NOCIL Research Report By ICICI-Direct

Industry leader well poised for growth.. .

We recently met P Srinivasan, the Chief Financial Officer (CFO) of Nocil Ltd (Nocil) to get an insight into the global rubber chemicals industry and the company’s role in the value chain. Nocil, an Arvind Mafatlal Group enterprise, is India’s largest rubber chemicals manufacturer with a rich heritage spanning over four decades. It is an approved vendor at most domestic and global tyre manufacturers. Its wide product range, global presence and technical know-how make it the most strategic alternative to its Chinese counterparts. It follows an integrated approach wherein it manufactures intermediates as well as a wide range of final products across two manufacturing facilities in Navi Mumbai and Dahej with an installed capacity of 53000 tonne. As of FY15, it commands a market share of ~5.6% of the global and ~42% of the domestic rubber chemical industry, pegged at ~9.45 lakh tonne and ~65000 tonne, respectively. Citing capacity constraints (operating in 90%+ capacity utilisation levels) and robust demand for its product offerings, Nocil is undertaking a major expansion with an estimated capital expenditure of Rs 170 crore (funded through internal accruals) and expected commissioning by H2FY19E. In FY16, sales were at Rs 715.2 crore, EBITDA at Rs 139.4 crore (EBITDA margins 19.5%) and PAT at Rs 78.3 crore. However, the company is susceptible to realisation risk amid volatile crude prices.

Impressive growth, envisaged capex lift prospects for FY16-19E

Nocil has delivered an impressive turnaround post the commissioning of the Dahej facility in FY13. During FY12-16, sales, EBITDA and PAT have grown at a CAGR of 10.3%, 39.4% and 22.7%, respectively. Improved process efficiencies, change in product mix and continuous R&D efforts at its Dahej facility have been a game changer. Sensing capacity constraints with utilisation levels in excess of 90%, the management has proactively embarked upon an impressive ~Rs 170 crore capex programme. It is expected to be commissioned by H2FY19E with a revenue potential of ~Rs 300 crore at peak utilisation and intended RoCE of 20%+ thereby strengthening the prospects for FY17-22E.

Healthy balance sheet, robust cash flows, return ratios!

Robust growth in EBITDA margins from 7.6% in FY12 to 19.5% in FY16 and improved working capital cycle have led to strong return ratios with FY16 RoE and RoIC at 16.7% and 28.4%, respectively. The improved performance has helped the company to generate a CFO of Rs 170 crore in FY16 (Rs 44 crore in FY14). This has largely resulted in a substantial debt reduction with debt declining from Rs 152 crore as of FY14 to Rs 25 crore in FY16 with consequent debt-equity at 0.1x (FY16). At the CMP of Rs 95, Nocil trades at 13.0x P/E (TTM basis) and 10.0x EV/EBITDA (TTM basis).