PL Stock Report - NOCIL (NOCIL IN) - Q2FY24 Result Update - Challenges persists - HOLD

NOCIL (NOCIL IN) – Swarnendu Bhushan – Co – Head of Research, Prabhudas Lilladher Pvt Ltd

Rating: HOLD | CMP: Rs216 | TP: Rs226

Q2FY24 Result Update – Challenges persists

Quick Pointers:

♦ Increasing Chinese imports impacting prices & volumes, remains key concern.

♦ Domestic demand strong; export market growing sequentially.

We revise our FY24/FY25 EPS estimates downwards by ~20% each with revised TP of Rs226 (earlier Rs228) based on 20xFY26E EPS of Rs11.3, post factoring in lower volumes due to persisting demand challenges across user industries coupled with increasing imports from China putting pressure on product prices. According to the management, outlook for domestic tyre companies remains robust, with industry expected to grow at 10% annually over next several years, while international markets to grow post FY24. We believe, near term challenges persists in FY24E & FY25E however, company’s long term growth story remains intact led by 1) domestic tyre industry capex 2) China+1 strategy (as global customers look for security of supplies) 3) sufficient capacity headroom enabling demand improvement and 4) net cash balance sheet (~Rs3bn) & healthy FCF generation of Rs.5bn over FY23-26E. The stock is trading at ~30 P/E on FY24E EPS. Maintain ‘Hold’ rating.

♦Topline impacted QoQ majorly due to realization decline: Revenue at Rs3.5bn (-10% YoY/ -12% QoQ) on lower sales volumes and realizations drop. Sales volume dropped 4% QoQ while realizations de-grew 7.5% QoQ in the quarter.

♦ Gross Margin Improved QoQ to 43.5% due to lower RM costs for the quarter. However, YoY declined by ~360bps.

♦ EBITDA at Rs 453mn (-27% YoY/ -18% QoQ) dropped on account of lower topline; EBITDA margin stood at 12.9% (-300bps YoY/ -108bps QoQ). PAT at Rs272mn (-24% YoY/ -21% QoQ) had lower impact (YoY) due to higher other income.

♦ For H1FY24, topline dropped 17% YoY to Rs 7.5bn on lower sales volumes due to tough environment. EBITDA margins were at 13.5% vs 18.4% same period last year.

♦ Concall takeaways: (1) Capacity utilization was at ~65%; (2) gross margins declined on account of higher fall of finished products than feedstock price decline (3) Volume growth expected to be better than FY24E in FY25E (4) Share of specialty volumes were below 15% in Q2FY24 (5) Exports contribution for Q2FY24 stood at 30-35% (6) Management guided Q3FY24 to see volume as well as realization drop.(7) For export markets, latex volumes fell while non-latex volumes were less impacted in Q2FY24 (8) Drop in realizations is on the back of demand supply mismatch coupled with pass on of low feedstock costs (9) For the quarter, domestic volumes were flattish while export volumes were down due to global recessionary trends and increased Chinese imports(10) Share of latex business (in exports) dropped to 12-15% in the quarter from 30% earlier. (11) Aniline prices dropped 12-15% QoQ, so realization benefit is seen by the company.

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