(BSE Code: 500730) (CMP: Rs.169.55) (FV: Rs.10) (TGT: Rs.205+)
Incorporated in 1961, Mumbai-based Nocil Ltd manufactures and sells rubber chemicals. It offers accelerators, antidegradants, antioxidants, pre-vulcanization inhibitors and post vulcanization stabilizers. Its products find application in the tyre and rubber processing industries. With a long-standing operating history of over 4 decades, Nocil owns a lion’s share of ~50% in the domestic rubber chemicals market and ~5% globally. It has presence in 40+ countries and boasts of strong business relationships with some major global tyre manufacturers. Its wide product range, global presence, technical know-how and reputation of being a dependable supplier have ensured market share expansion not only at home but also globally.
China’s quest to emerge as a global leader in the fight against pollution has accelerated closure of non-compliant companies in the country. Moreover, the imposition of anti-dumping duty in India since 2014 helped domestic producers withstand competition from Chinese and Korean firms. Nocil is one of the key beneficiaries of these developments.
Growth in rubber chemicals is directly proportional to the demand in the tyre industry as the tyre industry is the largest consumer of rubber chemicals (~65%). According to the management, the global tyre industry has committed ~$7.5 billion towards expansion while Indian tyre companies have lined up capex of around Rs.150-180 billion for the next few years. This is likely to drive around 12-14% growth in the tyre industry over the next 4-5 years, benefiting rubber chemical companies like Nocil.
To capitalize on the growth opportunities amid favorable market conditions, Nocil has earmarked capex of Rs.4.25 billion at its Navi Mumbai and Dahej plants. This will double its capacity to 1,10,000 TPA from 55,000 TPA now. The new capacity will go on-stream in phases until September 2019. The management expects asset turnover to double from this expansion, leading to annual incremental revenue of ~Rs.9 billion. Nocil’s fully automated processes at its Dahej plant enabled higher productivity and also aided in significant cost rationalization. Moreover, its product mix improved due to higher contribution of value-added products (up from ~1517% of revenue five years back to ~30% in FY18). The combined effect of these two factors boosted Nocil’s operating margin, which improved from 10.5% in FY14 to 27.4% in FY18.
Technical Outlook: The stock looks good on the daily chart for medium-term investment. It has taken support of an upward trend line to form a channel pattern, which coincides with the trend line. The stock trades above important moving averages like the 200 DMA level on the weekly chart.
Start accumulating at this level of Rs.169.55 and on dips to Rs.155 for medium-to-long term investment and a possible price target of Rs.205+ in the next 6 months.