Analyst Corner| Retain ‘buy’ on Nocil, price target Rs 252

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Published: March 23, 2019 1:48:39 AM

Nocil’s management remains focused over R&D with the development of new process technologies patented in US, EU and India.

R&D has also helped Nocil to recover and reuse effluent wastes.

Our recent plant visit to Nocil at Dahej reinforced our conviction on a strong growth outlook, notwithstanding near term demand dip due to weak auto sales. Company’s strong focus on R&D has developed innovative process technologies patented in US, EU and India which has reduced plant operating costs.

Demand outlook for rubber chemicals remains strong given 85% utilisation, disruptions in China, and Global and domestic Tyre capex of Rs 10 bn and Rs 250 bn over the next few years. Nocil is well placed to capitalise on this demand as completion of Phase 2 expansion will double its capacity (1,10,000 tonne by October 2019, 10% of global capacity) as global Tyre players are eyeing more non-Chinese supplies. Nocil is confident of maintaining 25% EBIDTA margins in the medium term despite removal of duty protection. Retain ‘buy’ with price target of Rs 252.

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Nocil’s management remains focused over R&D with the development of new process technologies patented in US, EU and India. The process change has not only helped cut production costs but also supported profitability (700bps EBIDTA margin expansion due to process change out of 1,700bps over FY14-18).

R&D has also helped Nocil to recover and reuse effluent wastes. As a testimony to prioritize waste treatment, the company volunteered state pollution board (GPCB) to test their software at the Nocil plant. The company remains a preferred player to develop new products and collaborate with global Tyre players.

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Nocil produces 2MW of power from steam and 0.5MW from solar power (60% of total power requirement) at Dahej, which helps reduce overall cost. For expansion, Nocil plans to add captive power generation to reduce reliance on State utilities. Unlike petrochemical plants where process technologies can be licensed, in rubber chemicals industry, technology remains closely guarded.

Nocil procures key raw materials such as aniline, acetone, etc from domestic as well as international players.

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