nocil (nocil in) - business standard...3november 29, 2018 rating: buy| cmp: rs169 | tp: rs270 set...

Set for a smooth ride

Avishek Datta [email protected] | 91-22-66322254

Rating: BUY | CMP: Rs169 | TP: Rs270

NOCIL (NOCIL IN)

NOCIL

November 29, 2018 2

Contents Page No.

Rubber chemicals- Poised for growth ................................................................ 4

Rubber chemicals to ride on increased Tyre usage ........................................ 4

Tyre industry in a sweet spot .......................................................................... 4

Nocil’s performance against global peers .......................................................... 7

Nocil – At an inflexion point .............................................................................. 10

Valuation .......................................................................................................... 14

Key risk to our call ............................................................................................ 15

Story in charts .................................................................................................. 16

November 29, 2018 3

Rating: BUY| CMP: Rs169 | TP: Rs270

Set for a smooth ride

We initiate coverage on Nocil with a ‘BUY’ and a PT of Rs277, based on P/E

of 15x FY21E or 8.0x EV/EBIDTA FY21E. Nocil is India’s largest manufacturer

of rubber chemicals, with over four decades of experience. The company’s

technical capabilities and reliability has helped develop deep relationship

with leading global and domestic tyre players. Nocil’s earnings have

increased 7x over FY14-18 led by 1) steady demand growth of 12.5% CAGR 2)

higher share of specialty grade chemicals 3) benefit from Anti-Dumping Duty.

Nocil remains well placed to capitalize on supply disruptions in China which

accounts for 70% of global rubber chemicals supplies. Going forward, Nocil

plans to double its capacities by H2FY20E to capitalize on domestic tyre

industry capex (Rs250bn over the next five years) and global opportunities

from disruption in China. Also, US has imposed 10% duty on rubber

chemicals imports from China and will add another 15% duty from January

2019. This will open new opportunities for Nocil even though some Chinese

supplies might be diverted to India.

Timely capex to support growth: Nocil remains well placed to capitalize on

domestic and international opportunities. Domestic tyre manufacturers have

lined up capex of Rs250bn over the next five years (Source: ICRA), given

improved demand traction. Anti-dumping duty (ADD) imposed on imports of

TBR tyres from China for five years will spur domestic tyre demand. In the

international markets, disruption in Chinese supplies will make the company

better placed to capitalize on export markets (US$22bn capex by global tyre

players by CY21; Source Notch). Accordingly, Nocil’s timely capex of Rs4.3bn

will double its capacity in stages through H2FY20 and revenues can potentially

double in FY21E, given the asset turn of 2x.

Tougher environment norms to lift cost structure: China has progressively

tightened environment norms over the last few years. This has disrupted

supplies for highly polluting chemical industries as they account for over 70%

global rubber chemicals. Tightened environment norms have also increased

the cost structure; China Sunsine’s CY17 environmental protection expense

was up 50%YoY to RMB99mn or 3.6% of revenues. We believe the higher cost

structure of rubber chemical players is structural and will ease competitive

pressure on players like Nocil, going ahead.

Closing the gap to global leaders: Nocil’s EBITDA margins have increased

17% over FY14-18 led by 1) cost rationalization 2) backward integration post

start of new facility at Dahej in FY13 3) higher share of speciality grade

chemicals and 4)imposition of anti-dumping duty (ADD) protection (~4% of

sales). However, our analysis of Nocil’s operating performance vis-à-vis China

Sunsine (CS), one of the world’s largest rubber chemicals players, suggest that

Nocil’s operating matrix has steadily improved due to cost optimization and

better raw material sourcing and is better placed to compete with global majors.

Initiate with a ‘BUY’ and PT of Rs277. Nocil remains well placed to capitalise

on strong downstream demand from tyre markets. Timely capacity, addition,

along with healthy margins, will drive earnings at 22% CAGR over FY18-21E.

Initiate with ‘BUY’ and PT of Rs277 based on 15xPER FY21E. Net cash of

Rs7.7bn for FY21E and healthy ROEs of 20% provide downside support.

