Initiating Coverage NOCIL Ltd - Markets Mojo...The global tyre production is expected to grow at a CAGR of 3.9% over FY18-23E, with the domestic production likely to increase at a

Accelerator

Other

Specialized

Products

Antioxidant

Antidegradant

Initiating Coverage

NOCIL Ltd

24 SEP 2019

2

Price performance

Target Price: 137

CMPPotential Upside

MARKET DATA

No. of Shares (Rs Cr)

Market Cap (Rs Cr)

Free Float

Avg. daily (6mth)

52-w High / Low

Bloomberg

Promoter holding

FII / DII

: 21%

: 16.36

: 1,733

: 63%

: 2,31,156

: 182/74

: NOCIL IN

: 33.78%

: 3.9/4.8

Shareholding pattern (%)Financial Summary

Source: Company, Axis Securities. CMP as on Sept 23, 2019

Y/EMarch

Sales(Rs Cr)

PAT (Rs Cr)

EPS (Rs)

Change (%)

P/E(x)

RoE(%)

RoCE(%)

EV/EBITDA(Rs)

DPS(Rs)

FY18 968 170 10.3 75.0 19.0 15.5 20.7 12.1 2.5

FY19A 1,043 185 11.2 8.8 18.8 13.6 20.8 11.8 2.5

FY20E 1,126 213 12.9 15.4 8.8 14.1 19.1 5.9 1.7

FY21E 1,261 244 14.8 14.5 7.7 14.4 19.3 5.1 1.7

June 19 Mar19 % Change

Promoters 33.8 33.8 (0.06)

FPIs 3.9 4.2 (7.80)

DII 4.8 5.1 (6.50)

Others 57.6 56.9 1.19

Company Report

Suvarna Joshi – Sr. Manager - Research [email protected] | (+91 22 4267 1740)

Specialty Chemical

NOCIL Ltd

: 114

0

40

80

120

160

May-18 Oct-18 Apr-19 Sep-19

BSE Sensex NOCIL

Buy24 SEP 2019

“Leader in its segment”

3

Investment Rationale

Company Report

NOCIL Ltd.

Sector: Specialty Chemicals

NOCIL’s dominantposition in thedomestic rubberchemicals marketand fast growingexport market

Growth in the tyreindustry leadingto increase inrubber demand;further enhancingRC demand

High entrybarriers led bystrong technicalexpertise andlong customerapproval cycle

Continuous R&Dand foray intonewer andhigher marginvalue addedproducts

NOCIL Ltd, part of AMG (Arvind Mafatlal Group) of Industries, is the largest Rubber Chemicals (RC) manufacturer in India. It is a

leader in domestic rubber chemicals market with ~40% share and ~5% global market share. It manufactures accelerators,

antioxidants, pre-vulcanizing inhibitors and post vulcanising stabilizers. While accelerators and antioxidants each account for ~45%

of revenues, other specialized products collectively account for ~10% of revenues. NOCIL has two plants, one each in Navi Mumbai

and Dahej with production capacity of 55,000 MT (as of Mar’19, includes intermediates meant for captive consumption). It is an

approved vendor at most tyre majors domestically & globally as it possesses strong technical expertise and a wide product range.

We expect revenues and earnings to grow at 9% and 13% CAGR respectively over FY19-21E which will be driven by

We initiate coverage with BUY rating and a target price of Rs. 137 i.e. ~21% (implies ~9x Sept 21E earnings)

Robust capacityexpansion, doublingfrom 55,000 MTPA,enabling the companyto cater to growingdemand from tyremanufacturers

24 SEP 2019

4


NOCIL has positioned itself as the market leader in domestic rubber chemicals industry with ~40% share and

has been successfully operating in the business for over 4 decades

In the global market, it has ~5% share and is strengthening its grip in the industry with its wide range of

products and superior technical knowhow and competency

Recently introduced TBBS (a new accelerator), which has enabled NOCIL to complete its product offerings

(currently 22 products) making it a one stop shop for rubber chemical requirements

Established player in growing rubber chemicals industry

The rubber chemicals industry derives ~65% of its demand directly from the tyre industry. Rubber chemicals

constitute ~4-5% of the total volume in the manufacturing of tyres

The global tyre production is expected to grow at a CAGR of 3.9% over FY18-23E, with the domestic

production likely to increase at a faster rate with a CAGR of 8.5% over the same period

Due to this growth in tyre industry, the demand for domestic rubber chemicals is expected to grow at a CAGR

of 5.6% over FY18-23E, benefitting NOCIL due to its global presence and wide product range

Growth in tyre industry to uplift rubber chemicals demand

NOCIL, at the start of FY19, announced to expand its capacity from 55,000 MT to 1,10,000 MT to capitalize

on the healthy end user demand

The expansion plan is to be completed in two phases, the first already completed and commenced production;

the second phase is set to be commissioned in H2FY20

This expanded capacity will enable NOCIL to cater to the increasing demand in domestic market (which it was

not able to counter due to near optimum utilization) and expand its global base with an asset turn of ~2x that

would aid Revenues growth over the next 2-3 years

Massive capacity expansion to drive volume growth

Company Report

NOCIL Ltd.


