Nocil Ltd

(BSE Code: 500730) (CMP: Rs.169.55) (FV: Rs.10) (TGT: Rs.205+)

Money Times - - Market Review -

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.

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