NOCIL (NOCIL IN)

November 29, 2018

Company Initiation

Key Financials(Standalone)

FY18 FY19E FY20E FY21E

Sales (Rs. m) 9,676 11,176 14,669 18,483

EBITDA (Rs. m) 2,629 3,018 3,667 4,621

Margin (%) 27.2 27.0 25.0 25.0

PAT (Rs. m) 1,689 1,808 2,371 2,968

EPS (Rs.) 10.3 11.0 14.4 18.0

Gr. (%) 44.1 7.1 31.1 25.2

DPS (Rs.) 2.5 2.7 3.5 4.4

Yield (%) 1.5 1.6 2.1 2.6

RoE (%) 17.4 16.4 18.8 20.2

RoCE (%) 26.1 24.0 25.6 29.7

EV/Sales (x) 2.6 2.4 1.9 1.4

EV/EBITDA (x) 9.6 9.0 7.5 5.5

PE (x) 16.5 15.4 11.7 9.4

P/BV (x) 2.7 2.4 2.1 1.8

Key Data NOCI.BO | NOCIL IN

52-W High / Low Rs. 236 / Rs. 139

Sensex / Nifty 36,170 / 10,859

Market Cap Rs. 28 bn / $ 401 m

Shares Outstanding 165m

3M Avg. Daily Value Rs. 203.47m

Shareholding Pattern (%)

Promoter’s 34.08

Foreign 4.71

Domestic Institution 6.00

Public & Others 55.21

Promoter Pledge (Rs bn) 1.21

Stock Performance (%)

1M 6M 12M

Absolute 11.0 (11.7) (4.0)

Relative 4.5 (14.7) (10.8)

Avishek Datta

[email protected] | 91-22-66322254

NOCIL

November 29, 2018 4

Rubber chemicals- Poised for growth

Rubber chemicals to ride on increased Tyre usage

The rubber processing chemicals industry is a play on growth in downstream

demand, especially for Tyres. The global rubber markets consumption in CY17 was

expected at 28mn MT and has registered a CAGR 3% over CY12-17 (Source:

Rubber Statistical Bulletin). Growth of the rubber industry is directly linked to

automobile sector as the Tyre industry accounts for 65% of total rubber usage.

Other uses of rubber are latex, footwear, conveyor belt, flooring, cycle tubes,

medical gloves etc.

Tyre industry in a sweet spot

Tyres account for two-thirds of rubber chemicals demand. Overall Indian tyre

demand has registered CAGR of 5.2% over FY13-18 led by demand in OEMs and

replacement segment. For FY18, according to SIAM (Society of Indian Automobile

Manufacturers), demand for passenger vehicles increased 7.9%, while commercial

vehicles and three-wheelers were up 19.9% and 24.2%, respectively. For FY18,

two-wheelers volume was up 14.8%.

Growth is, however, set to accelerate to CAGR of 8.3% over FY18-23E, 1) given

the strong government focus on infrastructure 2) rising and vehicle demand due to

increased consumerism and 3) imposition of anti-dumping duty (ADD) on radial tyre

imports from China for five years. Government has proposed ADD on import of

radial tyres for trucks and buses from China to provide a level-playing field to

domestic manufacturers. The duties range between US$245.35-452.33/ton for a

period of five years.

Indian tyre demand to grow at 8.3% CAGR over FY18-23

Source: Notch, Crisil, PL

1006 1084 1166 1144 1171 1234

1871

529 486534 594 631

744

1075

0

500

1000

1500

2000

2500

3000

3500

FY13 FY14 FY15 FY16 FY17 FY18 FY23F

'000 to

ns

Replacement OEM

NOCIL

November 29, 2018 5

Global tyre demand to accelerate

Tyre demand is expected to accelerate globally across segments - passenger and

trucks and buses due to favourable demand traction. Overall global demand is also

likely to accelerate to 3.3% over CY16-21E against 2.2% over CY06-16. Also,

global capital expenditure is pegged at US$21.8bn during CY16-21E, given

improved demand environment.

Global tyre demand to accelerate


Global tyre industry capex at US22bn

Asia 9,869

North America 6,319

Europe 3,550

Africa/ME 1,934

South America 150

World 21,822


Rising environmental cost in China augurs well for rubber chemicals

China has progressively tightened environment norms over the last few years. This

has resulted in major disruption in supplies for highly polluting chemical industries

as they account for over 70% global rubber chemicals. Increased compliance audits

have, led to closure of smaller/unorganized units. This has led to disruption in

supplies, which in turn, has wide ramifications for downstream users globally. Rising

compliance costs among Chinese players has also increased the cost structure.