24 SEP 2019

5


NOCIL has established itself as a ‘one stop shop’ for rubber chemicals with its complete portfolio of products. It

has presence in over 40 countries and enjoys strong & long lasting business relationship with most of the major

global tyre manufacturers

It recently started supplying to the US market (2nd largest tyre manufacturer in the world) with an initial export

quantity of 500KT. The entry to the US market presents huge growth opportunity to NOCIL and its expanded

capacity would help penetrate this market at a brisk pace

Global Presence and Diversified Customer Base

Rubber chemicals industry possesses high entry barriers. High capex, exceptional technical knowhow, long

gestation period (~2-3 years) to set up the production unit and gain customer approval make it difficult for any

new player to enter the market

Moreover, NOCIL’s strong product expertise coupled with its technological edge creates a strong entry barrier

for any new entrant in the market in terms of pricing and delivery of quality products

This enables NOCIL to enjoy ~40% domestic market share with only 2 smaller domestic competitors

High entry barriers in the rubber chemicals industry

NOCIL’s Revenue/EBITDA/PAT grew at a CAGR of 10%/27%/34% over FY15-19 and its EBITDA/PAT

margins have grown from 15.8%/7.9% in FY15 to 28.1%/15.2% in FY19 respectively

This was driven by increase in capacity utilisation, improvement in operational efficiencies & product mix and

imposition of antidumping duty

On the back of its robust earnings growth and cash flows, NOCIL was able to clear its entire debt in FY18

(from ~Rs. 131 cr in FY14) and currently is a debt free company

Debt-free company with strong financials

Company Report

NOCIL Ltd.


24 SEP 2019

6

1228 12891462 1520

1707 1803

2711

0

500

1000

1500

2000

2500

3000

2013 2014 2015 2016 2017 2018 2023E

(in

Lakh

uni

ts)

Domestic Tyre Production The tyre industry contributes 3% of India's manufacturing GDP and0.5% of the total GDP

The Indian tyre industry has grown at a CAGR of 8% over the last5 years (against 4.4% globally) led by demand in OEM &replacement segment which is expected to grow at a CAGR of8.5% over CY18-23E

This estimated growth is supported by 1) rising domestic vehicledemand due to increased consumerism and the underpenetrateddomestic OEM market 2) the government’s push for infrastructureand 3) imposition of Anti Dumping Duty (ADD) on radial tyres fortrucks and buses from China

Indian automobile sales have grown consistently at ~10% p.a.over FY08-18, driving demand for tyres from OEMs. This growthadds on to the on-road vehicle population in India, fuelingreplacement demand

Although, the Auto industry is witnessing a slowdown currentlymajor tyre manufacturers continue with their capacity expansionsindicating long term demand trends remaining healthy

According to the management, Indian tyre companies haveremained committed to a capex of ~Rs 150-180 bn over the nextfew years in the wake of this expected rise in demand. The globaltyre industry has also planned ~$10 bn towards expansion plans

Given this rise in demand for tyres and rubber chemicals beingirreplaceable part of the manufacturing process, demand for thesechemicals is also expected to grow steadily with NOCIL sweetlypositioned to gain further share in the industry

Company Report

NOCIL Ltd.


16890 17760 18680 19400 20160 20950

25367

0

5000

10000

15000

20000

25000

30000

2013 2014 2015 2016 2017 2018 2023E

(in

lakh

uni

ts)

Source: Axis Securities, Notch report, Smithers Rapra

Global Tyre Production

Source: Axis Securities, ATMA, ICRA.

