Concall AI

NOCIL Limited — Q2 FY25 earnings call

Call held 29 Oct 2024

Management summary

NOCIL delivered a mixed performance in Q2 FY25, characterized by robust year-on-year volume growth but significant margin pressure. While domestic and export demand remains healthy, aggressive pricing and product dumping from competitors in China, Korea, and the EU compressed profitability. A sequential dip in sales volume was attributed to temporary logistical issues. The company's reported profit was inflated by a one-time tax credit, masking weaker underlying operational performance.

Highlights

Revenue from operations stood at ₹363 crores, a marginal sequential degrowth.
YoY volume growth was strong at 11% for the quarter and 9% for H1 FY25.
Operating EBITDA was ₹38 crores with a margin of approximately 10%, impacted by intense pricing pressure.
PAT stood at ₹42 crores, significantly boosted by a one-time tax credit of ₹14.89 crores.
Operating PBT for Q2 FY25 was ₹32 crores, down from ₹37 crores in Q1 FY25.
Export volumes continued to show double-digit YoY growth.
Current capacity utilization is at 70%.
The ₹250 crore capex at Dahej is on track, with business expected to commence from Q4 FY27.

Concerns

Intense pricing pressure and product dumping

Key financials

01 Revenue from Operations ₹363 Cr -2.4%QoQ
02 Operating EBITDA ₹38 Cr -7.3%QoQ
03 EBITDA Margin 10%
04 Operating PBT ₹32 Cr -13.5%QoQ
05 Profit After Tax (PAT) ₹42 Cr +55.5%QoQ
06 Volume Growth (YoY) 11%

What they filed

Q1 FY27: revenue up 19.9%, net profit up 64.7% against the same quarter last year.

₹ Cr · quarterly

Line item	Q2 FY25	Q3 FY25	Q4 FY25	Q1 FY26	Q2 FY26	Q3 FY26	Q4 FY26	Q1 FY27
Revenue	363	318	340	336	321 −12%	316 −1%	330 −3%	403 +20%
Expenses	325	294	305	306	298	289	309	358
EBITDA	38	24	34	31	22 −42%	27 +13%	21 −38%	45 +45%
Margin	10%	8%	10%	9%	7%	8%	6%	11%
Other income	8	9	6	7	10	1	14	6
Interest	1	0	0	0	0	0	0	0
Depreciation	13	14	13	14	14	14	14	14
Profit before tax	32	19	26	23	19 −41%	13 −32%	21 −19%	37 +61%
Tax rate	-30%	32%	20%	25%	35%	31%	19%	25%
Net profit	42	13	21	17	12 −71%	9 −31%	17 −19%	28 +65%
EPS	2.52	0.77	1.24	1.03	0.73	0.55	1.02	1.66

How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Guidance & targets

Capex

Dahej Brownfield Plant Commissioning Capex · Q4 FY27 · High confidence Plant ready by Sep '26, business contribution from Q4 FY27

Rohit, we have announced that by September '26, 30 months from the date of announcement, we'll be ready with the plant ready for completion. Thereafter, the trials and approvals thereafter. So, it may take 3, 4 months thereafter. So that's why you said fourth quarter of FY '27, the business should start coming in.

— P. Srinivasan

Volume

Quarterly Volume Growth Volume · Every quarter · Medium confidence Sequentially grow from the base index of 140

And our guidance in terms of volume, as we have said in the past, and again, we maintain, our endeavour is to grow sequentially quarter-over-quarter. So, we don't want to give any specific guidance. Our intention, the base number is 140, we would like to grow from here every quarter.

— P. Srinivasan
H2 FY25 Volume Growth Volume · H2 FY25 · Medium confidence Improvement from H1 levels

And for the second half, we maintain that there should be an improvement from here on further going into the second half, at least at this point, when we look ahead, and clearly, with the volumes developing positively.