Our analysis of CS (one of the largest rubber chemicals company based out of

China) financials suggests that environmental protection expenses for CY17 was

up 50%YoY to RMB99mn. This translated to 3.6% of CY17 revenues, up from

RMB66mn in CY16 or 3.2% of CY16 revenues. This has meant that companies like

Nocil, which are compliant with respect to environmental norms have benefitted

immensely-Nocil’s operating profits more than doubled over FY15 to Rs2.6bn in

FY18.

Anti-dumping duty on rubber chemicals - an added support

Government has levied anti-dumping duty (ADD) on six products out of twenty

manufactured by Nocil, which will be effective until July 2019. According to Nocil’s

management, duty protection accounts for 4% of sales and ~35% revenues are

exposed to duty protection. With significant over capacity in China, the

management is hopeful of ADD duty extension as there is a scope of significant

injury to domestic industry from cheaper imports. However, effects of duty

protection are overstated as competitors cut prices to compete with domestic

players. Accordingly, we have factored in 2% EBITDA margin compression in

FY20E to 25% against 27% factored in FY19E. Our sensitivity analysis suggests

that if the EBIDTA margins were to erode by 4% (vs 2% in base case), Nocil’s

FY20E earnings impact will be 8% (pls see the later pages on sensitivity analysis

for details).

2.5

3.3

1.5

3.2

2.2

3.3

0

0.5

1

1.5

2

2.5

3

3.5

CY06-16 CY16-21

Passenger Trucks & Buses Total

NOCIL

November 29, 2018 6

US imposition of import duty on Chinese imports will open new market

US has recently imposed 10% import duty on Chinese rubber chemicals and will

add another 15% effective 1st January 2019. US and European markets account for

~22% share and any restrictions on Chinese imports will open up opportunities for

other including Nocil. While some of the Chinese supplies might be diverted to India

(5% of global market), entry into US will be a high growth opportunity for Nocil.

Winds of change blowing across rubber chemicals

Rubber chemicals are important additives, which are needed to make simple rubber

polymer commercially useful for final applications. By weight, they account for 6%,

while they account for 3% of value of rubber. Global rubber chemicals demand is

estimated at ~1.2MTPA. There are wide range of rubber-processing chemicals like

anti-degradants, accelerators and other processing aids.

Anti-degradants: Anti-degradants are chemicals used to develop rubber’s

resistance to heat, oxidation, sunlight and mechanical stress. It ensures that rubber

doesn’t split or destroys from friction with road.

Accelerators: Accelerators are chemical compounds that speed the process of

vulcanization. Vulcanization is one of the major activities on raw rubber to eliminate

its sticky nature. Vulcanization process generally takes 45 hours; however, with use

of accelerators, the process can be completed in 1 hour.

Processing aids: Processing aids act as agents to improve manufacturing process

of rubber-based products.

Rubber chemicals usage

Source: PL, Industry

Rubber94.1%

Accelerators1.7%

Vulcanizing agents

2.0%

Anti-oxidants2.2%

NOCIL

November 29, 2018 7

Nocil’s performance against global peers

Given that there are very few listed pure rubber chemicals players globally, we

compared Nocil’s financials with China Sunsine (one of the world’s largest rubber

chemicals manufacturers; Mkt cap USD470m). Our detailed comparative analysis

over last decade shows many interesting data points which augurs well for Nocil.

Sales volume growth: Over the last decade, CS’ volume has registered CAGR

growth of 18% to 140,476MT against 7% CAGR for Nocil. This higher growth rate

was supported by rapid expansion in Chinese vehicle population over last decade.

However, the company’s volume traction has overtaken CS over the last five years,

partly out of low base effect and increased capacities to 13% CAGR against 9% for

CS.

China Sunsine volume growth over Nocil has come off over last five years

Source: Company, PL

Raw material cost share has come down: Raw material intensity has come down

for the industry globally. For CS, raw material share has come down to 60% of sales

over CY14-18 against over 70% during CY08-13. For Nocil, RMC share has come

down to less than 50% over FY15-18 against ~60% over FY09-14.