24 SEP 2019

Growth in tyre industry to uplift rubber chemicals demand

7

36%

40%

98%

64%

60%

2%

0% 20% 40% 60% 80% 100%

T&B

LCV

PV

Radial Bias

Tyre Mix in India

Radial tyres require

~1.3x-1.4x rubber

chemicals as compared to

bias tyres

Over the last few years, there has been a shift towards radialtyres from bias tyres in the domestic market as radial tyresprovide various technical advantages (reduced fuelconsumption, less rolling resistance etc.) & longer life

The PV segment has adopted the use of radial tyres to almost fullcapacity but the CV segment remains highly underpenetrated interms of usage of radial tyres

Radial tyres weigh ~30% more than the bias tyres, and hencerequire more rubber chemicals. As the shift towards radial tyrescontinues in CV segment (currently ~40% tyres are radial), thedemand for rubber chemicals is expected to rise

This augurs well for NOCIL with its expanded capacity andstrong relationship with top domestic tyre manufacturers

Government proposed ADD on import of radial tyres for trucksand buses from China to provide a level-playing field to domesticmanufacturers. The duties range between US$245-452/ton for aperiod of five years

T&B constitute ~13% of the total OEMs in India with only ~36%radialisation

With the imposition of ADD, the demand for domestic radial tyresis expected to increase along with the existing shift towardsradialisation. This would add to the rising demand of rubberchemicals and hence benefit NOCIL

Anti Dumping Duty (ADD) on Chinese tyres

13%23%

4% 54%

5%1%

T&BPVTractors & Farm Equipment2W/3WLCVIndustrial, Construction & Aircraft

Company Report

NOCIL Ltd.


22%

18%60%

Domestic OEM Export OEM

Replacement

Source: ATMA, Company, Axis Securities.

24 SEP 2019

Tyre Industry Volume Split

Tyre industry dynamics

8

Rubber Chemicals Industry

65% 35%

Tyre Non Tyre

What are Rubber Chemicals?

Rubber Chemicals

Accelarators Antioxidants Antidegradants

Pre/Post

Vulcanising

Agents

Insoluble

Sulphur

NOCIL’s Products

VULCANISATIONCURING PROCESS

NATURAL/SYNTHETIC RUBBER Sticky

Soft & Brittle

Deteriorates quickly

CURED RUBBER Harder

More Durable

Resistant to Chemicals

Smoother Surface Material

INSOLUBLE SULPHUR

ANTI-OXIDANT

OTHER VULCANSING AGENTS

RUBBERACCELERATOR

Source: China Sunshine Annual Report.

RUBBER PRODUCTS

Manufacturing Value Chain

Rubber Chemicals are commodity products that are used in theproduction of various rubber products. They are added duringproduction to affect a product’s elasticity, strength, durability,hardness, flexibility and resistance to wear. Rubber Chemicals areused in various rubber products including tyres, automobile parts,surgical gloves, shoe soles and other rubber products.

Company Report

NOCIL Ltd.


95%5%

Rubber Rubber Chemicals

Rubber chemicals have small but irreplaceable part in tyre manufacturing

Source: Axis Securities

Tyre Industry constitute major part of rubber chemicals demand

24 SEP 2019

9

Rubber Chemicals Industry

255.8 263.4 268.0 274.6 282.8 291.3

359.6

0

50

100

150

200

250

300

350

400

2013 2014 2015 2016 2017 2018 2023E

(in

Lakh

Tonn

es)

15.3 15.9 16.9 16.7 17.618.8

24.6

0

5

10

15

20

25

30

2013 2014 2015 2016 2017 2018 2023E

(in

Lakh

Tonn

es)

Global Rubber Consumption

Indian Rubber Chemicals Industry to grow at a faster rate

Demand for rubber chemicals is hugely dependent on the growth

of rubber consumption. Rubber chemicals constitute a meagre 4-

5% volume in overall rubber processing, but remain an

indispensable part in the process

The global rubber consumption has grown at 2.6% CAGR over

the last five years and is expected to grow at ~4.3% CAGR over

the next 4-5 years on the back of consistent growth in tyre

demand. This is expected to create an incremental demand of

~38-40 KT of rubber chemicals annually

China and Korea are the two top producers of rubber chemicals

in the world (controlling ~75% of the market); however, Korea

depends entirely on China for intermediates. India has ~7% share

Indian rubber chemicals industry is expected to grow at a faster

rate of 5.6% than the world primarily due to :

Indian tyre industry is expected to grow at a brisk rate as the

automobile sector in India still remains vastly underpenetrated

Stringent pollution norms in China has caused rubber chemicals

demand to shift from China to India.

This shift in demand will result in rise in demand for Indian

players. NOCIL is expected to benefit more due to its ongoing

capacity expansion.

Company Report

NOCIL Ltd.


Source: CEICDATA.com, Company, Axis Securities.

Source: Company, Grand View Research, Axis Securities.

