Alpha Research and

Investment club
NOCIL LTD.

For more details & clarifications, email alpha@fms.edu

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Prepared and curated by Deepak Sonawane

 Company Background
CMP (Rs) 98 Shares Outstanding (Mn) 165 Avg Trading Volume (Rs Mn) 162.5

Market Capitalization (Rs Mn) 15840 Face Value (Rs) 10 52 week High-Low 188 - 94 As on
9MFY19

Incorporatedinin1976,
Incorporated 1943,the
thecompany
companyhashasbeen
been India’s
one of leading
India’s Rubber
leadingChem-
spirits 49967 MT
STRONG manufacturer with 3 distilleries and 28 bottling units
cals manufacturer, company has two production plant at Navi Mumbai and Dahej,
STRONG
PEDIGREE Robust
Gujrat Distribution
(commenced network with over 55,000 retail and 5000 on premise
in 2013) Production Volume
outlets
Company has Ultra modern labs & Pilot plant facilities with experienced,
PEDIGREE
capable & innovative R&D team and company offers multiple product forms
with the help of strong marketing & services team ₹ 9676 Mn

BUSINESS Focus on Prestige & Above category brands with over 11.4% volume growth Revenue
in 5 yearsearnings have increased 7x over FY14-18 led by 1) steady demand
Companies
OVERVIEW
BUSINESS Addition
growth of new
of 12.5% premium
CAGR & RTD
2) higher offerings
share – Rampur
of specialty gradeIndian, Electra, Pluton
chemicals
Bay, Regal Talon
Company’s production volume has registered a CAGR growth of 7% to 40714
OVERVIEW Production of of 157 Million Liters in FY2018
MT in FY 2018
Established pan-India presence

FINANCIAL Revenue
Total hashas grown
grown from
from Rs Rs 719 Crores
1488.39 CroresininFY15
FY15totoRsRs967.6 Crores
1822.77 in FY18
Crores at
in FY17
OVERVIEW
FINANCIAL at CAGR
CAGR ofof 6.9%
7.7%
Targettimely
Nocil’s to have a debt
capex free capital
of Rs4.3bn structure
will double by FY2019
its capacity in stages through H2FY20
OVERVIEW Gross
and margin
revenues can of 47.8% with
potentially a EBITDA
double in FY21E, margin
givenof
the14.7% and ofNet
asset turn 2x.Margin of
6.7% margin stood at 27.2% PAT margin of 17.5% is reported in FY18
EBITDA
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Appendix

Sources: Bloomberg, Ace equity, Motilal Ostwal research, Euromonitor, HDFC securities
QGLP Analysis
QGLP in a nutshell
“QGLP – Quality, Growth, Longevity, reasonable Price”
The Quality Control Laboratory operates round the clock
and is equipped with the latest Analytical Instruments &
Equipment's
Strong increasing margins ( Gross, EBITDA, Net) over the
last 5 years.
Highly Experienced and Quality Management
Large promoter holding indicates conviction and sincerity
of the promoters.
QUALITY
QGLP
PRICE
TTM P/E of 16.5x and PEG ratio is 0.21 are attractive
considering Expected PAT CAGR of 16.7% &
sustainable ROE of 17.4%
P/BV of 2.73x is attractive with Industry average of 3x
EV/EBITDA Ratio of 9.8 indicates company currently is
undervalued as industry average stood at 14x indicates the
potential in the stock to swing upward
Company is successful to become debt free by the second
half of FY 18 (FY14 : D/E ratio was 0.21)
Strong increase in total production volume over the last 5
years to 49967MT
Strong 7.7% Revenue CAGR since FY15 along with
consistent improvement in Gross and Net Margins
Nocil has earmarked capex of INR4.25b. The company is
expected to operate at 2x its current levels post setting up of
expanded capacity at peak utilization levels.
Operating margin is expanding from 10.5%FY14 to 27.4%
in FY18
GROWTH
LONGEVITY
Nocil’s operating matrix has steadily improved due to cost
optimization and better raw material sourcing and is better
placed to compete with global majors.
Increasing domestic market will continue to remain the
bedrock as domestic sales have increased at 18%
CAGR over FY14-18
Combination of product mix in the exports business which
involved higher percentage of products in specialised
applications helped the company to generate margins at
similar levels vis a vis domestic sales. 4
Appendix
 Q – Quality
Quality of Management
Mr. Hrishikesh Mafatlal S R Deo Promoter Holding Institutional Holding Independent Directors
Chairman/ Promoter MD

