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Volumes fare better but pricing pressure continues

* NOCIL's EBITDA/kg declined 13% YoY to INR31.1 in 4QFY24, missing our estimate. Sales volumes increased 1% YoY to 14tmt. Realization was down to INR255/kg (-11% YoY) due to continued pricing pressure from Chinese suppliers. Hence, EBITDA declined 11% YoY to INR434m, while PAT rose 45% YoY to INR411m as other income was higher because of the sale of fixed assets to the tune of INR180m.

* Management highlighted that demand from the domestic market remained robust, but pricing pressure from Chinese suppliers continued. The export market has also picked up, and management expects this growth to continue going forward as well. NOCIL believed that FY24 volumes could be taken as a base for FY25. Although it believed that the situation has bottomed out, there is still no guidance with respect to optimum utilization of current capacities.

* The Indian tyre market is likely to see mid-single digit growth in FY25, aided by stable demand from the replacement market and OEMs (especially PVs). In light of the strong demand outlook, NOCIL is also expanding its capacities in rubber chemicals, which is projected to come online in 2HFY27 (capex of INR2.5b). It has taken a couple of strategic initiatives that are already gaining decent traction.

* We estimate a revenue/EBITDA/PAT CAGR of 15%/31%/28% over FY24-26 (primarily due to the lower base in FY24), with utilization likely to pick up not before FY26. Volumes are anticipated to clock a CAGR of 15% over FY24-26. The downside risk to our volume estimates could be higher pricing pressure from Chinese suppliers and lower utilization levels of existing capacities.

* NOCIL currently trades at a premium of ~38% to its ten-year average of 17.4x on a one-year forward P/E basis. The stock is also trading at 20x FY26E EPS of INR13 and ~13x FY26E EV/EBITDA. Our TP of INR260 is valued at 20x FY26E EPS, which is premised on ~0.9x PEG ratio.

Marginal beat on EBITDA, higher other income drives a significant beat on earnings

* NOCIL’s revenue came in at INR3.6b (est. of INR3.1b, -9% YoY) in 4QFY24. Gross margin was 42.1% (v/s 40.6% in 4QFY23)

* EBITDA was INR434m (est. of INR405m, -11% YoY). EBITDAM came in at 12.2% (v/s 12.5% in 4QFY23).

* PAT was INR411m (est. of INR257m, +45% YoY) due to other income, which was significantly higher at INR249m vs. our expectation of INR78m.

* The BoD has approved the appointment of Mr. Prasanna Pandit as the President of Operations and Technical w.e.f. 1st Jun’24. He has 32 years of experience with global and Indian companies spread across Asia-Pacific, China, and Europe.

* In his previous role, he was associated with Gujarat Fluorochemicals and in the past he has also worked with Shell, RIL, and Herdillia Chemicals.

* For FY24, revenue was INR14.4b (-11% YoY), EBITDA stood at INR1.9b (-24% YoY), while PAT was INR1.3b (-12% YoY). EBITDAM was 13.1% (-230bp YoY).

* The BoD approved a final dividend of INR3/share (30% of FV) for FY24.

Operational details

* Sales volumes grew 1% YoY to ~14tmt (27% above our estimate). Export volumes continued to exhibit growth.

* Realization declined 11% YoY to INR255/kg, while EBITDA/kg declined 13% YoY to INR31.1. Selling prices remained subdued.

Valuation and view

* NOCIL is expanding its capacities in anticipation of robust demand, which is expected to come online in 2HFY27, with top three global players also expanding their respective capacities. A pickup in China’s domestic consumption would be key to the easing of pricing pressure for NOCIL, which we do not see happening in the near term. There is still no timeline for optimum utilization of its existing facilities.

* NOCIL currently trades at a premium of ~38% to its ten-year average of 17.4x on a one-year forward P/E basis. The stock is also trading at 20x FY26E EPS of INR13 and ~13x FY26E EV/EBITDA. Our TP of INR260 is valued at 20x FY26E EPS, which is premised on ~0.9x PEG ratio.

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