Weak Q4, Concerns around ADD remain, Growth story intact, Maintain BUY
NOCIL reported much lower than expected operational performance led by poor product mix, higher RM cost & lower realizations, despite beat on volumes. Volumes grew by ~14% YoY & ~7% QoQ (~5% higher than our estimates) supported by stronger momentum in domestic as wells as international business. Domestic volumes witnessed single digit growth primarily driven by GST implementation & international markets also posted a steady single digit growth underpinned by converting long-standing customer engagements and strengthening customer partnerships. Conversion cost (Lower P&F, freight & utilities cost) stood at lowest of last 20 quarters thereby supporting EBITDA. Despite higher volumes, Revenue de-grew by ~3% YoY led by lower realization. Higher competitive intensity from low-cost dumping from China, Korea etc has impacted EBITDA & gross spreads per ton, coupled with US tariff related issues led to weakening pricing. Removal of US tariff uncertainty & India EU FTA presents a better picture for growth in select geographical markets. The icing on the cake could be the ADD imposition by the finance ministry (expected in middle of June 2026 end) wherein DGTR has already recommended the duty Rs ~40 per kg which could materially benefit Indian players & significantly support the growth dynamics. Even if ADD is not imposed, the benefits of lower cost & improved demand sentiment will support the margins & spreads per kg. The long-term growth story remains structurally positive for NOCIL, led by tyre players expanding capacity & investing to the tune of Rs200-250bn over FY26-28E leading to increased usage of rubber chemicals. Management stated that NOCIL is well placed & will be able to manage the negatives currently faced by rubber chemical players & expects long-term outlook to be good because of robust tyre & replacement demand. The volume growth for FY26 is ~3% (despite -ve growth in H1) & expect double digit for FY27E considering the TDQ expansion of Rs2.5bn slated to commence in the coming quarters. We see fortunes turning around for NOCIL & factoring removal of uncertainties just present a case for reversal, although ADD imposition likely in next 2 months is a key factor to watch out for. Lowering conversion cost, Double digit volume growth, better export market, margin weakness behind now are the positives. We have factored in ADD impacts in our estimates wherein company will grow its (EBITDA/PAT CAGR of ~80%/89% from FY26E28E). We feel this is the opportune time for long term investors to invest in the company. Hence, we maintain our BUY rating on the stock with a target price of Rs 320 per share, ~78% upside. Please note, in case ADD does not get imposed then our estimates have material downside risk.
Q4FY26 reported poor gross spreads near to 4-year lows, higher imports a major cause of concern
Realization declined by ~14% YoY & ~2.4% QoQ because of higher imports leading to weak pricing power & US tariff impact. The company’s gross spread per kg declined by ~19% YoY & ~8% QoQ to Rs ~85.3 per kg in Q4FY26 led by poor product mix & higher competition. Higher conversion cost led to EBITDA spreads declining by ~46% YoY & ~27% QoQ.
Imports are coming into India from China, Korea & other countries but in recent quarter import intensity has significantly increased which looks negative for NOCIL in the near term, we feel it’s a one-time affair & imports intensity will gradually come down, also the company has taken steps to mitigate the risk. Removal of US tariff & India EU FTA provides some visibility of growth. Concern now remains around ADD. If ADD is imposed, it will significantly change the game for NOCIL. Even otherwise we still see much headroom for growth as other variables are now in control.
The company reported EBITDA spreads of Rs 18 per kg for FY26 & we model in EBITDA spreads of ~Rs 31.4/41 per kg for FY27E/28E respectively, factoring in growth of ~78%/~29.5% on FY27E/28E respectively considering ADD benefits.
Volumes remains better than estimates, double digit volume growth for next 2 years, capex mode continues
In Q4FY26, volume grew by ~13.6% YoY & ~7% QoQ (Higher by ~5.4% than our estimates). The growth in volumes is supported by stronger domestic market & higher volumes in exports despite tariff related uncertainty. With domestic tyre companies increasing capacity and investing close to Rs200-250bn over FY26-28E, we feel there is no worry on incremental demand growth for the next 3 years. Considering all this, management has guided for double digit volume growth for FY27E.
We expect NOCIL to report volume CAGR growth of ~13.4% from FY26E-28E.
The company is also expanding its capacity of rubber chemicals by 20% on base capacity with a capex of Rs2.5bn. This should support volume growth in FY27E. Smaller quantum will come in FY27E, a bigger chunk will come in FY28E. Valuations
We feel most negatives are now behind except concerns around ADD. Lowering conversion cost, Double digit volume growth, better export market, margin weakness behind now are the positives. After DGTR recommending provisional ADD, we felt its prudent to factor in ADD numbers as of now & with this the company will grow its (EBITDA/PAT CAGR of ~80%/89% from FY26E-28E).
We value the stock as of March 28E. Currently, the stock is trading at ~14x in March 28E. We increase our target multiple to ~25x P/E (earlier 22x) because of ADD positives and arrive at target price of 320 per share which indicates upside of ~78% from the current level. Hence, we maintain BUY rating on the stock.
Note: If there is any delay or no ADD imposition, there could be material downside to our estimates
NOCIL Ltd – Q4FY26 Result Update – SMIFS Institutional Research
