Target: ₹240
CMP: ₹207.70
We remain constructive on Nocil post our visit to its Dahej (Gujarat) site spread over 50 acres, that houses various rubber chemicals manufacturing plants. The management indicated gradual recovery in volume across markets (worst possibly behind in Q3FY23) and improvement in capacity utilisation from hereon (currently at about 65 per cent).
Debottlenecking is ongoing and will be completed by September 2023 (to increase capacity by about 5 per cent). While the company’s capex announcement is awaited (nearly 15 months to commission thereafter), the management is also evaluating its adjacencies/newer chemistries with Anand VS (ex Chemetall, BASF company), on boarded to takeover from SR. Deo (current MD). However, rubber chemicals will continue to be the company’s mainstay. Dahej plot (about 50 per cent unutilised, currently) can absorb expansions.
Nocil remains well placed over medium-to-long term led by: domestic tyre industry capex; China+1 strategy (as customers look for security of supplies); sufficient capacity headroom enabling demand improvement; and net cash balance sheet (₹160 crore) and healthy FCF generation of ₹550 crore over FY23-25, though increase in supplies by Chinese competition pose risk to volume and spreads.
We maintain ‘Accumulate’ rating with a revised target of ₹240 (earlier ₹250) at 18x FY25E EPS of ₹13.5.
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