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Building long-term resilience

* NOCIL faces challenges of flat demand trends and import pressures in the short to medium term. However, the company expects improvement in 1HCY25. It has also filed a plea for anti-dumping duty (ADD) on Sulphenamides Accelerators, which form ~45% of its portfolio.

* NOCIL aims to build long-term resilience through export growth, innovation, portfolio expansion, and diversification in the non-rubber segment, with initiatives expected to yield results in three years.

* NOCIL currently trades at a premium of ~51% to its long-term average of 19.1x on a one-year forward P/E basis. The stock is also trading at 26x FY26E EPS of INR8.7 and 18x FY26E EV/EBITDA. Our TP of INR235 is premised on 20x Dec’26E EPS. Reiterate Neutral

Pressure likely to persist in the short to medium term

* NOCIL is experiencing challenging times currently, with no green shoots visible in the near future. Demand trends have also been flat. However, the company expects the business to improve 1HCY25 onward, when volumes are expected to see a stable trend and prices are expected to grow. Chinese consumption has not recovered as expected, because of which the Chinese government has been announcing stimulus packages at regular intervals.

* Hence, China Sunsine (global leader in rubber chemicals) has been able to keep pace in terms of volumes during these times. In our various interaction with the management, NOCIL has highlighted that competition from Chinese companies has always been there and NOCIL follows China Sunsine for prices, but in terms of per-kg margin, NOCIL is better off on 1/3rd capacity of China Sunsine.

* NOCIL has also been facing pressure from imports, which have been hurting its margin. DGTR has earlier rejected its plea for ADD on one product (PX-13). NOCIL has again filed an ADD application with DGTR for a couple of Sulphenamides Accelerators imported from China, European Union and the US. Accelerators account for ~45% of NOCIL’s product portfolio.

Building long-term resilience

* NOCIL has been having fruitful discussions with customers as reflected in CY24 when exports grew in double digits. The management has greater visibility that the business should pick up. Some quarterly aberrations could be expected in the short term, but that would be majorly because of the nature of contracts with customers.

* NOCIL is also studying new applications of existing products and expanding its portfolio through new products, which should boost margins. Specialty makes up 17% of the total portfolio, down from 25% earlier due to a slump in the latex market. NOCIL is also considering technological tie-ups for inorganic growth as well.

* All in all, NOCIL aims to build long-term resilience in its core business operations through continuous innovations to safeguard itself from pricing pressure from Chinese supplies. In the non-rubber business, it is looking at adjacent chemistries. These initiatives should bear fruit in the next three years

Valuation and view

* NOCIL is expanding its capacities (20% of the current capacity of 110ktpa) in anticipation of a demand uptrend in the near term. The new capacity is expected to come online by Sep’26. The top three global players are also expanding their capacities. The pickup in China’s domestic consumption is expected to play a key role in easing pricing pressure for NOCIL, though we do not anticipate this to happen in the near term. There is currently no timeline for the optimum utilization of its existing facilities.

* NOCIL currently trades at a premium of ~51% to its long-term average of 19.1x on a one-year forward P/E basis. The stock is also trading at ~26x FY26E EPS of INR8.7 and ~18x FY26E EV/EBITDA. Our TP of INR235 is premised on 20x Dec’26E EPS. Reiterate Neutral.

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