Broker’s Call: NOCIL Ltd (Buy)

Axis Securities

Target: ₹283

CMP: ₹266.50

NOCIL Ltd, incorporated in 1961, is engaged in the manufacture of rubber chemicals which are used by the tyre industry and other rubber processing industries. It is a market leader of rubber chemicals in India with about 40 per cent market share and an established clientele.

Strong tyre replacement demand is seen in the domestic market as economic revival takes pace. Tyre demand is robust in the US and Euro regions which will support exports. Overall demand is expected to grow by 7 per cent in FY23.

NOCIL has a capacity of 110,000 MT; currently it operates at 75 per cent capacity utilisation. With the strong demand and product uptake, the company is confident of achieving peak utilisation by September 2023. The topline is expected to grow at about 25 per cent CAGR over the next two years.

Many global and domestic tyre majors are looking to reduce their dependence on China and tap alternate supply chain partners in India. India, being a relatively smaller player in the rubber chemical industry with NOCIL having a dominant share in the Indian rubber chemical industry, the strategic shift will bode well for NOCIL’s growth over the longer term.

We expect the company’s ROE to increase from 7 per cent to 17 per cent over FY21-24, driven by a strong 54 per cent PAT CAGR over the same period, as it continues to maintain market share and captures on strong replacement demand.

Published on

June 06, 2022

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