This Specialty Chemicals Sector Stock Zoomed 142.64% In 3 Years, Brokerage Reiterates Buy

Leading brokerage Motilal Oswal recently released a report on NOCIL Limited with positive note. The brokerage reiterates "buy" on the stock for the target price of Rs 283 per share. If you buy the stock today at the current market price, you would likely get a potential return of up to 17%. NOCIL is a small cap Specialty Chemicals sector company having a market cap of Rs 4,018.11 crore. The brokerage hosted NOCIL for a Non-Deal Roadshow in Chennai on 13th December 2022. Below are the key takeaways:

Stock Outlook & Returns Over The Past 5 Years

On NSE, the stock is currently trading at Rs 242.40 per share, 0.81% up from its previous close of Rs 240.45 per share. The 52-week low level of the stock is Rs 190.70, which it recorded on 24 February 2022, and the 52-week high level is Rs 294.90, which it recorded on 12 September 2022.

Over the past 1 week, the stock has fallen roughly 0.19%. However, it surged 5.72% in the past 1 month, while in the past 3 months it fell nearly 10.61%. Over the past 1 year, it surged by 10.02%. Over the past 3 years, the stock has given 141.53% multibagger returns. Whereas over the past 5 years, it gave 32.85% positive returns.

Management expects export market to be better going forward

The export market has been impacted adversely by the downturn in latex demand, which goes into rubber gloves. After Covid fears subsided, there was an oversupply in the rubber gloves market. Management, however, expects that the latex sector has bottomed out. Currently, about 75% of the rubber chemicals are produced by Chinese players but only 36% of the global rubber consumption happens in China. Hence, the Chinese players target the international markets and 2QFY23 saw aggressive pricing mechanisms in place by these players to accentuate competition. The Indian market has been stable although recessionary trends are visible in the export market. This has been mainly led by the negative sentiment that has caused de-stocking. Inflationary fears impacted the off-take in the exports market adversely. However, management believes that the worst is over in the export market and it expects to consolidate and perform better from here. EBITDAM is likely to improve if the current recessionary trends subside.

Debottlenecking and newer products to help gain market share

Currently, the share of specialty in rubber chemicals is 5-7% in the overall global market with NOCIL looking at new technologies, which is gaining traction globally. It is working on new products where there is an opportunity to localize (again China + 1 strategy). NOCIL is also working with customers on specific products that are yet to commercialize (too pre-mature to announce anything). The debottlenecking announced by NOCIL is likely to be completed by Aug/ Sep'23. China Sunsine is expanding its total capacity to 304,000mtpa from 254,000mtpa by end CY23. No other player has really been coming up with capacity expansion plans globally. NOCIL currently has 5-6% of the global market share in the rubber chemicals space and looks to grow this to a double-digit figure. The China +1 strategy is gaining traction every year with Europe +1 expected to play out in the medium term. Management in its conversation with the customers has been hearing about the shifting of some quantities from China and Europe to India.

Valuation and view

The management guided for debottlenecking in its existing units by Aug/Sep'23, even as it evaluates its plans for the next three-to-five years. Currently, specialized products constitute 25% of its total revenue with limited room for expansion (industry standard is less than 10%). Despite a marginal 2% decline in growth in global rubber consumption in CY22YTD v/s CY21, due to the current global slowdown, NOCIL has been able to maintain its market share during the period. Further, management expects that Europe+1 could play out over the medium term with no likely capacity constraints in near future. "The stock is trading at 19x FY24E EPS of INR13 and 12x FY24E EV/EBITDA. We expect the return ratios to be stable at 12-13% in FY23-24. We reiterate our BUY rating on the stock with a TP of INR283," the brokerage has said.

About the Company

NOCIL is the largest manufacturer of rubber chemicals in India, with a domestic/global market share of ~40%/~5%, respectively. Having a rich experience of over four decades, it is a one-stop shop and a dependable supplier of rubber chemicals. The company provides a range of 20+ products. NOCIL has two manufacturing facilities with a total capacity of 110ktpa currently, one at Dahej and the other at Navi Mumbai. It is part of the Arvind Mafatlal group, with Mr. Hrishikesh A. Mafatlal serving as the Executive Chairman and a Promoter Director of the company.

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.