Sell Nocil Ltd For the Target Rs.150 by Axis Securities Ltd
Pricing Pressure Continues; Global Uncertainties Adding to the Woes
Est. Vs. Actual for Q2FY26: Revenue: Largely INLINE; EBITDA: MISS; PAT: MISS
Change in Estimates post Q2FY26
FY26E/FY27E: Revenue: 0%/-5%; EBITDA: 0%/-5%; PAT: 0%/-6%
Recommendation Rationale
* Subdued Performance: The company posted a modest 4% QoQ increase in volumes, while revenue declined 5% sequentially. Domestic sales remained resilient; however, export volumes were impacted by global macro headwinds and U.S. tariff-related challenges. Management expects steady growth in domestic volumes and gradual market share gains over the coming quarters. Despite a subdued first half, it remains confident of closing the fiscal year with positive volume growth.
* Pricing Pressure Persists: Revenue contraction was largely driven by sustained pricing pressure stemming from aggressive dumping by Chinese, Korean, and European rubber chemical manufacturers. Near-term headwinds remain, with management focusing on pricing discipline, product mix optimization, and cost control to limit margin dilution. While pricing appears close to the bottom, management refrained from giving a definitive recovery timeline. Cost and efficiency measures are expected to reflect more meaningfully by Q4FY26, supporting profitability. Growth momentum is expected to recover in FY27, even if competitive pricing conditions persist.
* Uncertain Recovery Timeline: Management remains constructive on volume recovery, supported by the revised tax structure, improving replacement demand, revival in the automotive sector, and increased infrastructure spending. A pricing rebound is anticipated in line with broader economic recovery, although visibility on timing remains limited. The company indicated that the government has acknowledged the merits of its submissions for Anti-Dumping Duty on select products; however, the final outcome will depend on regulatory processes and timelines.
Sector Outlook: Negative
Company Outlook & Guidance: NOCIL continues to struggle to strike a balance between pricing and volumes. While the management maintains a positive outlook on growth prospects with demand recovery in key sectors, uncertainties are expected to prevail in the near term.
Current Valuation: 17x Sept’27E (Earlier Valuation: 17x FY27E)
Current TP: Rs. 150/share (Earlier TP: Rs 150/share)
Recommendation: We maintain our SELL Rating on the Stock.
Financial Performance: NOCIL reported revenue of Rs 321 Cr, down 12% YoY and 5% QoQ, broadly in line with expectations. EBITDA stood at Rs 22 Cr, declining 41% YoY and 27% QoQ, missing estimates by 23%. EBITDA margin compressed to 7.0% versus 10.4% in Q2FY25. PAT came in at Rs 12 Cr, down 71% YoY and 30% QoQ, compared to expectations of Rs 15 Cr.
Outlook: NOCIL continues to operate in a challenging environment, characterized by persistent competitive pressure in the domestic market and muted volume traction. The ongoing ADD investigations remain unresolved and may take longer to conclude, creating uncertainty around market dynamics. In the meantime, the company’s performance will hinge on its ability to scale export volumes in alternative markets (Ex US) and accelerate new product introductions. That said, tariff-related risks and regulatory overhang are constraining export momentum, indicating sustained near-term headwinds for growth and profitability.
Valuation & Recommendation: We have rolled forward our estimates to FY28E, while revising FY27 estimates downwards as we expect the recovery to be delayed. We now value the stock at 17x Sep’27E EPS (earlier – 17x FY27E), with an unchanged target price at Rs 150/share. Given the lack of near-term catalysts, sustained pricing pressure, and delayed recovery visibility, we maintain our SELL rating, implying a potential downside of 17% from current levels.
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