NOCILNSEQ1 FY2023July 29, 2022

NOCIL Limited

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144turns

14analyst exchanges

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Management on call

S. R. Deo

MANAGING DIRECTOR – NOCIL LIMITED

P Srinivasan

CHIEF FINANCIAL OFFICER – NOCIL LIMITED

Key numbers — 40 extracted

Rs.509 Crore

growth on the back of some easing in supply chain resulted in a record-high quarterly revenue of Rs.509 Crores. This increase in revenue comes on the heels of a 17% increase in volume in Q1FY2023 as compared

17%

record-high quarterly revenue of Rs.509 Crores. This increase in revenue comes on the heels of a 17% increase in volume in Q1FY2023 as compared to Q1 FY2022 and sequential growth of 12% to 13%. This

12%

e heels of a 17% increase in volume in Q1FY2023 as compared to Q1 FY2022 and sequential growth of 12% to 13%. This was largely due to good demand uptake from tire companies on account of improvement

13%

of a 17% increase in volume in Q1FY2023 as compared to Q1 FY2022 and sequential growth of 12% to 13%. This was largely due to good demand uptake from tire companies on account of improvement in both

75%

a large part of our product portfolio. On the production front, we could utilize our plant around 75% of our installed capacity. Most raw material prices were flattish for the quarter. In a few produ

rsed by IRSG wherein for the quarter January to March 2022 most major markets shown a degrowth of 1% to 3%. The only exception being India and USA. Southeast Asian markets shown a degrowth of 10%. F

y IRSG wherein for the quarter January to March 2022 most major markets shown a degrowth of 1% to 3%. The only exception being India and USA. Southeast Asian markets shown a degrowth of 10%. Further

10%

of 1% to 3%. The only exception being India and USA. Southeast Asian markets shown a degrowth of 10%. Further based on the interactions with customers, we do believe that the coming few months may s

rs,

A. Southeast Asian markets shown a degrowth of 10%. Further based on the interactions with customers, we do believe that the coming few months may see 2 some muted demand, however, we

51%

sales volumes in the quarter. Some of the financial highlights: Volumes grew in this quarter by 51% taking base as Q1 FY2020, so when we are looking at June 2019 it was 100, today we are 151. On a

Rs.509 Crore

s been changes in the geographical dynamics. Net revenue from operations stood for the quarter at Rs.509 Crores as against Rs.462 Crores for Q4 FY2022, a sequential growth of 10%. To recapitulate, this is the

Rs.462 Crore

graphical dynamics. Net revenue from operations stood for the quarter at Rs.509 Crores as against Rs.462 Crores for Q4 FY2022, a sequential growth of 10%. To recapitulate, this is the highest ever revenue par

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Guidance — 20 items

S. R. Deo

opening

“Further based on the interactions with customers, we do believe that the coming few months may see 2 some muted demand, however, we are confident that on an overall basis the volume for H1 FY2023 will be higher by around 10%.”

S. R. Deo

opening

“To pursue the said objective, we intend to optimize the capacity utilization say by September 2023, however, keeping in mind the short-term recessionary outlook we believe that this can get extended by another three to six months.”

Rohit Nagraj

“You indicated on a Q-o-Q basis RM has been flattish now what has been the trend during the ongoing quarter and what do we expect that the RM prices will start alleviating incrementally?”

P Srinivasan

“So, it is important to understand the overall scheme of things then only we will be in a better position to comment on that.”

Nitesh Dhoot

“My next question is on your share of exports in Q1; what will be the share of exports and exports contribution to your revenue or volume?”

S. R. Deo

“The only thing we can very confidently say by debottlenecking, we will be able to meet the demand of next one to two years beyond our current capacity utilization.”

Amar Maurya

“Okay that means like at least the volume growth will be at least 10% right and when we say that capacity will be sufficient for two years from there on.”

P Srinivasan

“It moves a percentage here and there depending on the quarterly fluctuations, but we intend to consolidate further as we go along, but today that is what we can comment.”

P Srinivasan

“It was a minus 3% so when we are talking about a lockdown, the slowdown will be much deeper.”

Saurabh Kapadia

“We have been guiding exports should do well given the approvals or we moving from the discomforts to the second stage of the customer list, so when should we expect the momentum kind of export to pick up, although your initial comments suggests there is some slowdown, but ideally with the changes what NOCIL have witnessed over the last two to three quarters we should be better off than the industry?”

Risks & concerns — 13 flagged

Rohit, I think this is a very difficult question to predict because currently, there is a huge amount of unstability which we see in the world market.

