NOCILNSEQ2 FY 2023November 09, 2022

NOCIL Limited

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Management on call

S. R. Deo

MANAGING DIRECTOR – NOCIL LIMITED

V. S. Anand

DEPUTY MANAGING DIRECTOR – NOCIL LIMITED

P. Srinivasan

CHIEF FINANCIAL OFFICER

Key numbers — 40 extracted

INR 389 crore

re safe and doing well. We will begin with the business updates for Q2 FY '22-'23. We generated INR 389 crores in the operating revenue during the quarter. We grew by 4% year-on-year, owing to better realiza

2 FY '22-'23. We generated INR 389 crores in the operating revenue during the quarter. We grew by 4% year-on-year, owing to better realization as we implemented price increases proportional to raw m

17%

you through -- run through some of the key financial highlights. Sales volume for Q2 '23 grew by 17% as compared to -- or the index level of 117 as compared to 100 when you compare Q1 FY '20 as a ba

22%

en you compare Q1 FY '20 as a base. On a quarterly, sequential quarter basis, we have de-grown by 22%, this was basically anticipated in view of the global recessionary trend, which impacted the sale

INR 375 crore

e. Coming to the revenue parameters. The revenue for Q2 FY '23 stood at INR 389 crores as against INR 375 crores for Q2 FY '22, our year-on-year growth of 4% and a degrowth of 23% as compared to the previous

23%

9 crores as against INR 375 crores for Q2 FY '22, our year-on-year growth of 4% and a degrowth of 23% as compared to the previous quarter. Net revenue for half year FY '23 stood at INR 898 crores f

INR 898 crore

degrowth of 23% as compared to the previous quarter. Net revenue for half year FY '23 stood at INR 898 crores for the H1 FY '23 as compared to INR 720 crores for H1 FY '22, a year-on-year growth of 25%. On

INR 720 crore

uarter. Net revenue for half year FY '23 stood at INR 898 crores for the H1 FY '23 as compared to INR 720 crores for H1 FY '22, a year-on-year growth of 25%. On the operating EBITDA parameters, operating EBITD

25%

98 crores for the H1 FY '23 as compared to INR 720 crores for H1 FY '22, a year-on-year growth of 25%. On the operating EBITDA parameters, operating EBITDA for Q2 FY '23 stood at INR 61 crores as aga

rs,

ed to INR 720 crores for H1 FY '22, a year-on-year growth of 25%. On the operating EBITDA parameters, operating EBITDA for Q2 FY '23 stood at INR 61 crores as against INR 49 crores in Q2 FY '22, year-

INR 61 crore

n-year growth of 25%. On the operating EBITDA parameters, operating EBITDA for Q2 FY '23 stood at INR 61 crores as against INR 49 crores in Q2 FY '22, year-on-year growth of 24% and INR 101 crores in Q1 FY '2

INR 49 crore

the operating EBITDA parameters, operating EBITDA for Q2 FY '23 stood at INR 61 crores as against INR 49 crores in Q2 FY '22, year-on-year growth of 24% and INR 101 crores in Q1 FY '23, a sequential degrowth

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Guidance — 16 items

S.R. Deo

opening

“Coming to the debottlenecking projects and new capex, the debottlenecking project, which we had initiated a couple of quarters back, is going as per schedule and we are fully committed to complete the same.”

V.S. Anand

opening

“Let me just walk you through a couple of points from the medium-term scenario and also speak about the ESG-related initiatives.”

V.S. Anand

opening

“On the medium-term scenario, given the energy scenario in light of the geopolitical issues, we are looking at a possibility of a Europe plus 1 scenario panning out similar to the discussions on the China plus 1 strategy.”

V.S. Anand

opening

“It will be noted at this point that the discussions are very much in the initial stages, but these green shoots augur well for players like us with a strong R&D.”

V.S. Anand

“So, it will be difficult to comment at this point in time.”

