Poor Demand Squeeze NOCIL’s Q3 Earnings

NOCIL, India’s largest maker and supplier of rubber chemicals, witnessed a squeeze on its earnings due to poor demand for rubber products. especially from the tyre sector.

Apparently, it’s net profit more than halved to Rs 20.99 crs during the fiscal third quarter to December 31, 2019, as against Rs 44.87 crs for the period ended December 31, 2018.

Net sales too eased at Rs 195.70 crs during the period under review as compared to Rs 211.80 crs a year ago.

The rubber chemical industry witnessed a de-growth of 14% in sales volume as compared to the auto industry de-growth of 18% in 9MFY20.

NOCIL management stated that rubber chemical demand continues to remain weak led by softness in auto and tyre sector.

However, a near term growth revival in tyre demand is anticipated on the back of pre-buying due to shift to BS-VI emission norms and low base effect.

Yet, the company outperformed the industry in terms of volume, improvement in volumes expected in Q4FY20. NOCIL volumes fared better reporting de-growth of 7% as compared to rubber chemical industry de-growth of 14% on 9MFY20.

NOCIL expects to report flat to marginal volume de-growth of 0-5% for FY20E.

The company current capacity stands at 72,000 TPA (including intermediates) post completion of Phase 1 of the current expansion plan.

For phase 2 major customer approvals are done and management expects new capacity to start production by Q4FY20 or by early Q1FY21.

Post completion of phase 2 the capacity will stand at 1,10,000 TPA including intermediates.

NOCIL has aggressively pushed volumes to maintain its wallet share from clients. At a time when demand is low and pricing is at record bottom some sacrifice on realization is warranted to maintain its confidence in its clients for a continuous supply of volumes.

The company expects a reversal in rubber chemical prices as current levels are unsustainable which will lead to higher realizations.

Net net we believe that hopefully from FY21 onwards, business prospects are likely to improve as the key sector Automobiles is expected to see some turnaround going ahead. This will directly benefit NOCIL going ahead.

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