Buy NOCIL Ltd For Target Rs.280 - Motilal Oswal Financial Services
On the road to recovery after two quarters of downturn
* NOCIL is the largest manufacturer of rubber chemicals in India, with a domestic and global market share of ~40% and ~5%, respectively. Having a rich experience of over four decades, it is a one-stop shop and a dependable supplier of rubber chemicals. The company provides a range of 20+ products. It is part of the Arvind Mafatlal group, with Mr. Hrishikesh A. Mafatlal serving as the Executive Chairman and a Promoter Director of the company. We visited the company’s Dahej plant last week. The management was represented by Mr. S R Deo, MD, Mr. Anand V S, Deputy MD and Mr. P Srinivasan, CFO. Below are the key highlights from the plant visit:
Huge land parcel still available for future expansion
* The plant is spread across two land parcels of 50 acres and 10 acres each. The 50-acre land is for manufacturing, whereas the other is for logistics; 55% of the 50-acre land and 20% of the 10-acre land are utilized, leaving a huge scope for future expansion.
* The Dahej plant was built with in-house expertise and management believes it would take 15 months to build a similar plant post-receiving all approvals.
* The total capacity of 110ktpa is spread 50:50 across Navi Mumbai & Dahej sites with neither sites having any fungibility. About 95% of valuables from effluents are recovered; the rest is treated using soil enzymes.
Understanding the product dynamics
* Half of the 23 products are used in tyre applications, rest in non-tyre applications. 4ADPA was commissioned in 2012, accelerators in 2018, and antioxidants in 2019. ADPA is the intermediate for PX-13; it is also the most complex in terms of chemistry with 5-6 steps of reactions.
* Specialty chemicals account for ~25% of revenue and ~20% of volumes. Some accelerators for the company are NaMBT and Sulphonamides. PX-13 is 33% of global rubber chemicals consumption, while for NOCIL, it is slightly higher.
* The top 5 customers would account for 35% of total revenue while the top products for the company are PX-13 (anti-oxidants), TDQ, CBS (accelerators) et al. The revenue split between the product categories are: Anti-oxidant – 52%, accelerators – 43%, and rest – 5%.
* In terms of global competition, China Sunsine is mostly present in tyre applications, that too in accelerators. Senex & Chemi are two smaller players in addition to China Sunsine (20% of global capacity – 254,000mt total capacity including 50k of Insoluble Sulphur; this capacity is for the end-products)
Valuation and view
Management guided for debottlenecking in its existing units by Aug/Sep’23, even as it evaluates its plans for the next three-to-five years. Currently, specialized products constitute 25% of its total revenue with limited room for expansion (industry standard is less than 10%)
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