— S. R. Deo

To predict the oil prices and guess the oil prices and petrochemical derivatives are going to be a big challenge and we could be wrong for that guess, however, if you ask me for a month or so I think they look flattish, but that is a very small-time frame.

— S. R. Deo

The second question, now we are witnessing that the pricing decline in majority of the raw materials whether it is aniline or other raw materials and similar correction we are also witnessing into the rubber accelerator prices also.

— Aditya Khetan

We continue to look at which product may have a short fall after may be September 2023 or March 2024 and we continue to debottleneck the plant, so putting a number is difficult.

— S. R. Deo

It is difficult to predict the way it is going but what we have seen so far, all the manufacturing players of this industry are maintaining the delta.

— P Srinivasan

It was a minus 3% so when we are talking about a lockdown, the slowdown will be much deeper.

— P Srinivasan

How can we give stability in a way that the business environment is so volatile or so uncertainty?

— P Srinivasan

We have been guiding exports should do well given the approvals or we moving from the discomforts to the second stage of the customer list, so when should we expect the momentum kind of export to pick up, although your initial comments suggests there is some slowdown, but ideally with the changes what NOCIL have witnessed over the last two to three quarters we should be better off than the industry?

— Saurabh Kapadia

Just the last thing on the slowdown in the overall demand, is it largely from Europe is what we are witnessing, or it is across the geography the slowdown trends have been seen?

— Saurabh Kapadia

The second question is if we see our FY2018 and FY2019, the EBITDA margins were almost 27% to 28%, so it is fair to assume that our per tonne absolute margin is fixed and that is why as the prices have gone up the EBITDA margin has gone down or there is some pricing pressure as well?

— Dixit Doshi

It is a common economics that whenever the supply is in excess of demand, you will have the margin pressure because each player will not behave the same way one can expect.

— P Srinivasan

I think we have already reached to a level unless we see further deepening or further opening of new customers and new account relationships to go beyond this, it will be little difficult I would say.

— P Srinivasan

At this point of time, I think it will be very difficult to guess.

— S. R. Deo

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Q&A — 14 exchanges

Thanks for the opportunity and congratulations for another good quarter. My first question is on the RM side? You indicated on a Q-o-Q basis RM has been flattish now what has been the trend during the ongoing quarter and what do we expect that the RM prices will start alleviating incrementally? Thank you.

S. R. Deo

Rohit, I think this is a very difficult question to predict because currently, there is a huge amount of unstability which we see in the world market. The oil prices are fluctuating. The petrochemical derivatives are fluctuating. To predict the oil prices and guess the oil prices and petrochemical derivatives are going to be a big challenge and we could be wrong for that guess, however, if you ask me for a month or so I think they look flattish, but that is a very small-time frame. We will not be able to guess it for may be two months after or three months after. Sure, got it. The second quest

Thank you for the opportunity. My first question is on the spread part. This quarter also our EBITDA spread is roughly around Rs.65 per kilo, although lower than last quarter but still higher than our average; just wanted to know so is this benefit that has been largely led by the inventory gains or actually the spread for the industry has improved?

P Srinivasan

I do not know Aditya. I am not able to understand from where you are come to the figure of Rs.65 per kg or something. Your volumes for the quarter; Your EBITDA that are divided by the volumes. Somewhere, your calculation may be, incorrect please have a relook at it. That we can answer it separately. Secondly, the performance on the business industry perceptive. You have to look at what is the global trend in the last six to nine months and when you look at and we have been communicating in the past even today also that most of the price corrections are happening in commensurate with the raw ma

Congratulations on a good Q1 performance. My first question is on the strong volume growth in domestic market. What we understand is that the imports of rubber chemicals into India had slowed down in Q1 and NOCIL has substituted that demand, was this slowing of imports temporary in nature owing to some production or cost challenges for the players exporting to India or is there some structural change?

S. R. Deo

This is the question which you have to ask to Chinese manufactures because what they were doing. In fact, what I observe is that the slowing in exports is not from China, but from some other geographies. Even if you see the numbers that has slowed down, but it is not necessarily from China. Can you share that you have on the overall imports slowing down into India? First and foremost is most of the imports, which come in India in the rubber chemical they mostly come from China. Imports from other geographies are very, very small. Yes; that has actually slowed down is what I see, so China is la

Thanks a lot for the opportunity. First question is that in terms of the debottlenecking, how much of the capacities will get expanded because of this?