Dikshit Mittal

“And sir, I think you were hoping that maybe by middle of next year, our capacities can be fully utilized.”

Damodaran

“The first question is again on your guidance on full capacity utilization by March '24.”

Damodaran

“So what specifically has changed in this quarter that we are now sort of, I mean, we're dropping that guidance?”

Damodaran

“And can you point to a few metrics that in this quarter that have come out, that has led you to change that guidance?”

P. Srinivasan

“In a slowdown, you cannot expect everyone to adjust the price as per where we want.”

Risks & concerns — 15 flagged

Similarly, regarding the ramp-up of new capacity, the current global economic scenario makes it difficult to provide the exact timeline.

— S.R. Deo

You have mentioned in your opening commentary that there is a slowdown in export demand and this is a big business for us, given that it accounts for about 35-odd percent of revenue.

— Bhargav Buddhadev

what I was asking that the raw material prices has been quite volatile like aniline and benzene.

— Aditya Khetan

If you really look at raw materials, as you have rightly said it, they continue to be volatile because oil prices, benzene and benzene derivatives continue to be volatile.

— S.R. Deo

So that should actually led to decline in realization?

— Aditya Khetan

So that -- when the local demand, so what the point was, when the local demand in China is lower, there is always a tendency for these volumes to find that the international markets, and that's where the pricing comes under pressure.

— V.S. Anand

So, it will be difficult to comment at this point in time.

— V.S. Anand

I'm just saying because part of the volume decline is one of destocking also.

— Dikshit Mittal

That would be difficult to quantify at this point, so precisely and so because -- so it's kind of a pretty volatile situation and things are changing rapidly.

— V.S. Anand

Sir, lastly, as you mentioned, this China domestic demand is also basically the -- so do you see any risk that Chinese exports may actually start finding their way into export and that can depress the pricing also?

— Dikshit Mittal

So that does put pressure on the prices of other things you could say.

— V.S. Anand

And I think to put the time frame for these challenges, okay, is a very difficult thing.

— S.R. Deo

And that's the reason it is very difficult to put the time frame in terms of capacity utilization.

— S.R. Deo

I think if you really look at the various things which we have been addressing, I think we have clearly said that the demand is slowing down and the slowdown is accelerating.

— S.R. Deo

And that's the reason we are saying that looking at these challenges, it is very difficult to put a timeframe for capacity utilization.

— S.R. Deo

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Q&A — 16 exchanges

My first question is on the export outlook. You have mentioned in your opening commentary that there is a slowdown in export demand and this is a big business for us, given that it accounts for about 35-odd percent of revenue. So, what is the outlook going forward? And do you see any structural issues as far as export demand is concerned?

V.S. Anand

So this is Anand here. So. while we've also kind of commented on this that we see an outlook even in the last call, that there are those recessionary trends that are kind of looming over us. We see this from an outlook point of view, the demand is expected to stay muted. But we don't see any structural specific issues. It's more from a specific also a sentiment point of view that there is a bit of destocking that tends to happen with this sentiment. But at least for the next two to three months, it is expected to be muted. Yes. And my second question is, you alluded to this Europe plus 1 strat

Sir, my first question is on the volumes part. Sir this quarter, volume drop has been roughly around 23% on quarter-on-quarter basis. So, this is only because of exports or domestic also has taken some impact?

V.S. Anand

So domestic, we've still seen a moderate growth in volumes, a large part of it is coming from the export business. So sir domestic dip in volumes, it could be 4%, 5%, is that number would be taken on? You broke off at the end. Can you just repeat yourself, please? Sir, the domestic dip in volumes, so that would be around 4%, 5% is that... We didn't have a dip. So we didn't have a dip in domestic volumes. You didn't have a dip in domestic volume. So sir, considering a drop of 23% only...

Yes. Sir so considering the 23% drop in export only business, so that indicates that for quarter- on-quarter basis, only the exports business as a percentage of overall volume that has dropped to roughly 40%, 50%?

