Apr-1
5
Sep
-15
Feb-1
6
Jul-1
6
Dec
-16
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17
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-17
Mar-1
8
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-18
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19
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19
PE Mean Mean+1Stdev Mean-1Stdev
24 SEP 2019
22
Financials (Consolidated)
Profit & Loss (Rs Cr) Balance Sheet (Rs Cr)
Company Report
NOCIL Ltd.
Sector: Specialty Chemicals
Source: Company, Axis Securities.
Income statement FY18 FY19 FY20E FY21E
Total Net Sales 968 1,043 1,126 1,261
% Change 30.4% 7.8% 8.0% 12.0%
Total Raw material Consumption 441 467 509 570
Staff costs 71 70 73 82
Other Expenditure 190 213 230 252
Total Expenditure 702 750 812 904
EBITDA 265 293 314 357
EBITDA Margin % 27.4% 28.1% 27.9% 28.3%
Depreciation 24 24.3 38.4 40.8
EBIT 241 268 276 316
EBIT Margin % 24.9% 25.7% 24.5% 25.1%
Interest 1 1 0 0
Other Income 15 10 11 13
PBT 255 278 287 329
Tax 85 93 74 85
Tax Rate % 33.3% 33.4% 25.7% 25.7%
APAT 170 185 213 244
Balance Sheet FY18 FY19 FY20E FY21E
Share Capital 164 165 165 165
Reserves & Surplus 882 998 1,157 1,346
Net Worth 1,047 1,163 1,322 1,512
Total Loan funds 0 0 0 0
Deferred Tax Liability 104 109 109 109
Long Term Provisions 16 15 16 18
Other Long Term Liability 0 0 0 0
Capital Employed 1,167 1,287 1,448 1,639
Gross Block 693 846 1,116 1,296
Less: Depreciation 169 191 230 273
Net Block 524 654 886 1,022
Investments 78 57 62 69
Sundry Debtors 243 232 248 283
Cash & Bank Bal 24 37 35 61
Loans & Advances 0 0 0 0
Inventory 155 171 177 195
Other Current Assets 13 34 36 41
Total Current Assets 673 584 581 634
Curr Liab & Prov 164 155 169 185
Net Current Assets 509 429 412 449
Total Assets 1,167 1,287 1,448 1,639
24 SEP 2019
23
Financials (Consolidated)
Cash Flow (Rs Cr) Ratio Analysis (%)
Company Report
NOCIL Ltd.
Sector: Specialty Chemicals
Source: Company, Axis Securities.
Cash Flows FY18 FY19 FY20E FY21E
PBT 255 278 287 329
Depreciation & Amortization 24 24 38 41
Chg in Working cap (88) (42) (9) (40)
Diret tax paid (81) (88) (74) (85)
Cash flow from operations 102 164 243 245
Chg in Gross Block (345) (570) (218) (190)
Chg in Investments 0 0 0 0
Proceeds on redemption of Fin. Assets
199 464 0 0
Cash flow from investing (142) (101) (218) (190)
Proceeds / (Repayment) of Short Term Borrowings (Net)
(10) (5) 0 0
Proceeds from issue of Equity Instruments of the company
4 5 0 0
Loans 0 0 0 0
Finance Cost paid (1) (1) 0 0
Dividends paid (35 (50) (28) (28)
Cash flow from financing (43) (50) (28) (28)
Chg in cash (82) 13 (2) 27
Cash at start 106 24 37 35
Cash at end 24 37 35 61
Key Ratios FY18 FY19 FY20E FY21E
Growth (%)
Net Sales 30.4% 7.8% 8.0% 12.0%
EBITDA 66.7% 10.3% 7.4% 13.6%
APAT 75.0% 8.8% 15.4% 14.5%
Per Share Data (Rs.)
Adj. EPS 10.3 11.2 12.9 14.8
BVPS 63.6 70.3 79.9 91.4
DPS 2.5 2.5 1.7 1.7
Profitability (%)
EBITDA Margin 27.4% 28.1% 27.9% 28.3%
Adj. PAT Margin 16.8% 15.2% 16.6% 17.3%
ROCE 20.7% 20.8% 19.1% 19.3%
ROE 15.5% 13.6% 14.1% 14.4%
ROIC 22.7% 22.5% 20.4% 21.0%
Valuations (X)
PER 19.0 18.8 8.8 7.7
P/BV 3.1 3.0 1.4 1.2
EV / EBITDA 12.1 11.8 5.9 5.1
EV / Net Sales 3.3 3.3 1.6 1.4
Turnover Days
Asset Turnover 1.4 1.4 1.1 1.0
Inventory days 111.8 127.4 124.5 119.0
Debtors days 77.3 83.2 77.8 76.7
Creditors days 81.5 83.7 75.5 76.9
Working Capital Days 107.6 127.0 126.7 118.8
24 SEP 2019
24
Disclaimer
Disclosures:
The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
1. Axis Securities Ltd. (ASL) is a SEBI Registered Research Analyst having registration no. INH000000297. ASL, the Research Entity (RE) as defined in the Regulations, is engaged in the business ofproviding Stock broking services, Depository participant services & distribution of various financial products. ASL is a subsidiary company of Axis Bank Ltd. Axis Bank Ltd. is a listed publiccompany and one of India’s largest private sector bank and has its various subsidiaries engaged in businesses of Asset management, NBFC, Merchant Banking, Trusteeship, Venture Capital,Stock Broking, the details in respect of which are available on www.axisbank.com.