Raw material intensity has come down for the sector given benign raw material prices

Source: Company, Company, PL

30,787

45,420 54,275

60,907

81,371

98,345 108,973

114,572

135,791 140,476

21,542 23,413 24,171 24,413 23,436 24,960 30,932 32,169 36,190 40,714

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

CY08/FY09 CY09/FY10 CY10/FY11 CY11/FY12 CY12/FY13 CY13/FY14 CY14/FY15 CY15/FY16 CY16/FY17 CY17/FY18

Nocil China Sunsine

70%76% 76% 77% 78%

64% 61%56%

60% 60%59% 58% 58%61%

65%59%

54%50% 48% 46%

0%

20%

40%

60%

80%

100%


Nocil China sunsine

NOCIL

November 29, 2018 8

Operating costs have diverged: Operating cost structure has increased sharply

for CS to average 22% of sales over CY13-18 against ~10% over CY08-12. Against

that, Nocil’s cost has averaged at ~30% over last decade and has come down to

27% for FY18. Rising environmental compliance cost will also push the cost

structure of the Chinese peers, thereby, reducing the competitive intensity for Nocil.

Operating costs for China Sunsine has doubled, while for Nocil it has come off

Source: Company, PL,

Nocil’s operating profit margins increased significantly: Nocil’s OPM has

increased 170bps over FY14-18 led by better product mix, operational efficiency

and higher volumes and has overtaken its Chinese peers in FY18. However, CS

margins have historically been higher and have averaged ~20% over last four

years.

Nocil’s operating margins have improved significantly over last four years

Source: Company, PL, PL

30% 31% 31% 32% 31% 31% 30% 30% 30%

27%

14%

6%8% 8%

13%

25%

19%

25%

21%19%

0%

5%

10%

15%

20%

25%

30%

35%


Nocil China sunsine

11% 11% 11%

7%

4%

10%

16%

19%21%

27%

16%17%

16% 15%

9%

12%

20% 19% 19%21%

0%

5%

10%

15%

20%

25%

30%


Nocil China sunsine

NOCIL

November 29, 2018 9

ROE-improving trend: CS historically reported better ROE profile against Nocil.

However, improving profitability trend has bridged the gap between players.

Nocil ROE has been on an uptrend supported by improving financials

Source: Company, PL

30

18

14

4

10

24

18 17

22

12 11 11

12

6

14 13 12

17

-

5

10

15

20

25

30

35

CY09/FY10 CY10/FY11 CY11/FY12 CY12/FY13 CY13/FY14 CY14/FY15 CY15/FY16 CY16/FY17 CY17/FY18

Nocil China Sunsine

NOCIL

November 29, 2018 10

Nocil – At an inflexion point

Nocil is part of Arvind Mafatlal Group companies which is India’s largest rubber

chemicals company offering one of the largest range of rubber chemicals. The

company manufactures accelerators, antioxidants, pre-vulcanize inhibitor and post

vulcanise inhibitor. While the accelerators and anitoxidants account for ~45% of

product slate, while pre and post vulcanizing inhibitors account for ~10%. Nocil has

two plants in Navi Mumbai and Dahej with a rated capacity of 55,000 MT. Led by

improved market fundamentals, Nocil is on track to double its capacity by H1FY20.

The company caters to all the major customers like Continental, Yokohama, Apollo

Tyres, Ceat, MRF etc.

Nocil is one of the few companies to stay put in the rubber chemicals business

despite intense competition from the Chinese players. The company’s business

fortune got a significant lift post FY14 led by 1) start of modern complex at Dahej 2)

imposition of ADD on certain rubber chemicals and 3) tightening environmental

norms in China.

Timely capacity expansion to meet rising demand

Nocil is currently operating at near-rated capacity and plans to spend Rs4.25bn to

double its capacity at both the facilities in Navi Mumbai (42,000 tons) and Dahej

(11,000 tons). Capacity expansion will be funded largely through internal accruals

and all three phases will come on stream by H1FY20E. The first phase of expansion

has already come on stream in Q1FY19. With asset turn of 2x, management

expects revenues to double post completion of these expansion projects.

Nocil capacity to double in stages by H1FY20E

Source: Company, PL

However, we have factored in gradual ramp up in volumes to factor in delay in

stabilization of new capacities.

55,000 59,400

75,900 80,300

1,10,000

-

20,000

40,000

60,000

80,000

1,00,000

1,20,000

Existingcapacity

Q1FY19 Q3FY19 Q4FY19 Q2FY20

MT

NOCIL


We have factored in gradual ramp-up of new capacities

Source: Company, PL

Sales growth to ride on higher volumes and increased realization

Over FY14-18, Nocil’s revenue growth CAGR of 12.9% has tracked the volume

growth of 12.5%. This is because; realizations growth has been muted due to drop

in crude oil prices. Going forward, we have factored in CAGR 5% realization growth

over FY19-21E as crude prices have recovered from lows. This is in-line with crude

inflationary realization growth over FY10-14. Also, supported by capacity additions

coming on stream, we expect 24% CAGR revenue growth over FY18-21E.

