NOCIL

NOCIL's Q3 FY25 performance was marked by significant challenges. Revenue from operations fell 7% sequentially to ₹318 crores, driven by a 10% quarter-on-quarter decline in sales volume. This was attributed to lower production at the customer end and aggressive, low-priced imports. Consequently, operating EBITDA plummeted to ₹24 crores from ₹38 crores in Q2, with the EBITDA margin contracting sharply to just 8%. Management noted that while they adjusted selling prices in line with input costs to protect value addition per kg, the overall market dynamics were highly unfavorable.

Management repeatedly highlighted intense pricing pressure and product dumping from Chinese, Korean, Thai, and EU players as a primary headwind. This influx of lower-priced imports has created a challenging competitive landscape in the domestic market, directly impacting realizations and margins. In response, NOCIL has initiated antidumping duty (ADD) investigations for a couple of products. The investigation process is expected to take 9 to 12 months to conclude, offering a potential medium-term relief if successful.

The key tire industry segment shows a mixed picture. While replacement and export demand for tires remain positive, there is a noticeable slowdown in the OEM segment. Globally, rubber consumption remains weak, with most markets, excluding India and parts of Southeast Asia, showing de-growth. Management expects the long-term global rubber consumption growth to return to a standard 2-3% but acknowledges the current environment is weak, with consumption levels at 2018 levels.

For the nine months ending December 2024, the company's capacity utilization stood at approximately 65% to 70%. This sub-optimal level limits operating leverage. Management is focusing on internal cost-saving initiatives, including improving steam utilization and process yields, and expects benefits from its recently stabilized cogeneration turbine to materialize in the coming quarters. However, the company also saw an inventory buildup for the second consecutive quarter as production outpaced sales, reflecting the demand softness.

Despite current utilization levels being around 65-70% and facing dumping issues, the company is proceeding with a ₹250 crores capex plan for specific products that are already at 90-100% utilization. Analysts questioned this strategy and the slow pace of diversification beyond rubber chemicals, given the company's strong balance sheet with ~₹550 crores in cash. Management stated that diversification into adjacent chemistries is an 'active process' but admitted that potential deals in the past 'didn't kind of work out,' indicating no immediate breakthrough is expected.

Management expects volumes to recover from the Q3 dip but remains non-committal on the exact timeline. For the full fiscal year FY25, they expect volume growth to be in the 8% to 10% range. Looking ahead to FY26, they 'hope to keep at the same level.' On pricing, management is now more cautious than in the previous quarter, acknowledging that the pressure from imports continues and a definitive bottom is yet to be established. The outcome of the China Plus One strategy is materializing, albeit at a mixed pace.