Sharekhan's research report on NOCIL
Q3FY23 results reflected the pressure on volumes given muted demand amid recessionary trends in key markets and inventory de-stocking in export markets. Operating profit/PAT of Rs. 38 crore/Rs. 19 crore, fell 39%/48% q-o-q and missed our estimates by 31%/40% due to sharply lower-than-expected volume and EBITDA margins. Sales volumes fell 8% q-o-q to 10,908 tonnes (11% below estimate) due to 7-8% decline in domestic volume, while export volume was flat q-o-q. EBITDA margins of Rs. 34/kg (down 34% q-o-q) missed our estimate as beat in realisation was more than offset by higher per unit opex as a decline in volumes impacted absorption of fixed costs. Management expects volumes to rise in Q4FY23 while margins remain stable. We would keenly monitor volume recovery as the management has been hinting at demand pressure amid recessionary trend in key markets. We have lowered our FY23-25 earnings estimates to factor lower volume assumption.
We maintain a Buy rating on NOCIL but lower our PT to Rs. 275 to reflect cut in earnings estimate. Our expectation of earnings recovery over FY24E-25E, potential global market share gains (benefit of China/Europe Plus One strategy) makes valuation attractive at 16.9x/14.4x FY24E/FY25E EPS.
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