S. R. Deo

I cannot put a number, but I have made it very clear that we continue to look at the growth. We continue to look at which product may have a short fall after may be September 2023 or March 2024 and we continue to debottleneck the plant, so putting a number is difficult. The only thing we can very confidently say by debottlenecking, we will be able to meet the demand of next one to two years beyond our current capacity utilization. Okay that means like at least the volume growth will be at least 10% right and when we say that capacity will be sufficient for two years from there on. Because of t

Good morning. Just to understand the results better. If the raw material starts reducing and so is the selling price, the per tonne or per kilo margin; we have seen an improvement the way you have explained that we always try to maintain the per unit margin, so now in a declining raw material scenario, will we be able to do that or I just want to understand how the numbers will look?

P Srinivasan

It is difficult to predict the way it is going but what we have seen so far, all the manufacturing players of this industry are maintaining the delta. So far, we have not seen a very contraction trend, that is still maintained so far. May be as we go along, we will understand because it all depends on how the market is. If the recession is there for a shorter period, one need not worry about it, but if it is for a longer period, naturally it is a different issue altogether. It all depends on how the demand outlook is and it reflects capacity utilization and how much extra stock you have. Corre

Good morning. Just a couple of questions. In actually your presentation while your volumes have gone up by 10%, your realization is up by 2% quarter-on-quarter, so is it because of some lag in terms of passing the raw material prices or some product mix change; can you comment on that?

P. Srinivasan

Which slide you are referring to gentleman. Slide number five Sir? 10 Okay. Basically, if you recollect in the last quarter, we had an inventory built up number one. Number two, our capacity utilization January and March quarter was higher as compared to the sales volume, so that had an inventory built up and what we saw in this quarter as Mr. Deo explained at the starting and opening remarks, most of the selling prices were flattish for the quarter as compared to January and March, however on the raw materials few domestic inputs we had some abnormalities and that did impact to an extent marg

Thank you for the opportunity. The Government in the notification rejected the antidumping on three products, so just wanted to understand has the industry dynamic changed compared to last year versus this year that antidumping is now again not being implemented by the government?

P Srinivasan

It is a policy of the central government, which we are not privy to, but what we have been seeing a trend is that most of the recommendations are being rejected. We are unable to ascertain the real reasons for it, so it is not advisable to comment on this today. Generally, industry dynamics in terms of competition or dumping, has there been some better condition in the current fiscal compared to last fiscal? No, I think as far as the trade remedies are concerned, these are all trade remedial norms. This reflects what has happened in particularly injury period and on that basis the Ministry of

Thanks for the opportunity. I am attending this call for the first time, so a couple of basic questions. One, what would be our capacity including both the plants and what will be the global capacity or global demand?

P Srinivasan

Gentleman, I think you please read the investor presentation where we have said the global demand of rubber chemicals is 3.5% of the global rubber consumption, so if you take 30 million tonnes as rubber consumptions today, we are looking at something like 10,50,000 tonnes of rubber chemicals global demand. That is point number one and as far as NOCIL is concerned we have capacity of 1,10,000 tonnes installed capacity, which includes finished goods and intermediates. Okay. The second question is if we see our FY2018 and FY2019, the EBITDA margins were almost 27% to 28%, so it is fair to assume

Thanks for the opportunity and congratulations for a good set of numbers. Most of my questions have been answered. There is just one question. If I look at your COGS growth, which is around 56% to 57% and if I tie that to basically aniline prices, which have been broadly stable on a year-on-year basis, so can you reconcile why the sharp increase in COGS on a year-on-year basis?

P Srinivasan

I just did not follow your question. Can you repeat the question please? Sorry. If I look at your cost of goods sold that has increased by around 57% on a year-on-year basis, but if I look at the aniline prices broadly on a year-on-year basis they are somewhere in the range of 5% to 10% increase on a year-on-year basis. Can you just reconcile why the difference between this COGS growth of 57% whereas your volume actually has only grown by 16% and the aniline prices? Gentleman we are not only consuming aniline, and we are also consuming solvents. We are consuming nitrobenzene and other inputs l

Good afternoon team and thank you for the opportunity. Clearly NOCIL’s competitiveness in the export market has been improving. Is it possible to quantify to see if we have moved up the ladder? I understand there are L1, L2, L3 and L4 suppliers who are supplying to customers, so if you can sort of highlight on this?

P Srinivasan

It all depends on the strategy with each customer. What we endeavor is whenever a customer is having a long-term relationship with us, we take a view from that perspective and then gradually move up the ladder, so maybe we may start with L4 and then thereafter we move to L3, then go to L2 and then L1. It is a long journey because it is not only pricing is one part. It is also involving a weightage of several products, which we are ready to offer along with the quality and the commitment on delivery schedules that is very important. So, one of the key things which today every supply chain cell

Thank you for the followup. There was a news recently that the United States is planning to remove duties on some commodities imported from China and we know that in rubber chemicals US has imposed an antidumping duty on China, so now if that duty is removed can we again see that Chinese flow increasing to US and how this will impact NOCIL; can you tell us in brief on this one?