24 SEP 2019

10

Company Background

NOCIL Ltd., part of Arvind Mafatlal Group, was incorporated in1961 under the name National Organic Chemical IndustriesLimited

It is India’s largest rubber chemicals manufacturing companywith a domestic market share of ~40% and global market shareof ~5% with exports to more than 40 countries

It is one of the most diversified rubber chemicals company in theworld with a product portfolio of 20+ and manufacturesaccelerators, anti-degradants, antioxidants, pre-vulcanizationinhibitors and post vulcanization stabilizers with a combinedrated capacity of 55,000 MT at its two plants in Navi Mumbaiand Dahej. It’s products find applications in the manufacturingof tyres, footwear, cycle tubes, conveyor belt, latex etc.

It has a wide product range, global presence, technicalexpertise and a trusted supplier to many global players

33.8%

46.3%

0.3% 6.4%

13.2%

Promotors Public FII DII Others

29%

71%

Exports Domestic

45%45%

~10%

Accelerators Antioxidants Other Specialized Products

Key Clientele

Shareholding PatternProduct wise Revenue Break up Geographic Revenue Mix

Company Report

NOCIL Ltd.


Source: Company, Axis Securities.

24 SEP 2019

11

Product Accelerator Antidegradant AntioxidantPre Vulcanization

InhibitorPost Vulcanization

Stabilizer

Brands

PILCURE MBT, PILCURE MBTS, PILCURE ZMBT, PILCURE F,

PILCURE CBS, PILCURE MOR,PILCURE NS, PILCURE ZDC, PILCURE TMT, PILCURE

ZDBC, PILCURE SDBC, PILCURE ZBZDC

PILFLEX 13PILNOX TDQ, PILNOX TDQ (HP), PILNOX SP

PILGARD PVI PILCURE DHTS

% of revenue ~ 45% - 50% ~ 45% - 50% ~10%

Application

To speed up the process of vulcanization. With the use of accelerators, vulcanization can be

done in 1-2 hours instead of ~45 hours

To deter aging of rubber. To develop rubber’s resistance to heat,

oxidation, sunlight and mechanical stress

Inhibits oxidation and used as a stabilizer in

rubber

Prevents premature vulcanization of rubber

during processing

To improve thermal stability of cross links in

rubber products

Wide Product Range make NOCIL a ‘one-stop shop’

Company Report

NOCIL Ltd.



24 SEP 2019

12

Manufacturing Plants

Set up in 1976 Located in Trans-Thane Creek

industrial area in Navi Mumbai,Thane – Belapur’s industrial zonedesignated for the chemicalindustry, about 40 kms away fromMumbai

State-of-the-art technology for themanufacture of the entire range ofRubber Chemicals for Tyre & otherRubber Products

Commercialized operation inMarch 2013

Located about 45 kms fromBharuch, Gujarat

Location has synergistic chemicalsand petrochemicals industry andexcellent connectivity with Dahej &Hazira Port

Fully Automated continuousprocess plant developedcompletely with in-housetechnology

Navi Mumbai

Dahej

Capacity (MT) Navi Mumbai Dahej

Pre-expansion 43,000 12,000

Post-expansion 55,000 55,000

Company Report

NOCIL Ltd.


Navi Mumbai Plant Dahej Plant

Due to increase in production capacity at Dahejplant, overhead optimization can be expectedmaking it more cost efficient. Hence, the newcapacity in Dahej would help NOCIL sustain itsmargin profile


24 SEP 2019

13

Experienced Management

• Executive Chairman and Promotor Director

• B. Com. (Hons.); Attended the Advanced Management

Programme at the Harvard Business School, USA

Mr. Hrishikesh A. Mafatlal – Promotor & Chairman

• B.Tech in Chemical Engineering from IIT Madras

• Associated with the company in various marketing capacities for

almost 37 years

Mr. R.M. Gadgil – President – Marketing

• Post Graduate & Ph.D. in Science

• Associated with the company for 35 years in various

R&D capacities

Dr. Chinmoy Nandi – Vice President (R&D)

• Chemical Engineer with Diploma in Management Studies

• Associated with the company for 34 years

Mr. Rajendra Desai – Vice President (Operations,Corporate HR & Personnel)

• M.Tech in Chemical Engineering from IIT Kanpur

• Associated with the company for nearly 40 years in various

technical capacities

Mr. S.R. Deo – Managing Director

• Ph.D. in Analytical Chemistry with 27 years of experience

• Associated with the company since 2007

Dr. Narendra Gangal – Vice President (QA, Analytical& Outsourced Research)

• Chartered Accountant with over 30 years of experience

• Associated with the company since 2005

Mr. P. Srinivasan – Chief Financial Officer

Company Report

NOCIL Ltd.



