Nocil Ltd

NSE:NOCIL

Earnings Call Analysis

Earnings Call Transcript 2025-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to the NOCIL Limited Q1 FY '25 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict.

[Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. V.S. Anand, Managing Director of NOCIL Limited. Thank you, and over to you, sir.

[V. Anand, executive]

Thank you. Good morning. Good morning, everyone. I want to begin by extending my gratitude to all of you for joining us today. Your continued support and confidence in our company are invaluable as we navigate the dynamic market environment.

Along with me, I have Mr. P. Srinivasan, our Chief Financial Officer; and SGA, our Investor Relations Advisors. Hope you all have received our investor presentation by now. For those of you who have not, you can view them on the stock exchanges and the company website.

To start with, let me provide an overview of the company's performance for quarter 1 financial year '25. During this period, revenue from operations amounted to INR 371 crores, representing a 4% growth sequentially. Also, we witnessed a similar 4% volume growth in quarter 1 financial year '25 compared to the preceding quarter.

While there has been an increase in key raw material prices combined with influx of low-cost imports from various countries, we are maintaining a balanced approach by judiciously managing both price and volume to navigate these pressures.

The domestic market continues to face challenges from aggressive dumping by China and other markets, which is exerting downward pressure on pricing. Despite this challenging environment, our long-term engagement with tire players and well penetrated position at non-tire customers enabled us to grow our volumes by 5%.

Our export business continues to show an upward trend despite facing significant challenges such as geopolitical issues, container shortages and rising freight costs, we have successfully managed to improve our volumes in the export market.

This growth is a testament to our strategic efforts and commitment to expanding our presence in international markets. Our focus on innovation, customer centricity and sustainability continues to drive our business, enabling us to maintain our leadership position in the rubber chemicals industry.

In addition to our financial performance, I'm proud to highlight our ongoing commitment to sustainability. We have implemented several initiatives aimed at reducing our environmental footprint, enhancing energy efficiency and promoting circular economy practices.

We continue to enhance green energy sources at both the Dahej and Navi Mumbai sites. Apart from solar and wind energy sources, we have also enhanced our cogeneration capabilities during quarter 1. This provides us with a twin benefit of sustainability and economics.

Sustainability is at the core of NOCIL's values, and we believe that our efforts in this area not only contribute to a better planet, but also create long-term value for our stakeholders. We've initiated various initiatives to reduce our Scope 1, 2 and 3 carbon emission and committed ourselves to various sustainability frameworks, namely the carbon disclosure project, CDP; Science-Based Targets, SBTi; and the UN Global Compact Network. I'm quite positive that sustainability at NOCIL will be a competitive advantage.

During this quarter, we have also made good progress on our capacity expansion project at Dahej. These timely expansions are critical to our long-term growth strategy, ensuring that we are well positioned to capitalize on emerging opportunities and cater to the growing demand from our customers.

A bit of comment on the industry going forward. The domestic tire volume is expected to have a moderate growth of around the mid-single digits in financial year '25. The replacement market, which contributes significantly to the tire industry volumes is also anticipated to remain healthy. The continued investment in infrastructure augers well for replacement tires, especially in the commercial vehicle sector.

Currently, the tire industry is grappling with high natural rubber prices. The natural rubber prices have been -- have seen a significant increase due to a combination of lower domestic output and supply chain challenges in imports.

However, the long-term outlook of the tire industry is positive. Tire manufacturers are very optimistic about the future and investing in capacity expansion, technology upgrades and research and development to enhance product quality and sustainability. Looking ahead, we remain optimistic. While we can anticipate continued volatility in the global markets, we remain positive to stay on the growth trajectory.

That is it from my side for now. I now invite Mr. P. Srinivasan to provide an overview of our financial performance.

[P. Srinivasan, executive]

Thank you, Mr. Anand, and good morning to everyone on the call. Now let's run through the consolidated financial highlights.

On the sales volume front, the volumes for Q1 FY '25 is at 144 taking a base of Q1 FY '20 as 100. On the revenue front, the net revenue from operations for Q1 FY '25 stood at INR 372 crores as against INR 356 crores in Q4 FY '24, a growth of 4%.

We managed to maintain our selling price for the quarter. Volumes for Q1 FY '25 showed a growth of 4% on a Q-o-Q basis as against 8% as compared to the corresponding period of the previous year.

Operating EBITDA parameters. The operating EBITDA for Q1 FY '25 stood at INR 41 crores as against INR 45 crores in Q4 FY '24. EBITDA margins for Q1 FY'25 stood at 11% as compared to 12.5% in Q4 FY '24. There is one item called employee expenses, this have increased sequentially largely due to the annual revision in salary along with [ retiral ] provisions. This is the front loading and which is a similar trend, which was observed in Q1 FY '24, if you compare the results of the corresponding period of the previous years.

Coming to operating PBT parameters. The operating PBT for Q1 FY '25 stood at INR 37 crores as compared to INR [ 38 ] crores for Q4 FY '24 after excluding the profit on sale of real estate in the last quarter, March '24.

Profit After Tax for Q1 FY '25 stood at INR [ 37 ] crores as compared to INR 42 crores in Q4 FY '24.

