NOCIL Limited — Q3 FY25 earnings call

Call held 7 Feb 2025

Management summary

NOCIL reported a challenging quarter marked by a sequential decline in both volume and revenue, primarily due to lower customer production and aggressive pricing from imports. This led to a significant compression in EBITDA margins to 8%. Management acknowledged the tough market conditions, driven by product dumping, and has initiated antidumping duty proceedings as a countermeasure. While expressing hope for a volume recovery, their tone on pricing has turned more cautious compared to previous quarters, indicating that near-term pressures are likely to persist.

Highlights

  • Revenue from operations stood at ₹318 crores, a 7% sequential decline.

  • Sales volume decreased by 10% sequentially, though it grew 3% year-on-year.

  • Operating EBITDA was ₹24 crores, a significant drop from ₹38 crores in Q2 FY25.

  • EBITDA margin contracted sharply to 8% in Q3 FY25.

  • Profit After Tax (PAT) was ₹13 crores, compared to ₹42 crores in Q2 FY25, which included a one-time tax credit.

  • The company is facing intense pricing pressure and product dumping from China, Korea, Thailand, and the EU.

  • An antidumping duty investigation has been initiated for certain products to counter import pressure.

  • Capacity utilization for the nine months ended Dec 2024 was approximately 65-70%.

Concerns

  • Intense pricing pressure and product dumping from China, Korea, Thailand, and EU.

Key financials

  1. Revenue ₹318 Cr -7%QoQ
  2. Operating EBITDA ₹24 Cr -37%QoQ
  3. EBITDA Margin 8%
  4. Operating PBT ₹19 Cr -41%QoQ
  5. PAT ₹13 Cr -69%QoQ
  6. Volume Growth (YoY) 3%
  7. Volume Growth (QoQ) -10%

What they filed

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

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue363 318 340 336 321 −12%316 −1%330 −3%403 +20%
EBITDA38 24 34 31 22 −42%27 +13%21 −38%45 +45%
Net profit42 13 21 17 12 −71%9 −31%17 −19%28 +65%
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

Volume

  • Full Year Volume Growth Volume · FY25 · Medium confidence 8% to 10% range
    So we have given some kind of an indication also in the investor presentation in terms of the expected volume growth, which is expected to be at least in the 8% to 10% range.

    — V. S. Anand

  • Full Year Volume Growth Volume · FY26 · Low confidence at the same level (8-10%)
    And we hope to keep at the same level going into the next year also.

    — V. S. Anand

Other

  • Antidumping Duty Investigation Timeline Other · from start of investigation · Medium confidence 9 to 12 months
    See, the investigation has started as per the law. There is a time of probably 9 to 12 months is what they will conclude the investigation.

    — P. Srinivasan

Risks & concerns

  • Intense pricing pressure and product dumping from China, Korea, Thailand, and EU.

    high

    This is the primary driver of margin compression and is creating a challenging competitive landscape in the domestic market.

    Management acknowledged

  • Inventory buildup for the second consecutive quarter.

    medium

    Production is outpacing sales, indicating demand softness and tying up working capital. The P&L shows a ₹21 crores credit for change in inventories.

    Both acknowledged

  • Slowdown in OEM demand for the tire industry.

    medium

    While replacement and export tire demand are positive, weakness in the OEM segment is a headwind for a key customer industry.

    Management acknowledged

  • Slow progress on diversification strategy.

    medium

    Despite having ~₹550 crores in cash and discussing it for years, the company has not executed any diversification, increasing its exposure to the cyclical rubber chemicals business.

    Analyst acknowledged

Areas of evasion (2)

  • Specific timeline for reaching full capacity utilization
  • Revenue contribution details of the product undergoing capex

Q&A highlights

1 direct
Volume recovery timeline after a 10% QoQ dip Partial
Yes. So broadly, I would expect volumes to be better going forward. But then yes, exactly how much do we recoup in a span of 3 months or 6 months, I think this we will see as we go along.

Management confirms expectation of volume recovery but is non-committal on the timeline, signaling continued near-term uncertainty.

Asked by Nirav Jimudia

Pricing pressure and whether the market has bottomed out Direct
But I see I'm kind of looking at it and saying, okay, possibly, it's getting close to the bottom, it should not go further. But like I said last quarter, I think I'd like to be cautious this time. But that's the way we see it.

Management explicitly admits their previous quarter's optimism on pricing was premature and adopts a more cautious stance, suggesting margin pressure may persist.

Asked by Aditya Khetan

Capital allocation, including new capex amid low utilization and lack of diversification Partial
So I would say, we have been also talking about this in the last couple of years at the call. There have been quite a few cases which where we were quite close, but didn't kind of work out the way we would like it to. So we're still on it. That's an active process that is underway.

Highlights a key strategic concern: despite a strong balance sheet, diversification beyond the core, currently struggling business has seen no tangible progress for years.

Asked by Gargi Singh

3 min read 6 chapters

Detailed narrative

Challenging Quarter: Volumes and Margins Under Pressure

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.

Import Dumping from Asia and EU Intensifies

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.

Mixed Demand Signals from End-User Industries

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.

Operational Status and Cost Initiatives

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.

Capital Allocation and Diversification Strategy

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.

Cautious Outlook with Hopes of Volume Recovery

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.

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