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Headwinds continue persist Quick Pointers:

* Competition from China, Korea and EU continues to impact prices & volumes, remains a key concern

* Overall capacity utilization at 70%; utilization varies across products

NOCIL reported a topline of Rs3.6bn (PLe: Rs3.9bn), reflecting a sequential decline of 2.5%. This decrease is attributed to a modest drop in volumes due to logistics challenges, though realization remained largely flat on a QoQ basis. Based on our calculations, average realization stood at Rs254/kg, a YoY decline of 6%. Sales volume grew by 11% YoY; however, EBITDA/kg dropped by 25% YoY, impacted by higher operating expenses due to increase in production activity and freight cost. Overall capacity utilization was at 70%, though usage varies significantly across product lines. To support high-demand rubber chemical products that are already running at high utilization rates, the company is investing Rs2.5bn in capacity expansion. These additional capacities are expected to come online in H2FY27, though peak utilization across the portfolio is not anticipated for another 1.5 to 2 years. Near-term headwinds are likely to continue impacting performance. The stock is currently trading at ~32x FY26E EPS. We maintain ‘Reduce’ rating with a TP of Rs256, valuing the company at 27x FY26/FY27 EPS.

* Volumes degrow by 2% QoQ: Consolidated revenue stood at Rs3.6bn, 3.4% YoY/ -2.5% QoQ (PLe: Rs3.9bn, Consensus: Rs3.9bn). H1FY25 revenue was at Rs7.3bn, down 1.7%. Gross profit margin at 43.3% (vs 43.5% in Q2FY24 and 41.6% in Q1FY25), increased QoQ by 170bps due to modest decrease in raw material cost.

* EBITDAM margin shrinks by 250bps YoY: EBITDA decreased 16.5% YoY and 8% QoQ to Rs378mn (PLe: Rs455mn, Consensus: Rs458mn). EBITDAM stood at 10.4% (PLe: 11.7%) as against a margin of 12.9% in Q2FY24 and 11% in Q1FY25, decreased due to increase in operating cost. Reported PAT stood at Rs421mn, up by 55.2% YoY/ 55.7% QoQ, due to additional tax credit on account of revised LTCG tax rate. PAT margins were at 12% vs 8% in Q2FY24 & 7% in Q1FY25.

* Concall takeaways: (1) Volumes increased by 11% YoY, but decreased by 2% QoQ in Q2FY25, impacted by logistics challenges. (2) Domestic demand continues to be robust, driven by domestic tire industry growth. (3) Competition from China, Korea and EU continues to impact prices & volumes, remains a key concern. (4) Exports showed double-digit growth on YoY basis in Q2FY25. (5) Latex business is witnessing mild recovery, and exports are improving. (6) The Red Sea crisis has led to higher freight charges and logistics challenges. (7) NOCIL has a negligible market share in the international market; it looks at this as a growth opportunity. (8) Dahej capex is focused on expansion of rubber chemical capacity by 20%, which is expected to come online by 30-35 months from date of announcement (Apr’24). (9) Existing capacity utilization is 70%. (10) The company has not applied for antidumping duty yet, currently they are studying the impact of competition.

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