Have factored in net realization growth of 5% over FY18-21E

Source: Company, PL

Domestic market will continue to remain the bedrock

Nocil’s domestic share of sales has steadily increased to 74% in FY18 against 60%

in FY10. This is on the back of intensely competitive export market in light of

aggressive exports by Chinese players. However, recent clampdown on Chinese

production capacities due to environmental factors will mean Nocil is better placed

to cater to the export market. US has recently imposed 10% duty on imports from

China and will impose another 15% from January 2019. This will open up

opportunities for domestic players like Nocil to better target export market.

Accordingly, we expect export share will increase to 31% in FY21E. However,

domestic market will continue to remain the bedrock as domestic sales have

increased at 18% CAGR over FY14-18.

55,000 55,000

73,315

110,000 110,000

44,415 49,967

54,964

68,705

82,446

-

20,000

40,000

60,000

80,000

100,000

120,000

FY17 FY18 FY19 FY20 FY21

Rated capacity (MT) Production (MT)

196 197209

225238 231

220205

238250

262275

0

50

100

150

200

250

300

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

FY

18

FY

19E

FY

20E

FY

21E

Rs

/to

n

Realisation (Rs/ton)

NOCIL


Sales to increase at CAGR of 24% over FY18-21E

Source: Company, PL

Raw material cost intensity has come down

Nocil’s raw material price intensity has come down steadily over the years due to

benign raw material prices and benefits of higher value added products.

Accordingly, gross margins have expanded to 54.5% in FY18 against FY14 levels

of 41.5%. We have factored in gross margins to remain stable at 54% for FY20/21E.

Raw material prices have been benign for rubber chemicals players

Source: China Sunsine, PL

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E

(Rs

mn

)

Domestic Exports Others

NOCIL


Operating margins likely to remain elevated

Nocil’s operating profit margins have been on an uptrend led by product mix

change, cost rationalization and operating leverage from improved volumes.

Buoyed by margin improvement, operating profit margins have improved to 27.2%

in FY18 against 21.3% in FY17 and 10.2% in FY14. With spreads likely to sustain

in the medium term, we have factored in OPM of ~27% for FY19E; H1FY19 29.5%.

However, we have reduced our margins to 25% for FY20E to factor in removal of

duty protection benefits by July 2019.

Profits on an upswing

Supported by healthy demand trend and margin expansion, Nocil’s earnings have

increased 3x to Rs1.7bn in FY18. With demand trend likely to remain robust,

coupled with healthy operating leverage from new capacities, we expect Nocil’s

earnings to increase 21% over FY18-21E.

Nocil’s return ratios are likely to stay healthy supported by improved operating

performance and lower finance charges. We calculate ROEs of ~17-20% over

FY18-21E.

Strong balance sheet - an added strength

Nocil has a healthy balance sheet with net cash of Rs2.5bn as on FY18. Also,

despite capex plans of Rs4.3bn over FY18-20E, steady cash flow from operations

will mean a lean balance sheet.

Nocil key assumptions

FY15 FY16 FY17 FY18 FY19E FY20E FY21E

Rubber chemicals sales (tons) 30,932 32,169 36,190 40,714 44,785 55,982 67,178

Realisation (Rs/ton) 231 220 205 238 250 262 275

Sales (Rs m) 7,190 7,152 7,422 9,676 11,176 14,669 18,483

Gross profit (Rs m) 3,304 3,557 3,826 5,270 6,370 7,921 9,981

Gross profit (%) 46% 50% 52% 54% 57% 54% 54%

EBIDTA 1,119 1,382 1,580 2,629 3,018 3,667 4,621

EBIDTA (%) 16% 19% 21% 27% 27% 25% 25%

PAT 568 778 1,165 1,689 1,808 2,371 2,968

Source: Company, PL, Company, PL

Nocil earnings sensitivity to realization and volume changes

Base case Sensitivity FY20E earnings sensitivity (Rs m)

Base case PAT Revised PAT % change

2% drop in EBIDTA margin due to anti-Dumping Duty abolition Anti-Dumping Duty abolition of 4% 2,371 2,172 -8%

5% increase in realization Zero increase in realization 2,371 2,260 -5%

FY20E volume growth of 25% FY20E volume growth of 15% 2,371 2,184 -8%

Source: Company, PL

NOCIL


Valuation

Nocil’s is expected to report 21% CAGR in earnings growth over FY18-21E led by

1) higher volumes post commissioning of new capacity 2) higher realisation and 3)

benign raw material pricing. We have valued Nocil at 15x P/E FY21E which

translates to EV/E of 8.0x FY21E.