P. Srinivasan

I think I will address very differently, Aditya. Basically, exports -- I think Mr. Anand in his earlier remarks, he alluded to that. There are certain markets which went through restocking or overstocking was there, and that has impacted that business very substantially. I think one should look at the IRSG data for the consumption of various markets. So it's a reflection of that, and that market degrowth in certain markets played out on the export front also for us. So that's the key part. If you're degrowing in relation to the degrowth in rubber consumption, you are at par. We have not degrow

Sir, two questions. So one, just a clarification on what Mr. Srinivasan was mentioning on the IRSG data. So, like if we see your slide number 20, where you have mentioned the global rubber consumption data from 2019 to 2021 we have seen rubber consumption going up by 1 million ton, roughly. So this translates to almost 35,000 tons of rubber chemical consumption. Now when we are seeing from 2021 to 2022, I think the fall in rubber consumption is almost to an extent of 0.7 million tons, so which roughly translates to almost 25,000 tons. So my question is, this 35,000 tons growth, what we have se

V.S. Anand

Yes, definitely. So I think if you look at our volumes also, I think it's definitely much lesser than what the market is reflecting. Partially also to answer, when you look at these global numbers, these are numbers that also reflect a drop in China, for example, yes, or the rest of the other markets. So we might not be in some of the markets which are -- where the drop is more sharper. So -- and also we have -- it's also customer-to-customer relationships that tend to play out. So definitely, the drop is not to that extent. Yes. Sir, so this brings me to the second question. So like if we --

Sir, my question is on US exports. So currently, out of your total, how much is the US currently per month?

P. Srinivasan

Just repeat the question, please? Out of the total exports, what is the US run rate per month, if you can share? I don't have the data right now. Maybe I will share it with the SGA in the coming days. Maybe later. And sir, I think you were hoping that maybe by middle of next year, our capacities can be fully utilized. So based on the current scenario, so what are the basically base case now assumption in terms of current utilization? I think at the starting point, our MD did say that it's a challenging situation. One cannot put any definitive time line. This is already in the starting speech h

The first question is again on your guidance on full capacity utilization by March '24. This is what we had guided last time around. So what specifically has changed in this quarter that we are now sort of, I mean, we're dropping that guidance? And can you point to a few metrics that in this quarter that have come out, that has led you to change that guidance? So that's the first question.

S.R. Deo

So basically, as I addressed you, I think when we addressed you in the last quarter, and when we are addressing you right now as you are aware, the business challenges have completely changed. And I think to put the time frame for these challenges, okay, is a very difficult thing. And probably, I think all of us know, we are aware of the challenges, but we are not aware of the timeframe for the challenges. And that's the reason it is very difficult to put the time frame in terms of capacity utilization. But can you -- I mean, what exactly has changed? I mean, is there a metric or is it that yo

Just wanted to check that since the demand environment is slowing down, are you seeing some trends of realization softening, because as you alluded that even the risk of Chinese dumping is also playing out in a way or there are different markets we try to segment and address that to protect our realizations? So some color on that.

V.S. Anand

So like it's kind of also taking off from -- I think it's related to what Mr. Deo said in the previous response, there is short-term challenges on the realization, maybe a quarter or two. But then clearly, in the long term, there are plans which kind of try to see how we can secure our businesses. And we are expanding our presence with customers which make it more resilient. Yes. And one more thing was that I agree that the long-term outlook is robust, given the Europe Plus One opportunity. But in near term, maybe like a year or so, can the China Plus One helps us protect our volumes in a soft

Yes, sir, in the previous call, you had mentioned that last 1.5 years, China has changed the strategy of pricing. And now you are saying that they are again started dumping again due to slow demand in China. So is there any reason why that change in the earlier and now again coming back because demand slowdown?

