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Last Updated : Feb 11, 2019 02:39 PM IST | Source: Moneycontrol.com

Buy NOCIL, target Rs 167: Anand Rathi

We like the company, the industry’s myopic reliance on only the auto and logistics sectors, the concentrated dependence of the end-product pricing on China’s operational capacities and duties imposed by the government render us cautious.

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Anand Rathi

An Arvind Mafatlal Group enterprise, NOCIL is India’s largest rubber chemicals manufacturer, with four decades’ experience and long-term business relations with major tyre companies.

Nocil’s Q3 Rs 2.6 billion revenue was up just 4.8% YoY against its consistently strong last seven quarters (averaging 24.8% growth). This was due to the ~2-3% realisation decline in rubber chemicals and muted volume growth.

The plants are fully automated through Programmable Logic Controller (PLC)/Distributed Control Systems (DCS) which ensure not only product quality and consistency but also built-in safety features in all operations.

One of the largest domestic manufacturers of rubber chemicals, Nocil enjoys a ~50% market share in India, and ~5% internationally.

Major customers are tyre manufacturers, who bring ~65-70% to its revenue.

It is confident of controlling nearly 10% of the global market in rubber chemicals. It is investing Rs 4.5 billion in three phases, expected to be operational from H2 FY20.

Exceptional technical know-how and long gestation periods (two years) for manufacturers to set up a plant and gain product approval from customers are strong entry barriers.

Capacity expansions of tyre companies (demand side) and the doubling of Nocil’s production capacity (supply side) should keep volume growth steady for the company.

However, auto sector sales would determine OEM demand and, growth in the logistics sector, the tyre replacement market, and in turn utilisation of tyre-companies’ new capex. This would govern realisations of rubber chemicals.

Potential growth in this jamboree of binary events keeps us cautiously optimistic about Nocil.

We like the company, the industry’s myopic reliance on only the auto and logistics sectors, the concentrated dependence of the end-product pricing on China’s operational capacities and duties imposed by the government render us cautious.

Assuming all these factors to be constant (ceteris paribus), we recommend a buy in Nocil.

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.​
First Published on Feb 11, 2019 02:39 pm
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