24 SEP 2019

14

Domestic Tyre players are expanding capacity

Apollo Tyres will spend Rs. 4,500cr in the next 2 years

To set up a Rs.1,800-crore plant in

Andhra Pradesh for producingpassenger car radials

Expanding truck and bus radial(TBR) tyre capacity to 11,500units/day from 9,000 units/day

MRF plans to invest around Rs 800-1,000 crore every year on productsand brown field expansion.

Greenfield facility in Gujarat andChennai worth Rs. 4,500 cr each isbeing set up

CEAT will spend Rs. 2,000-2,200cr in next 2 years

To increase its existing output by35-40%

To set up a greenfield unit forpassenger car radials

JK Tyre’s board recently approvedfund raising of ₹1,000 cr to supportexpansion of its capacity

Contemplating greenfield orbrownfield capacity expansion forTBRs as its capacity utilisation isclose to 100%

Company Report

NOCIL Ltd.


Source: Axis Securities, Company Reports

24 SEP 2019

15

NOCILs capacity Expansion to boost growth

Expansion Timeline

Pre Expansion Capacity : 55,000 MT

Phase 1(a) – Expansion at Navi Mumbai has beencommissioned and commercial production startedfrom Q1 FY19.

Phase 1(b): Expansion at Dahej has beencommissioned after successful trial runs fromDec’18.

For expansion of its production facilities for RubberChemicals (including intermediates captivelyconsumed towards manufacturing of rubberchemicals) at Dahej/Navi Mumbai

This phase of expansion is expected to commencecommercial production by the end of Oct’19

Post Expansion Capacity : 1,10,000 MT

PHA

SE

1 –

Rs.

17

0 c

rore

sPH

ASE

2 –

Rs.

25

5 c

rore

s

Gradual increase in capacity; completion by H2FY20

Company Report

NOCIL Ltd.


To capitalize on growth prospects, NOCIL announced to doubleits capacity with a capex of Rs. 425 cr. This plan is expected tobe completed by H2FY20 and the entire capital expenditure willbe funded by Internal Accruals. Before the expansion, NOCIL wasworking at 90-95% utilization

With asset turn of ~2x, capex upon completion shall enableNOCIL to potentially double revenues over the next 2-3 years

This expansion will help the company to expand its productportfolio and given the growth prospects, will assist it to reach outto new customers and geographies

NOCIL would be able to increase its global market share and themanagement asserts that there is further scope for multiplecapacity expansions.


55,000 59,400

73,150 82,500

110,000

0

40,000

80,000

120,000

FY18 Q1FY19 Q3FY19 Q4FY19 H2FY20

in M

T

24 SEP 2019

16

Strategic Advantages

Global Supplier

of Choice

Wide Range of ProductsPresence across a wide range ofrubber chemicals i.e. 22 in itsproduct basket

Environment Friendly Processes

Continuous investments done toadopt various innovativeenvironmental technologies forlong-term sustainability

Product Testing & Validation

Approved & Registered vendorwith all major domestic andforeign tyre players offeringtechnical support to customersfor rubber products andprocess development.

Non-Chinese Dependable PlayerNon-Chinese Dependable & qualityplayer with committed plans forfuture growth

Pipeline of new-gen RubberChemicalsDevelopment of niche productsusing innovative tech & greenchemistry concepts and new gen.environmentally sustainableprocesses for growth

High Entry Barrier

Customers take about 6-18months to give approval for aspecific location under specificclimatic conditions & same iscarried out for variouslocations globally

Company Report

NOCIL Ltd.



24 SEP 2019

17

SWOT Analysis

SWOT

Dependable & quality player inRubber Chemicals Industry

Strong Customer relationships withgood technical support

Wide product basket

Guarded technology reflective ofprocess patents received by NOCIL

Capacity addition in RC

Experienced management team

Slowdown in Chinese chemicalindustry due to pollution norms,resulting in shifting of demand toIndia

For NOCIL, export market stillremains highly untapped. Withincreased capacity, it can leverageand increase its global marketshare

Although a big player in the

domestic market, NOCIL has a

relatively smaller presence in the

global rubber chemicals market

Dependence on tyre industry

Removal of Anti-Dumping Duty may

create pressure on volumes and

margins

Sharp exchange rate fluctuations or

volatility in crude oil prices

Company Report

NOCIL Ltd.


Source: Axis Securities.

