INSUBCONTINENT EXCLUSIVE:
Prabhudas Lilladher has a buy call on NOCIL with a target price of Rs 270.
The current market price of NOCIL is Rs 169.80.
Time period given
by the brokerage is one year when NOCIL price can reach the defined target
Investment rationale by the brokerage:Timely capex to support growth: Nocil remains well placed to capitalize on domestic and international
Domestic tyre manufacturers have lined up capex of Rs 250 bn 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)
FY21E, given the asset turn of 2x.
Tougher environment norms to lift cost structure: China has progressively tightened environment norms
This has disrupted supplies for highly polluting chemical industries as they account for over 70 per cent global rubber chemicals
YoY to RMB99mn or 3.6 per cent of revenues
We believe the higher cost structure of rubber chemical players is structural and will ease competitive pressure on players like Nocil,
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 (nearly 4 per cent of sales)
Timely capacity, addition, along with healthy margins, will drive earnings at 22 per cent CAGR over FY18-21E
Net cash of Rs 7.7 bn for FY21E and healthy ROEs of 20 per cent provide downside support.