— V. S. Anand

Margin

Gross Margin Improvement Margin · Ongoing · Low confidence Maybe a 1% improvement

So, I think we have some room to play, but I don't think it's that significant, but maybe a 1% here and there it can improve definitely.

— P. Srinivasan

Risks & concerns

Intense pricing pressure and product dumping
high

Aggressive pricing from Chinese, Korean, and EU players is severely straining margins and making cost pass-throughs difficult.

Management acknowledged
Logistical challenges
medium

Logistical issues caused a sequential dip in Q2 volumes, highlighting a potential operational vulnerability, though management presented it as a one-off.

Management acknowledged
Raw material price volatility
medium

Prices were marginally higher, and the intense competitive environment makes it challenging to pass these costs on to customers.

Management acknowledged

Q&A highlights

3 direct

Volume trajectory for H2 FY25 and impact of Q2 logistical issues Direct

So, Nirav, I would expect it would have marginally been higher than the previous quarter.

It clarifies that the sequential volume dip was a one-off event and not a demand issue, setting expectations for a recovery in H2.

Asked by Nirav from Anvil Wealth

Competitive intensity and pricing behavior of competitors Direct

Everybody is trying to really grab volumes because there is lower demand in some of the markets. We know that the Chinese economy as such, utilization levels are at a significantly lower level. So, they are really looking to take those volumes.

This directly addresses the core reason for margin pressure, confirming that Chinese overcapacity is leading to aggressive, and sometimes irrational, pricing in the market.

Asked by Nirav from Anvil Wealth

Status of the antidumping duty application Direct

We are studying various parameters of the study. We have not filed anything.

This tempers investor expectations for any near-term relief from import pressure, as the process has not even formally begun.

Asked by Aditya Khetan from SMIFS Institutional Equities

2 min read 5 chapters

Detailed narrative

Q2 Performance: Volumes Grow YoY, but Margins Under Pressure

NOCIL reported a mixed performance in Q2 FY25. While volumes grew a healthy 11% YoY, revenue stood at ₹363 crores, a slight sequential decline from ₹372 crores in Q1. The primary challenge remains intense pricing pressure from international competitors, which compressed operating EBITDA margins to approximately 10%, with EBITDA at ₹38 crores. A one-time tax credit of ₹14.89 crores boosted the reported PAT to ₹42 crores, masking the weaker operational PBT of ₹32 crores.

Demand Environment & Competitive Landscape

Management highlighted robust domestic demand for rubber chemicals, driven by the tire industry's stable replacement volumes. Export volumes also saw double-digit YoY growth. However, this positive demand is being met with aggressive pricing and 'dumping' from players in China, Korea, and the EU. Management noted that Chinese players, facing low domestic utilization, are making 'irrational' decisions to capture volumes, making it very difficult for NOCIL to pass on cost increases.

Operational Headwinds and Cost Management

The sequential dip in sales volume was attributed to temporary logistical challenges, which management indicated are now behind them. Operating costs were higher due to increased production activity (in anticipation of sales that were delayed) and higher freight costs for exports to Western markets. The newly commissioned cogen turbine provided some benefits, but these were offset by other cost increases. Management expects the full benefit of the cogen plant and potentially lower freight rates to be more visible in subsequent quarters.

Capex and Future Growth Strategy

The company's major capex of ₹250 crores for a new brownfield plant at the Dahej site is progressing on schedule. The plant is expected to be ready for completion by September 2026, with commercial production contributing to revenues from Q4 FY27. This expansion is key to their long-term growth. In the near term, with current capacity utilization at 70%, growth is expected to come from sequential volume increases.

Antidumping Duty and Inorganic Growth

When questioned about a potential antidumping duty, management confirmed they are still studying the matter and have not yet filed an application with the government. This indicates that any relief from import pressure is not on the immediate horizon. The company is also actively exploring inorganic growth opportunities and adjacencies to de-risk from the rubber chemicals business, but no concrete timelines or targets were provided.

This is an AI-generated summary of a publicly available earnings call transcript.

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