Strengths Weaknesses

Opportunities Threats

24 SEP 2019

18

Peer Comparison

40%

6%4%

50%

NOCIL Lanxess India

PMC Rubber Imports

Indian Rubber Chemicals Market

68%

7%

7%

18%

China India Korea Others

Key Chinese Players

China Sunshine Co. Ltd.

Jiangsu Sinorgchem Technology

Shandong Yanggu Huatai

Chemical Co. Ltd.

Changde Dingyuan Chemical

Industrial Ltd.

Dongying Bo Chen Chemical

Co. Ltd.

NOCIL is the domestic

market leader with only

two competitors.

Majority of the demand is

still fulfilled by imports

dominated by China

Sunshine (global market

leader)

31% 31% 32% 31% 31% 30% 30% 30%27%

6%8% 8%

13%

25%

19%

25%

21%19%

0%

5%

10%

15%

20%

25%

30%

35%

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

NOCIL China Sunshine

Operating cost for China Sunshine is consistently increasing Since China’s decision to implement stricter pollution norms, costsfor Chinese chemical manufacturers have increased considerably,forcing several smaller players to shut down

This has benefitted Indian manufacturers as Chinese competitiveedge in terms of cost and pricing has reduced to a fair extent.Moreover, the Chinese economy is facing major challenges withgrowth for the first time in decades, which is also impactingits specialty chemicals industry. The banking system in China isundergoing several changes as well, which makes financingdifficult for local manufacturers and therefore production scale

Moreover, global tyre manufacturers are looking for geographicalderisking which along with the slowdown in China has helpedNOCIL to increase its sales volume and profit margins

Global Rubber Chemicals Market Share

Source: Axis Securities.

NOCIL Ltd.


Company Report24 SEP 2019

19

Margin Profile

6.3%

11.1%14.9%

18.0%21.5%

27.4% 28.1%

0%

5%

10%

15%

20%

25%

30%

35%

FY13 FY14 FY15 FY16 FY17 FY18 FY19

EBIDTA %

NOCIL has managed to increase its margins over the years andhas established a strong margin profile on account of:

Shifting of product mix from generic to specialty applicationover the last 5 years

Setting up of Dahej plant which is more cost effective thanthe Navi Mumbai plant. Due to increase in productioncapacity at Dahej plant, overhead optimization can beexpected, which would assist in sustaining margin profile.

Imposition of ADD on rubber chemicals imported fromChina. 6 of NOCIL’s product are covered under ADD andcontribute ~50% of the total revenues

Further, the strong margin profile has been aided by operatingleverage and cost optimization

Margins have consistently improved aided by superior product mix

88%75%

12%25%

0%

20%

40%

60%

80%

100%

2013 2018

Generic Specialty

Key Risk: ADD review

50%

50%

Revenues Contribution

6 products with ADD

Rest of the products

In 2014, Government levied anti-dumping duty (ADD) on import ofcertain chemicals from China, which included 6 of NOCIL’sproducts. This ADD was effective till July 2019 post which it will bereviewed for renewal

The management states that on the imposition of the anti-dumpingduty, the EBITDA margin improved 4%. In case of a non-renewal ofADD, we expect a similar reduction (400 bps) in the margin. Inour forecasts, we have considered a bearish case and taken intoaccount the suspension of ADD

Despite removal of ADD, we believe NOCIL will sustain healthymargin profile (+25%) due to 1) cost effective Dahej operations, 2)increased focus on export and 3) rising share of higher marginspecialty products

Company Report

NOCIL Ltd.



Shift to specialty products and ADD have benefitted NOCIL

24 SEP 2019

20

Effective Financials

Bottom-line has grown consistentlyNet Revenue to grow at a CAGR of 10% over FY19-21E

Return ratios to remain healthyProfitability to see sustained improvement

Company Report

NOCIL Ltd.



113 139

159

265 293

314 357

57 78

97

170 185 213 244

0

100

200

300

400

FY15 FY16 FY17 FY18 FY19 FY20E FY21E

Rs.

Cr

EBITDA PAT

71

9

71

5

74

2

96

8

1,0

43

1,1

26

1,2

61

0

200

400

600

800

1,000

1,200

1,400


Rs.