P Srinivasan

We do not have the updated list whether the rubber chemicals are included in this, or it is being considered number one. Number two independent of that today, we are not getting the 25% benefit when you are selling to the export market in US so for us whether today when a US customer is looking at, he is looking at what cost he is buying it. He is buying from Europe say 100, NOCIL may be 105 and China may be 131, so for us it does not matter much. The only thing is during this Chinese absence, we have established our credentials much deeper and that is why in the US market, we have grown index

Thank you so much. Would you have any sense on what will be the Europe’s total production and their share in global trade in rubber chemicals and particularly our set of products?

P Srinivasan

Europe demand will be about 12% or 11.5% of the world market and on the supply side, they will be about we are talking about Europe incorporated entities. They may have plants across the globe but when you are looking for Europe incorporated entities, they may be about 15%. Any sense on what the absolute physical capacity in Europe and are they big exporters? They do exports to US also because US has a preferential duty arrangement with Europe, so obviously they have a good access to US markets. On the physical assets probably in Europe any share on that if you have? 15% production is of Europ

Thanks for the followup. Everybody manufactures similar set of products, so is their further scope for optimization by including say digitization or industry 4.0 or anything from the existing set of products thank you?

S. R. Deo

Basically, Rohit this optimization continues to be a part of growth so obviously when we put up the plants at Dahej, Dahej was a much better optimization than what with had in Navi Mumbai. And as we walk in all these things which you are talking about like industry 4.0, they will continue to get incorporated in the new plants. 19 Right and from the market share so last couple of years we have gained a good amount of market share from about 35% to 42% to 43%, going back a little bit in history generally this market share gain is irreversible even if there is some new competition or new volumes

I take this opportunity to thank everyone for joining the call. I hope we have been able to address all your queries. For any further information kindly contact, us, or the strategic growth advisors our investor relation advisors. I request all of you to be safe under the given circumstances. Thank you once again.

Management

Speaking time

P Srinivasan

Moderator

S. R. Deo

Aditya Khetan

Rohit Nagraj

Nitesh Dhoot

Amar Maurya

Sachin Kasera

Saurabh Kapadia

Dhruv Muchhal

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Opening remarks

S. R. Deo

Thank you. Good morning and very warm welcome to everyone present on the call. Along with me I have Mr. P Srinivasan our Chief Financial Officer and SGA our investor relations advisors. Hope you all have received our investor presentation by now. For those who have not, you can view them on the stock exchanges and company website. I hope you and your loved ones are safe and doing well. We will start with the performance of Q1 FY2023. We have achieved highest ever volume growth during this quarter. Good volume growth on the back of some easing in supply chain resulted in a record-high quarterly revenue of Rs.509 Crores. This increase in revenue comes on the heels of a 17% increase in volume in Q1FY2023 as compared to Q1 FY2022 and sequential growth of 12% to 13%. This was largely due to good demand uptake from tire companies on account of improvement in both OEM and replacement markets. As mentioned in our investor presentation, we could largely maintain flattish selling prices for a la

P Srinivasan

Thank you Mr. Deo and good morning, everyone. Hope you are all are safe and are in good health. Just to recapitulate the Q1 FY2023 performance, we have registered the highest ever quarterly revenue and volumes. This has already explained by Mr. Deo on the back on better sales volumes in the quarter.

Some of the financial highlights

Volumes grew in this quarter by 51% taking base as Q1 FY2020, so when we are looking at June 2019 it was 100, today we are 151. On a sequential basis, it is about 12% to 13%. During the quarter, we saw volume growth largely from domestic business as there has been changes in the geographical dynamics. Net revenue from operations stood for the quarter at Rs.509 Crores as against Rs.462 Crores for Q4 FY2022, a sequential growth of 10%. To recapitulate, this is the highest ever revenue parameters for NOCIL Rubber Chemicals history. The sales growth was largely driven by volume growth across product segment during the quarter. On the operating EBITDA performance, for the quarter stood at Rs.101 Crores as against Rs.73 Crores in Q1 FY2022, a Y-o-Y growth of 39% and Rs.111 Crores in Q4 FY2022 a degrowth or sequential degrowth of 8%. EBITDA margin for the quarter stood at 20% in Q1 FY2023 as compared to 21% in Q1 FY2022 and 24% in Q4 FY2022. 3 Profit before tax or the PBT for Q1 FY2023 stood

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