Peer comparison valuation

Chemicals Price M Cap

(USDm)

P/E (x) EV/EBIDTA (x) RoE (%)

FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E

AARTI INDUSTRIES LIMITED 1,455 1,684 26.3 20.8 16.2 15.3 12.6 10.1 24 24 23.1

ATUL LTD 3,486 1,475 22.9 19.9 18.6 14.5 12.7 11 16.6 16.5 16.6

SRF LTD 2,132 1,378 20.0 16.0 13.7 11.6 9.8 8.9 16.1 17.5 17.5

VINATI ORGANICS LTD 1,448 1,071 31.3 24.9 18.5 20.5 16.1 12.2 23.6 23.2 25.4

NAVIN FLUORINE 711 500 20.5 17.4 15.0 13.8 11.6 9.9 16.2 16.9 17.6

CHINA SUNSINE 470 5.1 5.6 na 3 3.3 3.6 28.2 19.6 16.4

NOCIL 169 390 15.4 11.7 9.4 9.0 7.5 5.5 16.4 18.8 20.2

AEKYUNG PETROCHEMICAL CO LTD 8,590 242 6.1 7.3 6.1 3.3 3.5 2.9 14.1 10.8 11.9

I.G. PETROCHEMICALS LTD 417 184 7.7 6.7 5.4 4.0 3.6 3.0 26.7 24.0 23.4

Source: Bloomberg, PL

Nocil's FY20E earnings sensitivity to margin changes

Base case

Nocil earnings sensitivity to margins 15% 20% 25% 30% 35%

FY20E EPS 8.3 11.4 14.4 17.5 20.5

Source: Company, PL

Nocil earnings sensitivity to realization and volume changes

Base case Sensitivity FY20E earnings sensitivity (Rs m)

Base case PAT Revised PAT % change

2% drop in EBIDTA margin due to anti Dumping Duty abolition Anti Dumping Duty abolition of 4% 2,371 2,172 -8%

5% increase in realization Zero increase in realization 2,371 2,260 -5%

FY20E volume growth of 25% FY20E volume growth of 15% 2,371 2,184 -8%

Source: Company, PL

NOCIL


Key risk to our call

Threat of US-China trade war: In the event of flare up in US-China trade war, there

is a possibility of Chinese volumes being diverted to India as US is world’s second

largest rubber chemical player after China.

Delay in ramp up of new capacity: Nocil plans to double its capacity by H2FY20E,

however, any delay in start and ramp up of new capacity will impact earnings.

Sensitivity to lower production

Base case Sensitivity Base case PAT(Rs m) Revised PAT(Rs m) % change

FY20E production volume of ~69,000MT 20% lower volumes 2,371 1,903 -20%

Source: Company, PL

Removal of anti-dumping duty: The anti-dumping duty imposed on rubber

chemicals imports will end in July 2019. Duty protection adds to ~4% of operating

profits. Management remains hopeful of extension of duty protection as Chinese

companies with ~70% of global capacity and ~33% of usage has potential to injure

domestic players. In the event of complete removal of duty protection, FY20E

earnigs will be impacted by ~8% against our base case.

NOCIL


Story in charts

Improving trends in operating margins

1,3

82

1,5

80

2,6

29

3,0

18

3,6

67

4,6

21

19%21%

27% 27%25% 25%

0%

5%

10%

15%

20%

25%

30%

-

1,000

2,000

3,000

4,000

5,000

FY16 FY17 FY18 FY19E FY20E FY21E

(Rs

mn

)

EBIDTA EBIDTA margin

Source: Company, PL

Profit momentum is likely to remain robust

778

1,165

1,689 1,808

2,371

2,968

-

500

1,000

1,500

2,000

2,500

3,000

3,500


(Rs

mn

)