Nocil ltd, in recent years, has emerged as a leading

Demonstrable Competence
Rubber chemical manufacturer with multiple products
across categories. The promoters have a strong track
record in the industry.
The company also has a strong track record of consistent Responsive Management
dividends to shareholders, increasing to 50% from 40% in

He is a Executive
Chairman and
Promoter Director of
Joined M. Tech. in
Chemical
the last 5 years.
Based on the management's extensive industry
experience, Nocil ltd. has withstood regulatory report
40 % 28 % 50 %
Growth
As of 31 March 2017, Mindset
At the same time, Strong
changes to a robust top-line with strong The external
NOCILLtd.•B.Com.( Engineering from IIT
Hons.) & has ate- Kanpur profitability. Company’s focus on innovation and MFL reported a institutional holding
nded thenAdvanced •Associated with the product development led them to produce four variants of professional
Management Progra- company for nearly rubber chemicals promoter holding of stood at 28.11 % representation
mme 38 years in various on Impeccable Corporate Governance
at the Harvard technical capacities 40.38%. Large (FII+DII). Large the Board with 5.
Business School

CREDIT RATINGS
AWARDS & ACCOLADES

‘Bhartiya Long-term Facilities

Owned Udyog Ratan
brands Award’ to Mr. Crisil - AA
winning the Mafatlal by
‘Monde Selection Economic
Awa rd’ Development Short-term Facilities
multiple times & Research
in the last Association Crisil – A1+
decade

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Source: Annual Reports, Investor Presentations, Industry Research etc. All figures in million ₹ except Share Price data. Appendix
 Q – Quality
Quality of Business
Key Factors Production Volume (MT)
Launched 10 new brands in the last decade • INCREASING PRODUCTION 49967
• LARGEST RUBBER CHEMICAL 44415
MANUFACTURERE IN THE

One of the rare companies in the industry to build entire

COUNTRY
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• DOUBLING CAPACITY TO
portfolio organically through R&D and innovation. MAXIMIZE GROWTH
• STRONG CASH FLOWS,
• DELEVERAGING
• ADDED GROWTH THROUGH
FY 2019 FY 2018
DIVERSIFICATION STRONG GROSS 3 2
MARGINS
• STRONG INETRNATIONAL MARKET Debt Reduction
PRESENCE

Capacity Expansion 96.3 %

OM
#1 FY 2015
Driving growth
through
innovation and
27.2% Healthy balance sheet The largest Rubber
FY 2018

capacity Operating profit

with net cash of Rs chemical manufacturer
expansion margins have
2.5bn as on FY18. Also, In the country .
improved
despite capex plans of
in FY18 against
21.3% in FY
Rs4.3bn over FY18- 6
20E Appendix
17 and 10.2% in
FY14.

Source: Annual Reports, Investor Presentations, Industry Research etc. All figures in million ₹ except Share Price data..
 G – Growth
S tro n g ove ra ll volum e grow th c o u p le d with
g ro w th in th e domestic market
The overall production volume in
MT has consistently increased,
foreshadowing a more suitable and
friendly business environment for
the industry.
To capitalize on growth
opportunities amid favorable market
conditions, Nocil has earmarked
capex of INR4.25b at its Navi
Mumbai and Dahej plants. Nocil
has a healthy balance sheet with net
cash of Rs2.5bn as on FY18. Also,
despite capex plans of Rs4.3bn over
FY18-20E
.
Source: Annual Reports, Investor Presentations, Industry Research etc. All figures in million ₹ except Share Price data.
S tro n g N e t reve nu e gro w th with in c re a s in g
EBITDA and Net margins
In line with increasing production
volume and increase in CAPEX,
the company’s revenue has
increased from 719.0 crores in
FY 2015 to 967.6 crores
rupees in 2018 at a CAGR of 7.7
%.
The EBITDA margin of the
company has increased to 27.4% in
FY18 from 4.3% in FY13 owing to
increase in gross margins and
operational efficiencies resulting in
higher net margin of
16.7% as compared to previous
years..
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Appendix
 L – Longevity
Market Opportunity Balanced Revenue Streams
Market size in three major product categories Product wise revenue breakup (FY18) Product Mix
Combination of product mix in the
exports business which involved higher
percentage of products in specialised
applications helped the company to
generate margins at similar levels vis a
vis domestic sales.

