Reduce NOCIL; target of Rs 172: Prabhudas Lilladher

Prabhudas Lilladher's research report on NOCIL

NOCIL reported revenue of Rs3.4bn (PLe: Rs3bn; Consensus: Rs3.6bn), reflecting 5% YoY decline but 7% QoQ increase. The topline was impacted by ~5% drop in sales volume YoY and marginal decline in the specialty product mix. Based on our estimates, average realizations stood flat YoY at Rs255/kg. Sales volume declined 5% YoY but grew 4% sequentially. However, EBITDA /kg fell 20% YoY, primarily due to higher operating leverage, resulting in a 240bps YoY contraction in EBITDA margin. Capacity utilization remained at 65%, with significant variation across product lines. To meet rising demand for select rubber chemicals, with plants already operating at high utilization levels, like TDQ antioxidants, the company is investing Rs2.5bn in capacity expansion. These additional capacities are expected to come online in H2FY27, though peak utilization across the portfolio may take another 1.5–2 years. Low-price dumping from China, Korea and the EU continues to pose a key risk. However, any imposition of ADD on NOCIL’s products could help improve performance going forward.

Outlook

The stock is currently trading at ~24x FY27 EPS. We maintain our ‘Reduce’ rating with a target price of Rs172, valuing the company at 22x FY27 EPS.