Hold NOCIL; target of Rs 210: Prabhudas Lilladher

Prabhudas Lilladher recommended hold rating on NOCIL with a target price of Rs 210 in its research report dated May 30, 2023.

Broker Research

May 31, 2023 / 08:42 IST

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Volume

Todays L/H

Prabhudas Lilladher's research report on NOCIL

Sequential volume recovery is encouraging (+26% QoQ/ flat YoY), however aggressive pricing adopted by Chinese competition remains a key concern. Management expects volumes to improve in FY24, however, refrained from giving any guidance due to prevailing uncertainties. Chinese competition getting aggressive on prices for want of local (Chinese) demand to absorb their capacities, does not augur too well (China forms ~75% of global rubber chemicals production). Despite near term challenges, NOCIL remains well placed over medium to long term led by 1) domestic tyre industry capex 2) China+1 strategy (as global customers look for security of supplies) 3) sufficient capacity headroom enabling demand improvement and 4) net cash balance sheet (Rs2.3bn) & healthy FCF generation of Rs.5.6bn over FY23-25E. While company’s capex announcement is awaited, management is also evaluating its entry into adjacencies/newer chemistries. Downgrade to ‘Hold’.

Outlook

We downward revise our FY24/FY25 EPS estimates by 16%/13% and downgrade to ‘Hold’ from Accumulate with revised TP of Rs210 (earlier Rs240) based on 18xFY25E EPS of Rs11.5, factoring in uncertain pricing environment posing risk to spreads.

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