NOCIL On The Wheels
Updated: Sep 3, 2020
A part of Arvind Mafatlal Group, National Organic Chemical Industries (NOCIL) is the largest rubber chemical manufacturer in India. NOCIL has been in the rubber chemical business for a better part of four decades. It is one of the handfuls of players in this business to offer such a wide range of rubber chemicals to cater to a variety of customer needs. It is known in the market as one of the dependable suppliers of rubber chemicals. It is also recognized in the global market.
The core competency of NOCIL is rubber chemicals. These are the organic chemicals which are difficult to manufacture as it involves complex chemical reactions and manufacturing operations. These chemicals are a primary product in the process of converting natural or synthetic rubber into finished products such as tyres, footwear, various vehicle components, gloves, industrial belts, etc. Tyre industry, being the major consumer of these products, quality, and consistency of these chemical products are essential for the final products of tyre companies. Thus NOCIL keeps its manufacturing processes up to date with the cutting technology.
Genesis and Journey
In 1961, National Organic Chemical Industries (NOCIL) was incorporated at Mumbai. In 1964, the company entered into a technical collaboration agreement with the Royal Dutch/Shell Group of Companies and Universal Oil Products Co., U.S.A. The company also signed engineering agreements with Bataafse Internationale Chemie Maatschappij N. V., Netherlands, Stone and Webster Engineering Corporation, U.S.A. The company has manufacturing units in Thane, Maharashtra and a new plant at Dahej, Gujrat, opened in 2013. The company has multiple certifications such as Certification for Excellence in Customer Service Standards, Occupational Health, and Safety Management systems,etc.
It has various subsidiaries including EnsenHoldings, Urvija Investments,and PIL Chemicals. The company entered a joint venture with Dowelanco, US for De-NOCIL to manufacture and market crop protection products in India. The company has also signed an MoU with Reliance Industries to sell its petrochemical land plastic products division. NOCIL aims at innovating products and technologies to meet national as well as international standards.
Vision, Mission, and Philosophy of the Organization
“We at NOCIL Limited are committed to be a World Class, Customer Focused, Innovative Organization in the field of Rubber Chemicals and partner of choice to all our customers across the globe.”
The vision of the company aligns with its work at innovating products and technologies to deliver the best to its customers.
To provide customers the best “Value for Money” by producing world-class Rubber chemicals at most competitive prices.
To develop, manufacture, and supply new-generation rubber chemicals which not only give value to the customers but reduce the load on environmental issues.
To provide readymade shop floor technical solutions in the field of rubber compounding to all our customers.
To innovate, build, and operate chemical plants in the safest and environmentally friendly manner.
To continuously enhance stakeholder value by optimum utilization of resources.
NOCIL has a very strong belief in “Ethics of Excellence” which is the Arvind Mafatlal Group’s (AMG) business philosophy. The company has an abiding commitment to nurturing long-term relationships with all its stakeholders, an ethical approach, and sustainable business practices. The company believes in growth through technological innovations, global accreditation, customer delight coupled with a responsible approach towards health, safety, and environment.
Business Area and Management
NOCIL Ltd. is engaged in manufacturing organic chemicals. Its products include accelerators, anti degradants, antioxidants, accelerators, pre vulcanization inhibitors, and post vulcanization stabilizers. The products manufactured by the company are the raw material for the tyre and other rubber processing industries. The company has manufacturing plants in Navi Mumbai, Maharashtra, and Dahej, Gujrat.
Unique Selling Propositions and Brands
NOCIL is quite a popular name in the rubber chemical industry in India. It caters to a niche industry and excels at it. Thus, it has the largest market share. It has had long years of trust since 1961. It is associated with big companies such as MRF, Ceat, Apollo. It has an active R&D department that works to develop specialized products and has increased its funding over the years. The company focuses on delivering quality and consistent products.
Strategic SWOT Analysis
Financial SWOT Analysis
The promoters are increasing their shareholding, which shows that they have faith in the company.
Net cash flow and cash from the operating activity is rising.
The company’s Return on Assets (ROA) is improving, which means it has been efficient in managing assets to generate profits.
The company is debt-free.
Mutual Funds have increased their shareholding in NOCIL in the last quarter.
