NOCIL: A Fresh Guard

NOCIL, the rubber chemical maker, expects pick up in sales as customers look to derisk their supply chain by diversifying away from China, which accounts for about 70% of the world’s rubber chemical production.

Higher imports from China, particularly after discontinuation of anti dumping duty on rubber chemicals in July 2019 along with the weak domestic end market (Autos, Tyres) in India, impacted both product price realization and volume growth in recent quarters for domestic rubber chemical companies such as NOCIL.

However,China’s dominance in the global chemical sector received a setback following the outbreak of corona virus.

The impact of the epidemic in China on the chemicals sector is likely to be far reaching, depending on the extent of epidemic reach, the period of plant shutdown in China and restrictions on shipments/logistics.

India imports 50% of its rubber chemicals requirement from China, NOCIL supplies 40% and 10% by other Indian players.

Interestingly, NOCIL has recently completed its mega capex project for antioxidants and accelerators at Dahej. This includes capacity addition for accelerator – TBBS–( N- tert-butyl-benzothiazole sulfonamides; 4500 tonne capacity) which is so far entirely imported into India, whose domestic demand is estimated to be 9,000 tonnes.

So a scenario of lower imports of rubber chemicals from China in the near future can help NOCIL ramp up its production.

The key thing to monitor for the company would be the production shutdown period for the leading Chinese rubber chemical company – China Sun sine Chemical. Its key facilities are about 600 km away from the epidemic epicenter.

However, what can restrain NOCIL from capturing the new opportunities is raw material availability. More than 40% of NOCIL’s raw material is imported, 10% from China. Aniline and Nitro Benzene are amongst the key raw materials for rubber chemicals which are sourced from China.

Recently, NOCIL reported 25.62% decline sales at Rs 194.31 crore while net profit slumped 53.22% to Rs 20.99 crore in the quarter ended December 2019.

With new Dahej plant commissioning, NOCIL would stand to benefit from this in terms of its global positioning in the rubber chemicals market as a leading supplier of choice for tyre companies globally as well as domestically.

NOCIL has already commenced operations at this plant and is expecting to secure approvals for new products from this plant. With exports reporting decent growth, the company is looking to further explore opportunities in the US and Russian markets.

The Company management indicated recovery in volumes to happen only from Q4FY20 onwards.

While, near term growth challenges remain we continue to believe in the long term growth opportunities for the company given capex commitment of USD 10bn by global tyre companies and Rs. 150-180bn by domestic tyre companies.

Further, with US consuming 10% of rubber chemicals globally, the ongoing tariff war between US-China has only opened up opportunities for NOCIL.

The company’s total capacity currently at 73,000 MTPA, post completion of Phase-1 of current expansion the production volumes were at 47,500 MT as of 9MFY20.

The company management stated that it is confident of improvement in sales volumes post commercialization of Phase 2 Capacity in Q4FY20E or early Q1FY21E and impending recovery

Net net the long term outlook for the company looks encouraging and positive

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