Buy NOCIL; target of Rs 265: Motilal Oswal

Buy

Motilal Oswal's research report on NOCIL

NOCIL's EBITDA/kg stood at INR40.4 in 1QFY24, up 13% QoQ, in line with our estimate. However, sales volumes declined 2% QoQ to 13.5tmt due to lower export volumes caused by inventory destocking and recessionary pressures. Realization was up 3% QoQ at INR295/kg but down 12% YoY. A decline in latex volumes was partly offset by increased offtake from tyre companies. Latex, which constitutes 10-15% of NOCIL's total export volumes, fell 56% YoY in 1QFY24. European tyre manufacturers are also experiencing demand challenges. The management anticipates 2Q volumes to be comparable to those in 1QFY24. Chinese players are selling rubber chemicals at lower prices due to weak domestic demand, creating tough competition for NOCIL. However, the management foresees pricing normalization in 2HFY24 when China's domestic demand is expected to recover.

Outlook

The stock is valued at 17x FY25E EPS (INR13.2) and 10x FY25E EV/EBITDA. Return ratios are expected to remain stable at 10-13% in FY24-25. We maintain our BUY rating with a TP of INR265.

For all recommendations report, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies 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.

NOCIL - 02 -08 - 2023 - moti