Growing costs year on year basis (YoY) for long term projects.
De-growth in revenue and profit over the years.
A decline in quarterly net profit
Negative to positive growth in sales and profit with strong price momentum.
Highest recovery from 52 week low.
An increasing trend in non-core income which shows that its core businesses are slowing down.
NOCIL has seen a growing trend in its sales for the past 10 years at a rate of around 8-9%. But its profit margins have been fluctuating. It is because the products of the company are closely related to the tyre and automobile industry. Thus, any changes in these industries affect the company directly. Moreover, the rubber chemical industry has a large number of suppliers who compete for almost the same customers. Thus, the company cannot increase its price easily when the raw material price goes up. It also faces competition from imports from China and South Korea. The low price imports also harm the bargaining power of the company.
The revenue pattern of the past few quarters are as follows:
During the last quarter, the total revenue increased by 10.27% while the revenue declined by 7.61% from 2QFY19 to 3QFY19.
The operating profit remained the same for the 3rd quarter and the 4th quarter. However, it declined by 24.53% from 2QFY19 to 3QFY19.
During the last quarter, the net profit of NOCIL Ltd. showed a positive increase of 4.19%. The net profit had declined by 61.79% during the 2nd and 3rd quarters.
The total revenue fell by 18.75% during the last quarter on a year-on-year (YoY) basis. The total expenses were also down by 9.29%.
During the last quarter, the operating profit decreased by 39.11% while the operating profit margin dropped from 27.8% to 20.83%.
Net profit for the quarter dropped by 29.31%. Consequently, the net profit margin also decreased by 12.87%.
Durability,Valuation and Momentum
DVM allows investors to quickly cull out stocks that are weak investments and focus on more robust investments. Higher scores show a better quality of the shares.
High Durability Score: 65/100
Scores above 55 show high durability. Thus the company has high financial strength. Companies with high durability scores have shown consistent financial performance with good cash flow, stable revenues, and low debt.
Medium Valuation Score: 31.3/100
Scores above 30 are medium valuation scores. Stocks with medium valuation scores have stable earnings, but they are not as popular.
Medium/Neutral Momentum: 48.3/100
Momentum Score identifies the bullish/bearish nature of the stock. Stocks with a medium momentum score are seeing their share price steady with minimal changes. Buyer demand is medium. Currently, the company is mildly bearish.
Good/Medium/Medium in DVM means that the company has a strong past and a stable future and it has maintained a low profile in the market. However, buyer demand is neutral and has a bearish trend.
The total revenue has fallen significantly, which can be attributed to the ongoing pandemic. As a result, the company has also experienced reduced net profit and operating profit during the last quarter.
Share Price Performance and pattern
The chart shows a sharp drop in March 2020 due to the pandemic. Since then the share prices are recovering slowly. It is on a bullish trend. Over the last 30 days, the NOCIL share price has increased by 26.8%. And over the last one year, the NOCIL share price has increased by 17.1%. The price to earnings (P/E) ratio at the current price is 11.6 times its trailing twelve months earnings. Return on Equity (ROE) measures the ability of a company to generate profits from its shareholder’s capital in the company. The Return on Equity (ROE) for the company has declined to 15.9% during FY19.
Return on Assets (ROA) measures the efficiency of the company to use its assets to generate earnings. The ROA of the company has improved and stands at 12.9% during FY19.
Promoters holding has changed to about 34.03% as of June 2020. The foreign institutional investors (FII) holdings have reduced over the years while there are ups and downs in holdings of domestic institutional investors in the company. Mutual Fund holdings have been more or less similar.
Overall, NOCIL is a company growing at a moderate pace. It is commendable to see growth, given that the industry is highly competitive and has a challenging business environment.ImportsfromChinaandSouthKoreahaveresultedindumping.Dumping is when the product is sold below the price of production. Thus, the company faces declining profit margins.Moreover,raw material price increase and crude oil volatility add to the woes of NOCIL. But the company has been growing its sales slowly and steadily over the years and investing in long term innovation in its R&D department. The company needs in-house technology to reduce operating costs and increase profit margins in the future. Promoters have shown good faith in the company, and the management continues to be efficient.
Author: Abinash Baral.