Source: Company Data, PL

Return ratios are likely to remain robust

13.2 14.0

17.416.4

18.820.2

11.09.6

14.715.7

17.418.7

0.0

5.0

10.0

15.0

20.0

25.0


ROE ROCE

Source: Company, PL

Operating margins have steadily

increased with H1FY19 margin of

29.5%

We expect FY18-21E PAT CAGR of

22%

Return ratios to steadily increase for

the company with rising profitability

NOCIL


Financials Income Statement (Rs m)

Y/e Mar FY18 FY19E FY20E FY21E

Net Revenues 9,676 11,176 14,669 18,483

YoY gr. (%) 30.4 15.5 31.3 26.0

Cost of Goods Sold 4,406 4,806 6,748 8,502

Gross Profit 5,270 6,370 7,921 9,981

Margin (%) 54.5 57.0 54.0 54.0

Employee Cost 674 894 1,174 1,479

Other Expenses 1,968 2,459 3,080 3,881

EBITDA 2,629 3,018 3,667 4,621

YoY gr. (%) 66.4 14.8 21.5 26.0

Margin (%) 27.2 27.0 25.0 25.0

Depreciation and Amortization 229 228 301 424

EBIT 2,400 2,790 3,366 4,197

Margin (%) 24.8 25.0 22.9 22.7

Net Interest 12 160 160 160

Other Income 143 110 387 460

Profit Before Tax 2,531 2,740 3,593 4,497

Margin (%) 26.2 24.5 24.5 24.3

Total Tax 845 932 1,222 1,529

Effective tax rate (%) 33.4 34.0 34.0 34.0

Profit after tax 1,686 1,808 2,371 2,968

Minority interest - - - -

Share Profit from Associate - - - -

Adjusted PAT 1,689 1,808 2,371 2,968

YoY gr. (%) 44.9 7.1 31.1 25.2

Margin (%) 17.5 16.2 16.2 16.1

Extra Ord. Income / (Exp) - - - -

Reported PAT 1,689 1,808 2,371 2,968

YoY gr. (%) 44.9 7.1 31.1 25.2

Margin (%) 17.5 16.2 16.2 16.1

Other Comprehensive Income - - - -

Total Comprehensive Income 1,689 1,808 2,371 2,968

Equity Shares O/s (m) 164 164 164 164

EPS (Rs) 10.3 11.0 14.4 18.0

Source: Company Data, PL Research

Balance Sheet Abstract (Rs m)


Non-Current Assets

Gross Block 6,569 6,569 10,819 10,919

Tangibles 6,569 6,569 10,819 10,919

Intangibles - - - -

Acc: Dep / Amortization 1,576 1,803 2,105 2,528

Tangibles 1,576 1,803 2,105 2,528

Intangibles - - - -

Net fixed assets 4,994 4,766 8,715 8,391

Tangibles 4,994 4,766 8,715 8,391

Intangibles - - - -

Capital Work In Progress 392 2,892 392 150

Goodwill 28 30 33 37

Non-Current Investments 812 812 812 812

Net Deferred tax assets (1,003) (1,277) (1,636) (2,086)

Other Non-Current Assets 288 313 341 371

Current Assets

Investments 2,245 2,245 2,245 2,245

Inventories 1,550 1,790 2,350 2,960

Trade receivables 2,434 2,811 3,689 4,648

Cash & Bank Balance 276 499 113 182

Other Current Assets 298 328 360 396

Total Assets 13,317 16,488 19,052 20,196

Equity

Equity Share Capital 1,645 1,645 1,645 1,645

Other Equity 8,730 10,098 11,892 14,137

Total Networth 10,374 11,742 13,536 15,782

Non-Current Liabilities

Long Term borrowings - 2,000 2,000 -

Provisions 153 153 153 153

Other non current liabilities 1 1 1 1

Current Liabilities

ST Debt / Current of LT Debt - - - -

Trade payables 1,139 1,315 1,726 2,175

Other current liabilities 653 - - -

Total Equity & Liabilities 13,322 16,488 19,052 20,196


NOCIL


Cash Flow (Rs m)

Y/e Mar FY18 FY19E FY20E FY21E Year

PBT 2,531 2,740 3,593 4,497

Add. Depreciation 229 228 301 424

Add. Interest 35 - - -

Less Financial Other Income 143 110 387 460

Add. Other (110) 640 (387) (460)

Op. profit before WC changes 2,685 3,608 3,507 4,461

Net Changes-WC (899) (141) (1,027) (1,121)

Direct tax (802) (932) (1,222) (1,529)

