NOCIL Ltd : Doing Well Despite Sectoral Challenges

Due to customisation, rich experience and offering a one-stop shop to customers, the company is acknowledged as a dependable supplier of rubber chemicals

Incorporated in 1961, NOCIL Ltd. is the largest rubber chemicals manufacturer in India with state-of-the-art technology for manufacturing rubber chemicals. These rubber chemicals are used by the tyre industry and other rubber processing industries. NOCIL is a part of the Arvind Mafatlal Group of Industries, a well-known business house having diversified business interests. The company started rubber chemicals’ production in the year 1975. Hence, its involvement in this business spans over four decades. The company’s brands like PILFLEX® anti-degradants, PILNOX® antioxidants, PILCURE® accelerators, post-vulcanisation stabilizer and PILGARD® pre-vulcanization inhibitor are well-recognised in both the domestic as well as international markets.

NOCIL offers wide range of rubber chemicals as per the customer needs. Due to customisation, rich experience and offering a one-stop shop to customers, the company is acknowledged as a dependable supplier of rubber chemicals. The company’s manufacturing facility is situated in a designated ‘chemicals zone’ about 40 km away from Mumbai. It has set up a new manufacturing facility at Dahej in Gujarat with much improved process technology to strengthen its position in the field of rubber chemicals. NOCIL has developed a quality assurance approach based on the clear target of ‘zero defect’. Each stage of production from raw materials sourcing through manufacturing to post-production are closely monitored.

NOCIL has a very strong belief in ‘ethics of excellence’ which is the business philosophy of Arvind Mafatlal Group. The company has an abiding commitment to nurturing long-term relationships with all its stakeholders, an ethical approach and sustainable business practices. It is on a mission to provide customers the best value for money by producing world-class rubber chemicals at most competitive prices and to develop, manufacture and supply new generation rubber chemicals which not only give value to the customers but reduce the load on environmental issues.

Sector Overview

Rubber chemicals are those used in the production of various rubber products. They are added in the process of production to enhance the product’s elasticity, durability, flexibility and strength. They are used in automotive, construction, electronic, medical, aerospace, footwear manufacturing and many more such industries. The growth of the rubber chemical industry is driven by the rise in use of rubber in the automotive sector with the automotive component and tyre industries being the leading consumers of rubber chemicals, with over 70 per cent of the global market share. Thailand is the largest producer of natural rubber in the world. It produced 4.37 million metric tons in the year 2021, accounting for 35 per cent share of the total global production of rubber.

Thailand, Malaysia, Indonesia and Vietnam, all together, export nearly 70 per cent natural rubber each year. China is the world’s biggest consumer of natural rubber. On an average, it consumes nearly 40-45 per cent of the total production. India is the fourth-largest producer and the second largest consumer. Considering chemical industry, it covers more than 80,000 commercial products. India’s chemical industry is extremely diversified and can be classified into bulk chemicals, specialty chemicals, agrochemicals, petrochemicals, polymers and fertilisers. India is the fourth-largest producer of agrochemicals after the United States, Japan and China.

The Indian chemicals industry stood at USD 178 billion in 2019 and is expected to reach USD 304 billion by 2025, registering a CAGR of 9.3 per cent. The demand for chemicals is expected to expand by 9 per cent per annum by 2025. The chemical industry is expected to contribute USD 300 billion to India’s GDP by 2025. The Indian rubber processing chemical market came up to USD 288 million for FY 2017 and is expected to rise at a CAGR of 7.5 per cent, reaching USD 443 million by the year 2023. The increased portion to the rubber industry in the last financial budget has encouraged the Indian rubber and rubber chemicals industry. Stakeholders and investors are assured that this government assistance will help the sector grow in strength in the near future.

Financial Overview

Considering the financial performance of the company recorded for the fourth quarter of FY22, on a consolidated basis NOCIL recorded net sales and other operating income of ₹462.74 crore, indicating growth of 43.71 per cent from ₹321.99 crore reported in Q4FY21. The operating profit was recorded at ₹112.63 crore in Q4FY22 as compared to operating profit of ₹54.68 crore in Q4FY21. Q4FY22 recorded net profit of ₹68.92 crore in comparison with net profit of ₹37.33 crore in the same quarter in the previous year, giving a strong rise of 84.62 per cent.

Considering the yearly performance, the net profit of NOCIL rose by 99.2 per cent to ₹176.11 crore as against ₹88.41 crore during the previous year ended on March 2021. Also, net sales surged by 69.93 per cent to ₹1,571.31 crore as against ₹924.66 crore during the previous year ended on March 2021. The Board of Directors has recommended final dividend of ₹3 per share of the face value of ₹10 each (i.e. 30 per cent of the face value) which is subject to approval by the members of the company at the 60th Annual General Meeting to be held on July 23, 2022.

Promoters held 33.85 per cent stake in the company as of March 31, 2022 while foreign institutional investors (FIIs) owned 2.54 per cent. The share of the domestic institutional investors (DIIs) was 4.27 per cent. Non-institutional investors have a total stake of 59.34 per cent. Analysing the other financial parameters, the company has been able to generate return on capital employed (RoCE) of 8.58 per cent, displaying average profitability per unit of total capital (equity and debt). It has had zero debt-equity ratios since the last four years. This clearly states that NOCIL is getting all its finance by funding through equity rather than by debt and all the company’s assets are financed through equity only.

Various growth ratios like EBIT, PAT and EPS have declined since the last two years as the business witnessed a disruption due to the pandemic. But company was successfully able to run its operations efficiently after struggling during the pandemic period. The company’s net sales and profit margins grew continuously through each passing quarter and the net profit surged by 84.62 per cent in Q4FY22. The price to earnings (PE) ratio of NOCIL is low as compared to its peers. It states that the current stock price is cheap relative to its earnings and the stock is undervalued.

Outlook

Currently, the rubber chemicals industry is facing many challenges. Complying with strict rules and regulations related to environmental pollution and quality is one of the crucial challenges in front of the industry. The awareness about environmental issues and rise in the production of green tyres is going to cause reduction in the consumption of rubber chemicals by the tyre industry. It will definitely affect the overall growth of the rubber chemicals industry. China is the largest consumer of natural rubber and rubber chemicals. Economic slowdown in China due to rising corona virus cases and inflation will create disruptions. However, even with so many challenges in hand, the rubber chemicals industry will offer good opportunities to investors in the coming years.

A lot of events are happening in India which will help the industry to grow in the near future. Under the aegis of the Union Budget 2022-23, the government allocated ₹209 crore to the Department of Chemicals and Petrochemicals. The Government of India is also planning to launch Production Linked Incentive (PLI) schemes in the chemical sector to boost domestic manufacturing and exports. These schemes have been introduced in order to promote bulk drug parks with a budget of ₹1,629 crore. The government has allowed 100 per cent foreign direct investment (FDI) under the automatic route in the chemicals sector with a few exceptions that include hazardous chemicals.

As a result, FDI inflows in the chemicals sector reached USD 19.09 billion from April 2000 to December 2021. Considering the company’s outlook, NOCIL has long-term relationships with customers over 40 countries. It wishes to expand its operations and tap new markets. The company has an experienced team of scientists which will help it to identify new opportunities in the market. Its ultra-modern laboratories and latest analytical instruments are competitive advantages that will stand NOCIL in good stead. Hence, considering the positive long-term outlook for the rubber and rubber chemicals industry and the company’s relentless focus on delivering quality services while reducing the load on environmental issues, we recommend BUY.