Notes from NOCIL Q1 FY23 concall:

1. Capacity utilization was 75%. Realization was flat.

2. Expecting 10% volume growth for H1 FY23 (this implies a 0-4% volume growth in Q2 as per my calculations)

3. Optimum capacity utilization target of Sep 23 will get extended by 3 to 6 months due to moderation in demand.

4. Debottlenecking exercise will take 12 months, which will satisfy demand for another 1 to 2 years. Capex for this is very small. How much the capacity will be enhanced due to this is not revealed, but one can take around 10 – 12 % per annum growth and calculate.

5. During the quarter, volume growth was largely from domestic business as there have been changes in the geographical dynamics. Exports are Rs.165 crores for the quarter, lower this quarter but overall, they are increasing for us. Our normal domestic market share is 42-43 %.

6. Following HS Codes for rubber chemicals is misleading as the code may contain several items which we are not manufacturing, and some of our items may be in other HS Codes.

7. Dahej land utilization is around 50-60% and there is scope for brownfield expansion. Navi Mumbai land is almost 100% utilized.

8. In a declining RM pricing scenario, so far delta has been maintained by the players, but need to see how it goes along.

9. From Oct – Nov 20, we have seen a shift in the strategy of Chinese manufacturers. They are adjusting their prices according to the RM price movements (I think what is implied is that there is no rampant dumping by the Chinese players).

10. New capacities are not coming up other than China Sunsine which is already known.

11. Government is now-a-days rejecting most of the anti-dumping duty recommendations.

12. Rubber chemicals global demand is 10.50 lac TPA i.e., 3.5% of global rubber consumption.

13. Anti-dumping duty was Rs.45 crores per annum in FY17 to FY19 . You can exclude that while calculating the EBIDTA margin.

14. One of the key things export customers are looking for is how assured is the supply i.e., commitment to delivery schedules.

15. About 25% revenue is coming from value added / speciality chemicals and we intend to maintain that. In overall scheme if things, this market is may be 5% of the overall market. As against that we are at 25%. So, to grow beyond this will be difficult.

16. Among non-Chinese manufacturers, we are World no 1 when it comes to capacities, all around product portfolio and self-sufficiency of intermediates which is a key aspect in this business. Two major non-Chinese players are – Lanxess which has dependency on China for their intermediates and Eastman (sold to One Rock Capital) which is a single product portfolio.

17. If US removes anti-dumping duty on Chinese rubber chemicals, at the most we may grow slower than at present. But there will be no loss of existing volumes.

18. Some new products are in the pipeline.

19. Europe demand is 12 % of the world market and supply is 15% for Europe incorporated entities. Europe production may be around 10% (just a guess).

Disc: Invested.

So finally the dividend policy. Its an year too late but hopefully they giveaway a good chunk of it. Don’t want a low ball dividend to please the shareholders. I don’t really see any CG issues since the management started getting good people on board, but 35% cash in hand has been my biggest Red flag.

Disc – Invested, 3% off PF

Excellent results.

All positive but few negative points in the presentation :

“IPA sales volumes decreased by 42% y-o-y in Q1 mainly due to raw water
shortage and inability to pass through the rising cost of propylene raw
material and fuel. ” IPA business once in lime light during COVID period is now below breakeven…

“Demand and pricing for all grades of Nitric Acid are relatively subdued as it is typically expected during the monsoon season.”
Q2 results are expected to be muted…

“In Q1 FY23, TAN Business achieved a capacity utilization of 111%. Volumes were supported by continued demand from Coal as reflected in Coal India’s and SCCL’s OB performance”
Tan business seems to be at peak volume with no capacity left for further volume growth, further TAN demand is muted in monsoon season becasue of lower mining activity…

There is an element of cyclicality in the business and Q1 apparently seems to be at peak performacne.

Gland – In the concall Mr. Sadu said impact is due to syringe supply constraints, but in Reddys latest concall, they said there is no such issue experienced by them. (It is evident there is huge demand for syringes all over the world for vaccines ) How to understand these kind of statements (in terms of management honesty / integrity ) ?

Question asked in Hitesh bhai’s portfolio thread by @Rafi_Syed @hitesh2710

My thinking
Syringes required for different products are different
Gland uses (as I know famous BD syringes and device)
Some of them are glass syringes for specific measured doses

Some high viscosity medicine are difficult to inject (usually done by support staff) (some time at home)required some locking system and flanges proper holding

All this syringes and devices are preapproved by regulators so you cannot change overnight

Now coming to the Dr Reddy’s concall comment
They have only 15% revenue from injectable(how much prefilled syringes i don’t know) (how much in US market)and maybe having different products, even in previous calls of gland Pharma… Gland is making products for Dr Reddy’s

Just taking small statement out of context and making big on social media (twitter) is trending
personally I take it as personal bias of some analysts
Ultimately time will tell the truth

(Syringes supplied with ampules & muti dose vials are just commodities)