Improved Technology
Nocil implemented state-of-the-art
CAGR 5% realization growth over FY19-21E as crude technology at its new Dahej plant. The
Tyre Industry in a sweet spot – Tyre industry which prices have recovered from lows fully automated process plant which
drives the demand of rubber chemicals by 2/3rd apart from achieving higher
amount growing at 8.3% CAGR over FY13-23 productivity also aided in significant
cost rationalization
Systematic Reduction in Debt
Nocil ltd. has been successful in
reducing its debt to go debt free by
2018. There has been a repayment of
377 crores in the last two years.

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Source: Annual Reports, Investor Presentations, Industry Research etc. All figures in million ₹ except Share Price data. Appendix
 P – Price
Key Valuation Metrics 1-Yr Forward P/E(x)
PEG Ratio
Current P/ E (TTM) 16.5
Expected 3 yr EPS CAGR 11.1%

PEG Ratio 0.21

PEG Ra tio is le s s th a n 1 wh ic h
im p rove s th e c h a n c e of huge
we a lth c re a tio n

Pay-back Ratio
Current Market Cap (Bn) 28.3
Next 5 years PAT (Bn) 2.363
One year stock performance rebased to 100 The stock is trading at
Payback Ratio 0.08 1 4 . 2 x FY 1 9 E a n d 1 2 . 1 x
FY 2 0 E E P S .
We b e l i e v e N o c i l i s w e l l
positioned to
Payback Ratio of less than 1 capitalize on the structural
indicates the potential in the stock changes in the industry and
to become a multi-bagger strengthen its competitive
Note: Market Data as of 30 th November positioning
2018. against international peers.
.
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Appendix
 Financial Summary – Income Forecast

Key Metrics – FY17 to FY20

18.77%
Revenue CAGR

25.8%
EBITDA % –FY20E

NIL
Interest cost – FY20E

21.4%
PATCAGR

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*For detailed calculation, please refer attached Financial Model Appendix
 Financial Summary – Balance Sheet Forecast

Key Metrics – FY17 to FY20

NIL
Borrowings – FY 20E

47.58%
Increase in BS Size–
FY18 to FY 20E

18.30%
ROE% –FY20E

117%
Increase in EPS
FY 20Efrom FY17

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Key Metrics Appendix
Analysis
*For detailed calculation, please refer attached Financial Model
Conclusions & Investment View
Financial Performance
High operating profit margins have been on
Expected price (1 yr) 277
Expected DPS
an uptrend led by product mix change
FY19 2.7
FY20 3.5
FY21 4.4 Commitment to reduce the Debt to Nil by
2018 leading to improved ROE%
Total value of investment 897.40

Current share price (12th Dec,2018)

169 Healthy demand trend and margin expansion,
earnings have increased 3x to Rs1.7bn FY18
Expected gain over the 63.9%
next one years (CAGR) Stringent environmental compliance and cost
increase in China creating a level -playing field
Rs. 10.6 Key Investment Risks
Total Dividend Sharp movement in crude oil prices
expected in next could impact prices of key raw materials and hurt
three years margin
In the event of flare up in US-China trade war, there
64% is a possibility of Chinese volumes being diverted to
India as US is world’s second largest rubber
Yearly return over chemical player after China
investment The anti-dumping duty imposed on rubber
chemicals imports will end in July 2019. Duty
protection adds to ~4% of operating
profits.
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Appendix
Thank You

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