Motilal Oswal’s take on NOCIL
According to the brokerage “The prices of Aniline, a key raw material for NOCIL, have shot up by 20% MoM in Nov’21 (up 44% QoQ and 149% YoY) due to a supply crunch and other reasons mentioned below. This could result in a normalization of margin for NOCIL (recorded a peak margin of INR55/kg in the no Anti-Dumping Duty environment in 1QFY22). As the price of Aniline increases, the ability of the company to pass through the entire increase subsides (as highlighted in Exhibit 2), resulting in a margin compression.”
Motilal Oswal has said in its research report that “In the current environment, where: 1) the Centre has not accepted the Directorate General of Trade Remedies’ (DGTR) recommendation to impose ADD on one of its key products, PX-13; and 2) there exists a risk of increased dumping from China (China Sunshine would complete its expansion over the next 1-2 quarters), the stock may be under pressure in the near term.”
Buy National Organic Chemical Industries Limited (NOCIL) with a target price of Rs. 320
According to the brokerage’s call “We build in an EBITDA/kg of INR35 for 2HFY22 (in line with the last three year’s average), with an improvement to INR45/INR50 over FY23E/FY24E, as capacity ramp-up and raw material prices normalize from current higher levels. For NOCIL, the priority would be to undertake debottlenecking at existing units in the near term, while long-term planning is under evaluation. Specialized products form 25% of total revenue, and any new capex announcement in this category would be both realization and margin accretive.”
Motilal Oswal has further clarified in its research report that “NOCIL has an asset turnover of ~0.7x in FY21 (set to increase to 1.1x in FY24E). We expect return ratios to recover to 16-17% over FY23-24E (up from 7% in FY21). Valuing the stock at 22x Dec’23E EPS, we arrive at a TP of INR320. We maintain our Buy rating.”
The stock has been picked from the brokerage report of Motilal Oswal Financial Services Limited. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.
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