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MOSL: NOCIL (Buy)-Carry-over of high cost inventory reduces margins

NOCIL: Carry over of high cost inventory reduces margins

(NOCIL IN, Mkt Cap USD0.6b, CMP INR260, TP INR320, 23% Upside, Buy)

 

• NOCIL reported a miss on our EBITDA estimate (at INR36/kg, -32% QoQ), despite improved realization (to INR274/kg, +5% QoQ), on the back of higher raw material costs during the quarter. Volumes grew 4% QoQ to 13.7kmt.
• The management guided that NOCIL would continue to focus on growing its volumes, which it has done successfully thus far. Volumes sold are expected to increase 10% YoY - with revenue growth of 45% YoY, at minimum, expected in FY22.
• The guidance is lower than our forecast of +70% YoY in revenue for FY22E; thus, we revise down our FY22 EPS by 34%, factoring in the miss during 2QFY22.
• The central government has not accepted the Directorate General of Trade Remedies (DGTR)'s recommendation to impose Anti-Dumping Duty on one of its key products, PX-13. Considering a) the renewed pressure on margins in the current high commodity price environment (Brent prices at +USD10/bbl QoQ) and b) the probable risk from increased dumping from China (China Sunshine would complete its expansion over the next 1-2 quarters), we revise down our FY23E/FY24E EPS by 20%/7%.