Prabhudas Lilladher's research report on NOCIL
We remain constructive on NOCIL post our visit to its Dahej (Gujarat) site spread over 50 acres, that houses various rubber chemicals manufacturing plants. Management indicated gradual recovery in volume across markets (worst possibly behind in Q3FY23) and improvement in capacity utilization from hereon (currently at ~65%). Debottlenecking is ongoing and will be completed by Sep’23 (to increase capacity by ~5%). While company’s capex announcement is awaited (~15 months to commission thereafter), management is also evaluating its entry into adjacencies/ newer chemistries. NOCIL remains well placed over medium to long term led by 1) domestic tyre industry capex 2) China+1 strategy (as customers look for security of supplies) 3) sufficient capacity headroom enabling demand improvement and 4) net cash balance sheet (Rs1.6bn) & healthy FCF generation of Rs.5.5bn over FY23-25E, though increase in supplies by Chinese competition pose risk to volume and spreads.
Outlook
We slightly tweak our estimates to factor spreads normalization and maintain ‘Accumulate’ rating with revised TP of Rs 240 (earlier Rs250) at 18x FY25E EPS of Rs13.5.
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