S.R. Deo

I think if you really go back to what we talked as a team probably six months back, we didn't foresee the challenges which the world is facing. And I think all the geopolitical events, the recessionary trends have really slowed down the demand, okay? So if you compare what we were saying six months back, of course, we didn't foresee that this is what is going to happen in the world. But currently, if you really ask me, I think that there is slowdown in the demand and which is affecting the business more on short-term basis. Just to add this. I think the key thing is in December '20 or thereabo

So first question is, sequentially, our other opex has remained largely flattish despite almost 22% volumes going down. Any specific reasons as to which and all costs have probably impacted this overall opex?

P. Srinivasan

Large part of this opex expenses is fixed in nature. So it will be flattish by and large, for a quarter. And even when you are operating at a relatively lower capacity operating rates, you were -- some of your variable expenses also becomes semi variable in nature. So that is the reason for that. And in any costs, are we seeing a flattening or probably a reduction in terms of transportation cost or the energy cost in the last one, one and half months? Transport -- freight cost has come down. Definitely, we are seeing a reduction. As far as the energy costs are concerned, Rohit, I think you are

So you alluded that near term, there are challenges and.-- yes. So I was saying that in near term, we are facing challenges. In the long term, you mentioned on Europe Plus One as well. So can you explain a bit more on what would the trigger for export growth in the future? So will it come from new markets or new regions, or maybe new products that we are looking at or any new products in the R&D? So maybe a trigger for export growth is what I'm looking at.

V.S. Anand

Yes. So Nishita, I think business development or business growth is always a combination of the factors that you said, yes? So it's a combination of penetrating already our existing customers where we have strong relationships, strong position. So there is an opportunity to penetrate, and we would like to leverage that. It's also about new markets and new customers, where we will expand our existing products. And there is also a part of -- a small part of new products that we would want to also expand. So it's just a combination of all three that tends to look positive. So let me rephrase the

Sir, the question was you mentioned about Europe 15% of rubber chemical production. But from your earlier comments, we also understand that in your earlier calls that this would also include capacities which European have probably in outside of Europe. So say, for example, Lanxess having somewhere in Africa or somewhere else. So would we have any better sense on what would be Europe's own production, I mean production which is based out of physically in Europe?

P. Srinivasan

Maybe 10% or thereabouts because they have a pan globe presence. So they have some capacities in China, some of India, something in the US also. Maybe we can say about 10% thereabout. And sir, related to this, so we have been seeing this issue with the utilities and other things. So from market sense, have you seen that the production has actually started to decline. One is, of course, due to demand. But capacity is closing because of this utility issue or some other issue. Are you seeing that? And in response to that, are the customers coming to you or they might already be approved with you

Just as an extension of last couple of questions. There is of course, a lot of optimism around China plus 1 opportunity. Just want to understand is there any inflection point that you see from where the demand for you sort of takes off? Or is it more just a normal approval of products that is required over a period of time? I just want to understand that what will basically trigger that offtake in a serious manner as compared to probably more of a linear fashion?

V. S. Anand

I wouldn't say that, it would be right to say that there is going to be a certain inflection point I would see it's a gradual linear movement that would happen. I agree with that rather than an inflection point because it's about getting into customers, and it's about establishing supply circuit, supply reliance and it happens over a period of time, yes. But I would say there is going to be a certain inflection point, but it's going to be more linear. All right. And just to get a sense, have you seen more queries in the last 6 months as compared to what you would have seen six months prior to

Just one quick one from my side. So what was our capacity utilization overall on a capacity of 110 for the six months and for the quarter gone by?

P. Srinivasan

Somewhere around 65% to 70%. And considering the commentary given by all of you in terms of ramping up, I think we might see a delay in complete ramping up. Is the original timeline that we were targeting considering the current business challenges? I think that is what we've made at the start of our announcement. We made a reference to that. So today, it's very difficult to commit a date because of the way the international market is behaving.

Sir, how much would be the exports to Europe as a percentage of total exports?

