MOSL: NOCIL (Buy)-Margin: The issue of the past, a concern of the future!
NOCIL: Margin: The issue of the past, a concern of the future!
(NOCIL IN, Mkt Cap USD0.5b, CMP INR244, TP INR320, 31% Upside, Buy)
- The prices of Aniline, a key raw material for NOCIL, have shot up by 20% MoM in Nov’21 (up 44% QoQ and 149% YoY) due to a supply crunch and other reasons mentioned below. This could result in a normalization of margin for NOCIL (recorded a peak margin of INR55/kg in the no Anti-Dumping Duty environment in 1QFY22).
- As the price of Aniline increases, the ability of the company to pass through the entire increase subsides (as highlighted in Exhibit 2), resulting in a margin compression.
- In the current environment, where: 1) the Centre has not accepted the Directorate General of Trade Remedies’ (DGTR) recommendation to impose ADD on one of its key products, PX-13; and 2) there exists a risk of increased dumping from China (China Sunshine would complete its expansion over the next 1-2 quarters), the stock may be under pressure in the near term.
- We maintain our Buy rating on the stock, given: a) the management’s confidence in achieving the optimal utilization rate of expanded capacity by 1HFY24 (we expect the same by FY24 – translating in a revenue/EPS CAGR of 26%/44% over FY21-24E), and b) relatively cheap valuation (at 15x FY24E EPS) after the recent correction.
NOCIL Limited is an India-based company, which offers basic organic chemicals. The Company is engaged in the business of manufacturing and trading of rubber chemicals. The Company brands PILFLEX Antidegradants, PILNOX Antioxidants, PILCURE Accelerators, Post Vulcanization Stabilizer and PILGARD Pre Vulcanization Inhibitor are used in both domestic, as well as international markets. The Company's products include PILCURE MBT, PILCURE MBTS, PILCURE ZMBT, PILCURE F, PILCURE CBS, PILCURE NS, PILCURE MOR, PILCURE TMT, PILCURE ZDC, PILCURE ZDBC, PILCURE SDBC, PILCURE ZBZDC, PILFLEX 13, PILNOX TDQ, PILGARD PVI and PILCURE DHTS. The Company's manufacturing facilities include Navi Mumbai Plant, which is located in Navi Mumbai, Maharashtra, and at Dahej Plant, which is located in Dahej, Gujarat. The products manufactured by the Company are used by the tire industry and other rubber processing industries. Its PIL Chemicals Limited subsidiary is engaged in processing of rubber chemical products.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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