Cr

13.8

10.2 10.6

15.5 13.6 14.1 14.4

16.5

13.7 13.4

20.7 20.8 19.1 19.3

0

5

10

15

20

25

FY15 FY16 FY17 FY18 FY19E FY20E FY21E

ROE (%) ROCE (%)

15.8

19.521.5

27.4 28.1 27.9 28.3

7.910.9

13.1

17.6 17.7 18.9 19.4

0

5

10

15

20

25

30


EBITDA Margin (%) PAT Margin (%)

24 SEP 2019

21

Valuation

Valuation

We estimate NOCIL to post revenues at a CAGR of 9% and profits

at 13% over FY19-FY21E

It is well positioned in the global market with marquee customer

base, robust margins, strong balance sheet, diversified product

portfolio and technological edge

We value NOCIL at 9x FY21E given the growth prospects to arrive

at a target price of Rs 137; upside of 21%

12mth fwd P/E (x) Key Risks & Concerns

Removal of ADD from its products could impact the company’s

EBITDA margins

Slowdown in the automobile sector could affect the tyre industry

and hence, rubber chemicals demand

Delay in the commissioning of the expanded capacity could affect

sales volumes and thus earnings

P/E Band


Company Report

NOCIL Ltd.


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-18

Jan-

19

Jun-

19

PE Mean Mean+1Stdev Mean-1Stdev

24 SEP 2019

22

Financials (Consolidated)

Profit & Loss (Rs Cr) Balance Sheet (Rs Cr)

Company Report

NOCIL Ltd.



Income statement FY18 FY19 FY20E FY21E

Total Net Sales 968 1,043 1,126 1,261

% Change 30.4% 7.8% 8.0% 12.0%

Total Raw material Consumption 441 467 509 570

Staff costs 71 70 73 82

Other Expenditure 190 213 230 252

Total Expenditure 702 750 812 904

EBITDA 265 293 314 357

EBITDA Margin % 27.4% 28.1% 27.9% 28.3%

Depreciation 24 24.3 38.4 40.8

EBIT 241 268 276 316

EBIT Margin % 24.9% 25.7% 24.5% 25.1%

Interest 1 1 0 0

Other Income 15 10 11 13

PBT 255 278 287 329

Tax 85 93 74 85

Tax Rate % 33.3% 33.4% 25.7% 25.7%

APAT 170 185 213 244

Balance Sheet FY18 FY19 FY20E FY21E

Share Capital 164 165 165 165

Reserves & Surplus 882 998 1,157 1,346

Net Worth 1,047 1,163 1,322 1,512

Total Loan funds 0 0 0 0

Deferred Tax Liability 104 109 109 109

Long Term Provisions 16 15 16 18

Other Long Term Liability 0 0 0 0

Capital Employed 1,167 1,287 1,448 1,639

Gross Block 693 846 1,116 1,296

Less: Depreciation 169 191 230 273

Net Block 524 654 886 1,022

Investments 78 57 62 69

Sundry Debtors 243 232 248 283

Cash & Bank Bal 24 37 35 61

Loans & Advances 0 0 0 0

Inventory 155 171 177 195

Other Current Assets 13 34 36 41

Total Current Assets 673 584 581 634

Curr Liab & Prov 164 155 169 185

Net Current Assets 509 429 412 449

Total Assets 1,167 1,287 1,448 1,639

24 SEP 2019

23

Financials (Consolidated)

Cash Flow (Rs Cr) Ratio Analysis (%)

Company Report

NOCIL Ltd.



Cash Flows FY18 FY19 FY20E FY21E

PBT 255 278 287 329

Depreciation & Amortization 24 24 38 41

Chg in Working cap (88) (42) (9) (40)

Diret tax paid (81) (88) (74) (85)

Cash flow from operations 102 164 243 245

Chg in Gross Block (345) (570) (218) (190)

Chg in Investments 0 0 0 0

Proceeds on redemption of Fin. Assets

199 464 0 0

Cash flow from investing (142) (101) (218) (190)

Proceeds / (Repayment) of Short Term Borrowings (Net)

(10) (5) 0 0

Proceeds from issue of Equity Instruments of the company

4 5 0 0

Loans 0 0 0 0

Finance Cost paid (1) (1) 0 0

Dividends paid (35 (50) (28) (28)

Cash flow from financing (43) (50) (28) (28)

Chg in cash (82) 13 (2) 27

Cash at start 106 24 37 35

Cash at end 24 37 35 61

Key Ratios FY18 FY19 FY20E FY21E

Growth (%)

Net Sales 30.4% 7.8% 8.0% 12.0%

EBITDA 66.7% 10.3% 7.4% 13.6%

APAT 75.0% 8.8% 15.4% 14.5%

Per Share Data (Rs.)