Net cash from Op. activities 984 2,535 1,259 1,810

Capital expenditures (276) (2,495) (1,750) 142

Interest / Dividend Income 30 110 387 460

Others (1,133) 841 404 516

Net Cash from Invt. activities (1,379) (1,544) (959) 1,118

Issue of share cap. / premium - - - -

Debt changes (100) 2,000 - (2,000)

Dividend paid (350) (526) (690) (864)

Interest paid (13) - - -

Others 41 - - -

Net cash from Fin. activities (422) 1,474 (690) (2,864)

Net change in cash (816) 2,465 (390) 64

Free Cash Flow 708 40 (491) 1,952


Quarterly Financials (Rs m)

Y/e Mar Q3FY18 Q4FY18 Q1FY19 Q2FY19

Net Revenue 2,493 2,759 2,681 2,720

YoY gr. (%) 40.6 44.6 13.4 19.5

Raw Material Expenses 1,148 1,220 1,190 1,194

Gross Profit 1,344 1,539 1,491 1,526

Margin (%) 53.9 55.8 55.6 56.1

EBITDA 696 846 802 789

YoY gr. (%) 28.8 21.5 (5.1) (1.7)

Margin (%) 27.9 30.7 29.9 29.0

Depreciation / Depletion 40 112 54 56

EBIT 656 734 748 733

Margin (%) 26.3 26.6 27.9 27.0

Net Interest 3 2 3 1

Other Income 32 32 21 32

Profit before Tax 685 764 766 764

Margin (%) 27.5 27.7 28.6 28.1

Total Tax 235 255 258 236

Effective tax rate (%) 34.4 33.3 33.7 30.8

Profit after Tax 450 510 508 528

Minority interest - - - -

Share Profit from Associates - - - -

Adjusted PAT 450 510 508 528

YoY gr. (%) 76.6 100.1 (9.7) 38.8

Margin (%) 18.0 18.5 19.0 19.4

Extra Ord. Income / (Exp) - - - -

Reported PAT 450 510 508 528

YoY gr. (%) 76.6 100.1 (9.7) 38.8

Margin (%) 18.0 18.5 19.0 19.4

Other Comprehensive Income - - - -

Total Comprehensive Income 450 510 508 528

Avg. Shares O/s (m) - - - -

EPS (Rs) - - - -


Key Financial Metrics


Per Share(Rs)

EPS 10.3 11.0 14.4 18.0

CEPS 11.7 12.4 16.2 20.6

BVPS 63.1 71.4 82.3 96.0

FCF 4.3 0.2 (3.0) 11.9

DPS 2.5 2.7 3.5 4.4

Return Ratio(%)

RoCE 26.1 24.0 25.6 29.7

ROIC 19.7 18.3 19.2 22.9

RoE 17.4 16.4 18.8 20.2

Balance Sheet

Net Debt : Equity (x) (0.2) (0.1) 0.0 (0.2)

Net Working Capital (Days) 107 107 107 107

Valuation(x)

PER 16.5 15.4 11.7 9.4

P/B 2.7 2.4 2.1 1.8

P/CEPS 11.4 12.1 15.8 20.1

EV/EBITDA 9.6 9.0 7.5 5.5

EV/Sales 2.6 2.4 1.9 1.4

Dividend Yield (%) 1.5 1.6 2.1 2.6


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Analyst Coverage Universe

Sr. No. Company Name Rating TP (Rs) Share Price (Rs)

1 Bharat Petroleum Corporation Accumulate 326 277

2 GAIL (India) BUY 435 372

3 Hindustan Petroleum Corporation Hold 219 230

4 I.G. Petrochemicals BUY 810 438

5 Indian Oil Corporation Accumulate 142 148

6 Indraprastha Gas BUY 360 284

7 Mahanagar Gas BUY 1,179 842

8 NOCIL NR - 94

9 Oil & Natural Gas Corporation BUY 223 172

10 Oil India Accumulate 236 199

11 Petronet LNG BUY 300 218

12 Reliance Industries Accumulate 1,152 1,122

PL’s Recommendation Nomenclature (Absolute Performance)

Buy : > 15%

Accumulate : 5% to 15%

Hold : +5% to -5%

Reduce : -5% to -15%

Sell : < -15%

Not Rated (NR) : No specific call on the stock

Under Review (UR) : Rating likely to change shortly

NOCIL


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nocil (nocil in) - business standard...3november 29, 2018 rating: buy| cmp: rs169 | tp: rs270 set...

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