Nocil - Eyeing Gradual Volume Recovery: Prabhudas Lilladher
Capacity headroom to enable capturing demand improvement.
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Prabhudas Lilladher Report
We remain constructive on Nocil Ltd. post our visit to its Dahej (Gujarat) site spread over 50 acres, that houses various rubber chemicals manufacturing plants.
Management indicated gradual recovery in volume across markets (worst possibly behind in Q3 FY23) and improvement in capacity utilisation from hereon (currently at ~65%).
Debottlenecking is ongoing and will be completed by September 2023 (to increase capacity by ~5%). While company’s capex announcement is awaited (~15 months to commission thereafter), management is also evaluating its entry into adjacencies/ newer chemistries.
Nocil remains well placed over medium to long term led by-
domestic tyre industry capex,
China plus one strategy (as customers look for security of supplies),
sufficient capacity headroom enabling demand improvement and
net cash balance sheet (Rs 1.6 billion) and healthy free cash flow generation of Rs 5.5 billion over FY23-25E, though increase in supplies by Chinese competition pose risk to volume and spreads.
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