NOCIL Limited ~ One-Stop-Shop for Rubber Chemicals in India

I think I finally found the answer.

• For Q4 FY24, volume increased 12 % Q-o-Q but selling price dropped by 6.5 %. Domestic volumes grew in high single digits while export volume growth was higher. Operating profit for Q4 was down from Rs.50 crore to Rs.45 crore.

• Full year FY24 recorded a volume growth of 9 % in export segment while domestic was flattish, giving an overall volume growth of 2 %. Most of the growth was in non latex chemicals.

• Margins declined but the situation has bottomed out, says the management.

• Between FY22 and now, the latex market has degrown by 40 %. In the Q4 FY24 concall, one analyst noted that there is some improvement in this in the last one month.

• Aggressive dumping from China and other markets continue. This will go on until domestic consumption in China picks up. Demand growth in key destinations such as US and Europe remains muted.

• One analyst noted that the top three Chinese players are further adding capacity in accelerator as well as antioxidants.

Overall, things look grim, don’t they.

• Meanwhile, work has begun on a Rs. 250 crore expansion at Dahej. Though overall capacity utilization is at just 65 %, the products that the company is planning to expand in here are running at peak capacity, hence the need to invest to capture further growth, says the management. The capacity will get operational in the second half of FY27.

• Work on diversification into new chemistries is continuing, says the management but no further details are announced.

In the concall, one analyst noted that the molecules the industry uses have been as it is since past 50 – 60 years and nothing much has changed. Also in terms of the operational efficiencies through improvement in processes, most of the benefits have already been extracted. So the scope for incremental improvement is also limited. I wonder if this explains why almost nothing seems to change at NOCIL as well, not just in term of products and processes but thinking as well. As a debt free company in a capital-intensive business and an extremely efficiently run operation, I have often wondered why NOCIL cannot achieve more. The business remains hostage to what China does, with no efforts by the management to derisk or diversify. The Rs.250 crore expansion will not change this structural vulnerability to external factors.

The company is sitting on more than Rs.400 crore of cash and generates almost Rs.150 crore of FCF per year. If nothing else, annual cash flows are good enough to buyback a whopping 3 % of share capital every year. Even the appointment of a new CEO – often a harbinger of change – seems to have not made a difference. Some out-of-the box thinking, some risk taking, some dynamism is what I would like to see at NOCIL.

(Disc.: Invested)