Adj. EPS 10.3 11.2 12.9 14.8

BVPS 63.6 70.3 79.9 91.4

DPS 2.5 2.5 1.7 1.7

Profitability (%)

EBITDA Margin 27.4% 28.1% 27.9% 28.3%

Adj. PAT Margin 16.8% 15.2% 16.6% 17.3%

ROCE 20.7% 20.8% 19.1% 19.3%

ROE 15.5% 13.6% 14.1% 14.4%

ROIC 22.7% 22.5% 20.4% 21.0%

Valuations (X)

PER 19.0 18.8 8.8 7.7

P/BV 3.1 3.0 1.4 1.2

EV / EBITDA 12.1 11.8 5.9 5.1

EV / Net Sales 3.3 3.3 1.6 1.4

Turnover Days

Asset Turnover 1.4 1.4 1.1 1.0

Inventory days 111.8 127.4 124.5 119.0

Debtors days 77.3 83.2 77.8 76.7

Creditors days 81.5 83.7 75.5 76.9

Working Capital Days 107.6 127.0 126.7 118.8

24 SEP 2019

24

Disclaimer

Disclosures:

The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).

1. Axis Securities Ltd. (ASL) is a SEBI Registered Research Analyst having registration no. INH000000297. ASL, the Research Entity (RE) as defined in the Regulations, is engaged in the business ofproviding Stock broking services, Depository participant services & distribution of various financial products. ASL is a subsidiary company of Axis Bank Ltd. Axis Bank Ltd. is a listed publiccompany and one of India’s largest private sector bank and has its various subsidiaries engaged in businesses of Asset management, NBFC, Merchant Banking, Trusteeship, Venture Capital,Stock Broking, the details in respect of which are available on www.axisbank.com.

2. ASL is registered with the Securities & Exchange Board of India (SEBI) for its stock broking & Depository participant business activities and with the Association of Mutual Funds of India (AMFI) fordistribution of financial products and also registered with IRDA as a corporate agent for insurance business activity.

3. ASL has no material adverse disciplinary history as on the date of publication of this report.

4. I/We, Suvarna Joshi – Senior Manager, Research, PGDM - Finance, author/s and the name/s subscribed to this report, hereby certify that all of the views expressed in this research reportaccurately reflect my/our views about the subject issuer(s) or securities. I/We (Research Analyst) also certify that no part of my/our compensation was, is, or will be directly or indirectly related tothe specific recommendation(s) or view(s) in this report. I/we or my/our relative or ASL does not have any financial interest in the subject company. Also I/we or my/our relative or ASL or itsAssociates may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Since associates ofASL are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned inthis report. I/we or my/our relative or ASL or its associate does not have any material conflict of interest. I/we have not served as director / officer, etc. in the subject company in the last 12-monthperiod.

Any holding in stock – NO

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i. Received compensation for investment banking, merchant banking or stock broking services or for any other services from the subject company of this research report and / or;ii. Managed or co-managed public offering of the securities from the subject company of this research report and / or;iii. Received compensation for products or services other than investment banking, merchant banking or stock broking services from the subject company of this research report;

ASL or any of its associates have not received compensation or other benefits from the subject company of this research report or any other third-party in connection with this report.

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Company Report

NOCIL Ltd.


24 SEP 2019

25

Disclaimer

Disclaimer:

Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to the recipient’s specific circumstances. The securities and strategies

discussed and opinions expressed, if any, in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific

recipient.

This report may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this report should make such investigations as it deems necessary to arrive at an independent evaluation of

an investment in the securities of companies referred to in this report (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. Certain transactions,

including those involving futures, options and other derivatives as well as non-investment grade securities involve substantial risk and are not suitable for all investors. ASL, its directors, analysts or employees do not take any

responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds,

changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. Past performance is not necessarily a guide to future performance. Investors are advice necessarily a guide to future performance.

Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements

are not predictions and may be subject to change without notice.

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The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. The Company reserves the right

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expressed therein.

Copyright in this document vests with Axis Securities Limited.

Axis Securities Limited, Corporate office: Unit No. 2, Phoenix Market City, 15, LBS Road, Near Kamani Junction, Kurla (west), Mumbai-400070, Tel No. – 022- 40508080 / 022 - 61480808, Regd. off.- Axis House, 8th Floor,

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DEFINITION OF RATINGS

Ratings Expected absolute returns over 12-18 months

BUY More than 10%

HOLD Between 10% and -10%

SELL Less than -10%

NOT RATED We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation

UNDER REVIEW We will revisit our recommendation, valuation and estimates on the stock following recent events

NO STANCE We do not have any forward looking estimates, valuation or recommendation for the stock

Company Report

NOCIL Ltd.


24 SEP 2019

Initiating Coverage NOCIL Ltd - Markets Mojo...The global tyre production is expected to grow at a CAGR of 3.9% over FY18-23E, with the domestic production likely to increase at a

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