P. Srinivasan

About 20%. About 20%. Okay. And sir, there has been a noticeable change in trend over the last few years and over the last few quarters? I didn't get your question, please? Change in the sense? Has there been a noticeable change in trend imports exports into the Europe. So currently, it is 20% so considering in FY '15, so what would be the share of exports to Europe be? That has increased. That has increased. Sir, considering now, as sir had mentioned to an earlier participants, so roughly around 10% to 15% of the global capacity and demand would be in euro and considering some of the products

So from the customer's perspective, are we seeing any delays in their expansion plans and that will probably have some impact on the volumes in the near to medium term?

V. S. Anand

So at least I think you know better in the domestic space, you are tracking it. So you know some of the investments are coming on stream. Some of them are happening companies are investing. In the international space, we do not see it's either way, we do not see that there is any sharp increase or a decrease. It seems to be at the same moderate level there. Sir, second question is on the realizations. So is there any difference in domestic realizations and export realizations for us, particularly . It is the adjusted for duties in domestic, and we have the local duties, which is 7.5% plus clea

Thank you. 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 get in touch with our Strategic Growth Advisors our Investor Relations advisors. Request all of you to be safe under the given circumstances. Thank you very much.

Management

Speaking time

V.S. Anand

P. Srinivasan

Aditya Khetan

Moderator

S.R. Deo

V. S. Anand

Dikshit Mittal

Damodaran

Rohit Nagraj

Shiv Chanani

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Opening remarks

S.R. Deo

Thank you. Good morning and a very warm welcome. I hope you had a safe Diwali and wish this New Year brings prosperity and joy. Along with me here, I have Mr. Anand, our Deputy Managing Director; Mr. P. Srinivasan, our CFO; and SGA, our Investor Relations advisor. Hope you all have received our investor presentation by now. For those who have not, you can view them on the stock exchange and company website. I hope you and your loved ones are safe and doing well. We will begin with the business updates for Q2 FY '22-'23. We generated INR 389 crores in the operating revenue during the quarter. We grew by 4% year-on-year, owing to better realization as we implemented price increases proportional to raw material price increases. However, on quarter-on-quarter basis, selling prices largely remained flat. As communicated during our previous investor calls, the sales volume was impacted on account of global recessionary trend on a quarter-on-quarter basis. The silver-lining among this situati

V.S. Anand

Thank you, Mr. Deo, and good morning to everyone on the call. Let me just walk you through a couple of points from the medium-term scenario and also speak about the ESG-related initiatives. On the medium-term scenario, given the energy scenario in light of the geopolitical issues, we are looking at a possibility of a Europe plus 1 scenario panning out similar to the discussions on the China plus 1 strategy. It will be noted at this point that the discussions are very much in the initial stages, but these green shoots augur well for players like us with a strong R&D. As we speak about R&D, we would also like to inform you that NOCIL has been awarded with the Indian Chemical Council's Best Industry Academia Collaboration Award last month. This award was instituted for the first time, is a validation of the decades of fruitful collaboration for research between NOCIL and academic institutions. With spare manufacturing capacity available, NOCIL has a strong appetite to grow further in the

P. Srinivasan

Thank you, Mr. Deo, Mr. Anand and good morning to everyone. Hope you all are safe and in good health. Now let me take you through -- run through some of the key financial highlights. Sales volume for Q2 '23 grew by 17% as compared to -- or the index level of 117 as compared to 100 when you compare Q1 FY '20 as a base. On a quarterly, sequential quarter basis, we have de-grown by 22%, this was basically anticipated in view of the global recessionary trend, which impacted the sales volume. On a half yearly basis, we have witnessed a moderate growth in the sales volume. Coming to the revenue parameters. The revenue for Q2 FY '23 stood at INR 389 crores as against INR 375 crores for Q2 FY '22, our year-on-year growth of 4% and a degrowth of 23% as compared to the previous quarter. Net revenue for half year FY '23 stood at INR 898 crores for the H1 FY '23 as compared to INR 720 crores for H1 FY '22, a year-on-year growth of 25%. On the operating EBITDA parameters, operating EBITDA for Q2 FY

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