| Recommended Price | Rs. 303 |
|---|---|
| Target | Rs. 350 |
| Upside | 16% |
| Holding period | 1 Year |
NOCIL Ltd., is India’s largest rubber chemicals manufacturer operates through 2 manufacturing plants. The plants having a combined capacity of 110,000 MT are located in Navi Mumbai and Dahej. NOCIL holds 40% market share in the domestic market and 5% in the global market exporting to over 40 countries. NOCIL has a product portfolio of 23 rubber chemicals. Major clientele for NOCIL include names like MRF, Bridgestone, JK Tyres, CEAT, Michelin, Apollo Tyres, TVS Tyres, and BKT.
Investment Rationale
Leveraging market trends for future growth in rubber chemicals
The tyre industry’s growth is closely linked to consumer spending on essentials, driving higher demand. The recent increases in capacity and a slowdown in OEM demand have reduced industry utilisation levels. With tyre destocking mostly complete, a global demand recovery, including from China, is expected to benefit non-Chinese manufacturers. China currently dominates the rubber chemicals industry, holding over 80% of the market share. However, as global sourcing strategies evolve to include a “China +1” approach, alternative suppliers such as India are gaining prominence. The company is undergoing an expansion plan wherein the company is expanding its Dahej capacities with capital infusion of Rs. 250 crores. The company’s extensive portfolio of 23 rubber chemicals and its unique 100% backward integration offer a competitive edge. NOCIL is expected to achieve a mid-double digit growth on volume front in the next two years.
Navigating market challenges with cost efficiency and strong financial health
The domestic rubber chemicals market is facing limited pricing power due to aggressive dumping by Chinese competitors, which has necessitated competitive pricing for growth. The industry is also consolidating as weaker players exit and remaining Chinese firms experience higher production costs from stricter pollution controls. Despite these challenges, NOCIL stands out as the most profitable global player in the sector. The company excels by managing costs effectively, achieving a 15- 20% reduction in utility costs through enhanced production yields, manufacturing efficiencies, and favourable pricing. NOCIL also focuses on high-margin specialty products and has mitigated the impact of rising freight costs through proactive customer discussions.
Valuation and Outlook
NOCIL faces challenges from heavy Chinese imports impacting both realisations and volumes. To address these issues, NOCIL is focusing on expanding exports and innovating into new product verticals, which are beginning to show positive results through an optimised product mix. Despite the tough conditions, NOCIL remains optimistic about increasing its market share and exploring new opportunities, driven by strong cash flow. The commercial vehicle replacement market is also expected to benefit from renewed infrastructure initiatives. The projected earnings are set to nearly double from FY24 levels. NOCIL is expected to maintain its debt-free status and enhance free cash flow generation due to robust operational profits and no debt repayment obligations. On the valuation front, we value the company based on 34x of FY26e earnings and arrive at a target price of Rs. 350 (16% upside from CMP) with a 12-month investment horizon.
