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Global expansion and capacity additions crucial for growth

* NOCIL is poised to benefit from the rising global demand for rubber chemicals, expanding its market share through strategic sales, diversification, and operational efficiency while navigating strong competition and volatility in raw material prices.

* NOCIL is investing INR2.5b in growth-focused capex for capacity expansion at its Dahej and Navi Mumbai facilities, aiming for long-term market leadership and sustainability by enhancing production and adopting green technologies.

* It currently trades at a premium of ~38% to its long-term average of 17.9x on a one-year forward P/E basis. The stock is also trading at 23.2x FY26E EPS of INR12.3 and 16.3x FY26E EV/EBITDA. Our TP of INR305 is premised on 25x FY26E EPS (~0.7x PEG ratio). Reiterate Neutral.

Focus on global expansion amidst tough competition

* The demand for rubber chemicals is expected to rise, driven by growth in the tire, automotive, and EV markets, along with infrastructure development. NOCIL is expected to leverage its expertise and expanded capacity to meet the global demand.

* NOCIL plans to strengthen its global footprint in rubber chemicals by expanding sales in Asia, Europe, and the US. It aims for a double-digit global market share, focusing on customer relationships and China +1 and Europe +1 strategies in the medium to long term. The company is diversifying into non-tire applications and emerging sectors such as electric vehicles.

.* However, it faces strong competition from Chinese (China Sunsine) and global players, leading to price pressures and margin impact. Volatile raw material prices are also a risk. That being said, the company is enhancing its operational efficiency and product differentiation to address these challenges. Further, it leverages strong supplier relationships to source RMs.

Capacity expansion crucial to support growth.

* NOCIL’s capex is growth-focused and the company aims for long-term market leadership by expanding capacity to serve its growing tire and non-tire customer base. Ongoing projects are expected to boost production and sustainability. These investments are expected to drive significant returns through increased capacity and cost efficiencies.

* NOCIL has committed INR2.5b for capacity expansion (expected to come online in 2HFY27), mainly at its Dahej facility, to meet the rising demand for rubber chemicals domestically and internationally. This aligns with its long-term strategy for sustainable growth and market leadership. The capex also includes modernizing processes and adopting green technologies to boost energy efficiency, cut emissions, and lower costs.

* The Dahej site, strategically located at key ports and the petrochemical industry, is the focus of its expansion. NOCIL has also invested in its Navi Mumbai plant to enhance precision in rubber chemical manufacturing as part of its drive for operational excellence.

Valuation and view

* NOCIL is expanding its capacities (20% of the current capacity of 110ktpa), in anticipation of demand being robust, which is expected to come online in 2HFY27, with the top three global players also expanding their respective capacities.

* The pick-up in China’s domestic consumption is expected to play a key role in easing pricing pressure for NOCIL, though we do not anticipate this happening in the near term. There is currently no timeline for the optimum utilization of its existing facilities, but management anticipates achieving this within the next 1 to 1.5 years.

* NOCIL currently trades at a premium of ~38% to its long-term average of 17.9x on a one-year forward P/E basis. The stock is also trading at 23.2x FY26E EPS of INR12.3 and 16.3x FY26E EV/EBITDA. Our TP of INR305 is premised on 25x FY26E EPS (~0.7x PEG ratio). Reiterate Neutral.

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