2. ASL is registered with the Securities & Exchange Board of India (SEBI) for its stock broking & Depository participant business activities and with the Association of Mutual Funds of India (AMFI) fordistribution of financial products and also registered with IRDA as a corporate agent for insurance business activity.
3. ASL has no material adverse disciplinary history as on the date of publication of this report.
4. I/We, Suvarna Joshi – Senior Manager, Research, PGDM - Finance, author/s and the name/s subscribed to this report, hereby certify that all of the views expressed in this research reportaccurately reflect my/our views about the subject issuer(s) or securities. I/We (Research Analyst) also certify that no part of my/our compensation was, is, or will be directly or indirectly related tothe specific recommendation(s) or view(s) in this report. I/we or my/our relative or ASL does not have any financial interest in the subject company. Also I/we or my/our relative or ASL or itsAssociates may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Since associates ofASL are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned inthis report. I/we or my/our relative or ASL or its associate does not have any material conflict of interest. I/we have not served as director / officer, etc. in the subject company in the last 12-monthperiod.
Any holding in stock – NO
5. ASL has not received any compensation from the subject company in the past twelve months. ASL has not been engaged in market making activity for the subject company.
6. In the last 12-month period ending on the last day of the month immediately preceding the date of publication of this research report, ASL or any of its associates may have:
i. Received compensation for investment banking, merchant banking or stock broking services or for any other services from the subject company of this research report and / or;ii. Managed or co-managed public offering of the securities from the subject company of this research report and / or;iii. Received compensation for products or services other than investment banking, merchant banking or stock broking services from the subject company of this research report;
ASL or any of its associates have not received compensation or other benefits from the subject company of this research report or any other third-party in connection with this report.
Terms & Conditions:
This report has been prepared by ASL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and may not be altered inany way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ASL. The report is based on thefacts, figures and information that are considered true, correct, reliable and accurate. The intent of this report is not recommendatory in nature. The information is obtained from publicly availablemedia or other sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy,completeness or correctness. All such information and opinions are subject to change without notice. The report is prepared solely for informational purpose and does not constitute an offer documentor solicitation of offer to buy or sell or subscribe for securities or other financial instruments for the clients. Though disseminated to all the customers simultaneously, not all customers may receive thisreport at the same time. ASL will not treat recipients as customers by virtue of their receiving this report.
Company Report
NOCIL Ltd.
Sector: Specialty Chemicals
24 SEP 2019
25
Disclaimer
Disclaimer:
Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to the recipient’s specific circumstances. The securities and strategies
discussed and opinions expressed, if any, in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific
recipient.
This report may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this report should make such investigations as it deems necessary to arrive at an independent evaluation of
an investment in the securities of companies referred to in this report (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. Certain transactions,
including those involving futures, options and other derivatives as well as non-investment grade securities involve substantial risk and are not suitable for all investors. ASL, its directors, analysts or employees do not take any
responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds,
changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. Past performance is not necessarily a guide to future performance. Investors are advice necessarily a guide to future performance.
Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements
are not predictions and may be subject to change without notice.
ASL and its affiliated companies, their directors and employees may; (a) from time to time, have long or short position(s) in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other
transaction involving such securities or earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or investment banker,
lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. Each of these entities functions as a separate, distinct
and independent of each other. The recipient should take this into account before interpreting this document.
ASL and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, the recipients of this report should be aware that ASL may have a potential conflict of
interest that may affect the objectivity of this report. Compensation of Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ASL may have issued other reports
that are inconsistent with and reach different conclusion from the information presented in this report.
Neither this report nor any copy of it may be taken or transmitted into the United State (to U.S. Persons), Canada, or Japan or distributed, directly or indirectly, in the United States or Canada or distributed or redistributed in
Japan or to any resident thereof. If this report is inadvertently sent or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. This report is not directed or
intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to
law, regulation or which would subject ASL to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of
investors.
The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. The Company reserves the right
to make modifications and alternations to this document as may be required from time to time without any prior notice. The views expressed are those of the analyst(s) and the Company may or may not subscribe to all the views
expressed therein.
Copyright in this document vests with Axis Securities Limited.
Axis Securities Limited, Corporate office: Unit No. 2, Phoenix Market City, 15, LBS Road, Near Kamani Junction, Kurla (west), Mumbai-400070, Tel No. – 022- 40508080 / 022 - 61480808, Regd. off.- Axis House, 8th Floor,
Wadia International Centre, Pandurang Budhkar Marg, Worli, Mumbai – 400 025. Compliance Officer: Anand Shaha, Email: compliance.officer@axisdirect.in, Tel No: 022-42671582.
DEFINITION OF RATINGS
Ratings Expected absolute returns over 12-18 months
BUY More than 10%
HOLD Between 10% and -10%
SELL Less than -10%
NOT RATED We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation
UNDER REVIEW We will revisit our recommendation, valuation and estimates on the stock following recent events
NO STANCE We do not have any forward looking estimates, valuation or recommendation for the stock
Company Report
NOCIL Ltd.
Sector: Specialty Chemicals
24 SEP 2019
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