BUY Recommendation on NOCIL - Highest revenue in a quarter! - HDFC Securities

Mr. Nilesh Ghuge, Institutional Research Analyst, HDFC Securities and Mr. Harshad Katkar, Institutional Research Analyst, HDFC Securities

Our BUY recommendation on NOCIL with a target price of INR 235 is premised on (1) ramp-up in capacity utilisation, (2) robust volume growth on the back of pick-up in demand of the tyre industry, and (3) expansion of margin with focus on specialised rubber chemicals. We expect NOCIL's PAT to grow at 33% CAGR over FY21-23E, led by 24% CAGR in revenue. In the absence of major Capex over the next two years, the RoCE shall expand from 6.5% in FY21E to 10.4% in FY23E and generate an FCF of INR 3bn over FY21- 23E. 4Q EBITDA/APAT was 17/30% above estimates, owing to a 31% rise in revenue, lower-than-anticipated depreciation, and lower-than-expected tax outgo.

Financial performance: Revenue grew 17/51% QoQ/YoY to INR 3.2bn, the highest ever booked in any quarter so far. It grew on the back of increased momentum witnessed in operating levels of tyre majors. Volume grew 3% sequentially in 4Q. FY21 registered 14% YoY growth in volume, and 9% YoY growth in revenue, despite a challenging 1HFY21. Gross margin came at~44.2% (+77/-584bps QoQ/YoY) in 4Q. EBITDA grew 36/37% QoQ/YoY to INR 5bn with EBITDA margin coming at 15.6% (+219/-165bps QoQ/YoY) in 4Q. However, we expect the current EBITDA margin to expand to 16.6/18.2% in FY22/23E owing to a further pick-up in demand in the tyre industry, promising future growth in the OEM segment and better operating leverage.

Call takeaways: (1) Plants operated at 85% capacity utilisation in 4Q. Utilisation levels have increased in July 2020 and have crossed the pre- COVID levels on monthly run rate basis. Production is ramping up month on month basis from July onwards. (2) The Board has declared a final dividend of INR 2/sh for FY21. (3) High value-added products contributed 25% to the revenue in FY21. (4) In FY21, export volumes came in at 35% of the total sales volumes.

Change in estimates: We raise our FY22/FY23E EPS estimates by 4.1/9.8% to INR 7.5/9.3 per share to factor in the overall performance of FY21 and the positive guidance given by the management for the company's operations.

DCF-based valuation: Our price target is INR 235 (WACC 10%, terminal growth 3.5%). The stock is trading at 21.9x FY23E EPS.

Shares of NOCIL LTD. was last trading in BSE at Rs.206.35 as compared to the previous close of Rs. 201.95. The total number of shares traded during the day was 45272 in over 1082 trades.

The stock hit an intraday high of Rs. 209 and intraday low of 202.9. The net turnover during the day was Rs. 9365009.

Source : Equity Bulls

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