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Muted outlook with limited near-term growth prospects

Operating performance below our estimates

* 1QFY26 was a muted quarter for NOCIL, with revenue declining 10% YoY to INR3.3b, while EBITDA margin contracted 190bp YoY to 8.8% due to continued pricing pressure in the domestic market.

* While export volumes have begun to moderate, we factor in the weak domestic market outlook—driven by sustained pricing pressure amid high competitive intensity and a global slowdown in latex—and accordingly cut our FY26/FY27 earnings estimates by 12%/10%. We reiterate our Neutral rating on the stock with a TP of INR190, based on 25x FY27E EPS.

Soft quarter impacted by lower volumes and realizations

* NOCIL reported revenue of INR3.4b (est. of INR3.5b), down 10% YoY, due to a decrease in sales volume by 8% YoY to 13.5tmt.

* Gross margin stood at 42.5% (up 80bp YoY), while EBITDA margin contracted 190bp YoY to 8.8% due to a decrease in realization by 2% YoY to INR249.7/kg (INR255.3/kg in 1QFY25), driven by dumping pressure in the domestic market.

* Employee cost as a % of sales stood flat YoY at ~7%, while other expenses as a % of sales stood at ~27%, compared to ~24% in 1QFY25. ? EBITDA stood at INR296m (est. of INR400m), down 26% YoY, and PAT decreased 39% YoY to INR166m in 1QFY26 (est. INR252m).

* EBITDA/kg stood at INR22 in 1QFY26 (est. ~INR29), down 19% YoY.

Highlights from the management commentary

* Anti-dumping Duty: In order to mitigate the impact of dumping in the domestic market, the company has filed anti-dumping petitions with the Indian government for certain products, which collectively contribute around 40-45% of its total revenue. These petitions are currently under investigation, with outcomes anticipated over the coming months.

* Capex: Ongoing capex of INR2.5b is underway, with 30% already spent as of Mar’25. New capacity is expected to contribute from 2HFY27 onwards, with the commercialization of new products anticipated by the end of the year. * Latex: The company indicated that US tariffs and geopolitical factors have adversely impacted latex product exports, resulting in moderated growth. Management anticipates a temporary softness in demand from latex-based customers in upcoming quarters, while structural growth is expected to continue in the non-latex segment, supported by ongoing customer diversification efforts.

Valuation and view

* NOCIL is focused on expanding its capacity, with the new facility expected to come online in FY27. The company is also working on diversifying its geographical presence beyond the US into regions such as Europe, Asia, and Latin America to mitigate uncertainties related to US tariffs.

* However, we expect pricing pressure in the domestic market to persist, driven by heightened competitive intensity. Additionally, the slowdown in auto components and latex industries is likely to continue, weighed down by weak demand trends and limited near-term recovery catalysts.

* Consequently, we revise our FY26/FY27 earnings estimate downwards by 12%/10% and reiterate our Neutral rating on the stock with a TP of INR190, based on 25x FY27E EPS.

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