It was a tough Q2 FY24 concall for NOCIL management as the analysts grilled the management for a stagnant quarter and lack of concrete plan of action for the future.
Some highlights:
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On a sequential basis, the company had a marginal degrowth in volumes on a quarter-on-quarter basis. The volumes in the domestic market remained flattish, company experienced a decline in export volume. For the quarter volume degrowth is about 4% and selling price de-grew by 7.5%. So total revenue degrowth of 11.5 % Exports are more or less in the range of 30% to 35% of the volumes for the quarter and also for H1. Capacity utilization for Q2 was about 65 %
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But on a YoY basis, the company has grown significantly in exports in Q2 because the low base has been corrected now because of additional volumes traction coming in from non-latex products. Domestic market – there is a small volume growth in single digit.
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Exports break up – about roughly close to 20%, 25% would be in Europe, about 50% in Asia and 25 % is Americas. In terms of new capacities coming up, the management said we are not really hearing of significant expansions in these markets.
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Due to the lack of domestic demand in China and the lukewarm demand in their predominant export market, there has been a significant influx of heavily discounted imports from China.
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The latex part of revenues has come down due to latex demand going down. The management said we see that the non-latex part that comprises of the tire sector and the tire companies has been going up. So that has compensated for that part that has been going down.
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Overall demand per se has come down.
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Latex was 30% in the overall export basket earlier (post covid peak), that has trickled down to about 12% or thereabout now, whereas the non-latex which was earlier 70 is probably about 85, 88 or something like that today. Non-latex market is more sustainable.
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Specialty percentage has dropped down. It’s below 15%. Latex is specialty.
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Nothing to report on the capex for adjacencies, said the management.
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Company looking at renewable power generation which will come next year.
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In future, in the domestic market NOCIL already has a high market share. So, the growth will always come from plus or minus – more on the plus side of a few hundred basis points compared to the growth of the industry because they have a sizable market share already. Whereas the growth in the international markets, where it has a much lesser presence, would significantly be higher.
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For Q3, the management said there have been some price corrections (i.e. improvement). But they would expect that if there is lower demand in China, pricing pressure cannot be ruled out. At least next quarter and a couple of quarters, volumes should trend slightly on the positive side.
Overall, the management blamed the global demand slowdown and Chinese dumping for the muted performance. But many analysts seemed unconvinced and grilled the management on various counts.
One analyst noted that the markets such as Indonesia, Vietnam, Thailand have started showing the improved demand. The demand has picked up there. Even if we see their July, August tire output data, that is up close to 15% on a Y-o-Y basis. And the September month also shows the increase in their ASPs, like average selling price of close to 23% with the commensurate increase in the aniline prices, which was close to 19%. Another one pointed out H1 of China Sunsine and H1 of this calendar year ’23, they have shown some 10% volume growth. Even last year, their base was also very high. So, on that 90,000 tons of volume, their volume was close to 1 lakh tons. So, they have shown 10% growth. One analyst said our competitor have expanded the capacity recently but are operating at a low utilization (i.e. there is risk of further dumping). It was also pointed out China Sunsine are adding a 30,000-ton capacity, that could come by December end. But they are using it for their captive consumption. One analyst said why we are getting impacted with the demand slowdown in the industry. I would have understood it if we had a very high market share, like 40%, 50%. But since our starting positions in global markets are very low, then why is the demand slowdown impacting us so drastically? One analyst said U.S antidumping on Chinese rubber chemical is getting over next year but the management said they expect it to get extended. Also, it does not impact pricing though some volumes may be impacted if it does not happen.
Overall, things still look tough for the company. Positive triggers include improvement in China, improvement in US / Europe and improvement in latex demand in SE Asia. What I find disconcerting is any lack of proactive steps on the part of the management (so far) to utilize / return surplus cash or diversify into new revenue streams.
My views and position remain the same, as mentioned in the previous post.
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