With this, we would like to open the floor for question-and-answers.

[Operator]

[Operator Instructions] The first question is from the line of Nirav Jimudia from Anvil Research.

[Nirav Jimudia, analyst]

Congratulations on the good show. Sir, I have two, three questions to ask. Sir, first is, can the volumes what we have reported in Q1 of FY '25 can be considered as the base volumes that we should work with and volume should start picking up from here in the subsequent quarters?

Along with it, if you can also share your thoughts on the EBITDA margins per kg, which has shown a dip this quarter. Sir, was there any specific reasons for the same? And how one should read into this going forward?

[V. Anand, executive]

Yes, thank you. Thanks, Nirav. Yes, I'd say definitely the volumes that we achieved in quarter 1 can be taken at the base that we are looking forward to build on further and I'm quite positive we should build from here on. That's on the volumes.

On the EBITDA margin...

[P. Srinivasan, executive]

Yes. Nirav, on the EBITDA margins what we see is, yes, we have faced the pressure because the market conditions are not really conducive to operate because of the challenges, which we mentioned in the -- earlier in the call. However, what we've seen the benefits will start accruing post when we ramp up our capacity utilization, those benefits will start kicking in, and we hope to improve the EBITDA margins.

[Nirav Jimudia, analyst]

Correct. So was the pressure on the EBITDA more because of the realization part or were there some cost increases on the raw material side also because of which the benefits of operating leverage couldn't be achieved in this quarter despite of [indiscernible] 8% volume growth?

[P. Srinivasan, executive]

So if you ask me one other thing which is there in this quarter is that you had a front loading of employee cost expenses and some element of other administrative expenses which gets loaded on the first quarter, which gets [indiscernible] off in the second and third and fourth quarter as we go along, that's number one.

Number two, on the marketing -- on the market condition side, yes, we maintained our pricing. We did not yield to the pressure on pricing. There were some small aberrations in the input cost.

[Nirav Jimudia, analyst]

Got it. Sir, second question is on the mix of export volumes this quarter out of the total volumes what we are seeing in Q1, if you can share your thoughts on that? And any specific geographies where we are seeing the export traction in the export market based on the customer interactions and the exercises what we have done over the past few quarters?

[V. Anand, executive]

Yes. So the spread export is around 34%. I think if I recall, earlier it was 32%, it's about 34% now. And from a market development point, there is -- this growth is coming not only from Asia, but also from Europe also to a certain extent. And we continue to keep our presence in the U.S.

[Nirav Jimudia, analyst]

Got it. So let's say, before two, three quarters, how was in Europe -- because Europe has its own problems in terms of energy costs and everything. So have we seen some improvement in volumes vis-a-vis last two, three quarters or that has not been the case and maybe stood slowly and steadily increasing the volumes in the European market despite of the slowdown there?

[P. Srinivasan, executive]

Yes. So the market -- the market per se in Europe continues to be...

[V. Anand, executive]

Like I put it in a very cautious note. So while we -- at least the secondary data indicates that while the OEM sector is not doing that well in Europe, but the replacement seems to be slightly on a better footing. And at the same time, it's a combination of the fact that we have also been able to -- as we have been describing in the past calls about approvals and going ahead with trial supplies and commercial quantities and that's also been making positive progress.

[Nirav Jimudia, analyst]

Got it. Sir, actually, the intensity of this volume placement into the European and the other geographies should pick up based on the exercises what we have done over the past couple of quarters, this is right to assume, sir?

[V. Anand, executive]

Absolutely.

[Nirav Jimudia, analyst]

Got it. Sir, lastly from my side is, yesterday, in our AGM, which again talked a lot about the power costs and everything. So one of the stuff, what we mentioned was the commissioning of the turbine in the last two, three months. So if you can share your thoughts on the turbine and the initiatives and the green power, what we have taken, which is also written in the annual report. .

Sir, if you can share your thoughts here that now how much of our dependence on captive power is currently vis-a-vis two years back? And let's say when we would achieve full utilization of our capacity, how this mix should look like?

[V. Anand, executive]

So currently, it's a combination like you referred to both green energy, which is solar and wind, and we also have a bit of solar captive. At the same time, now cogeneration, which is active, which we have further enhanced what we produce the cogeneration. So if you put both together, we should be in the range of 60% to 70% in Dahej, and this should go up with full utilization. As utilization ramps up, I would expect this to go to at least 75 and more.

[Operator]

The next question is from the line of Aditya Khetan from SMIFS Institutional Equity.

[Aditya Khetan, analyst]

Sir, my question is on to the gross and EBITDA spreads. Sir, as you had mentioned in your initial commentary that because of higher competitive intensity and weaker demand in domestic markets, we are witnessing some pressure and alongside, you had also mentioned that the raw material prices have now started to move up. So sir, in this case, considering weaker demand and all, is it possible to pass on the incremental RM prices to the end or this quarter per kilo numbers, what we have given for gross and EBITDA, this could be for the full year -- for full fiscal or there can be some improvement also?

[V. Anand, executive]

Yes. So like I mentioned, the pressure on prices continue, and this is also largely driven by the fact that the Chinese domestic economy demand is quite slow, and we see this not only in our sector, but across. And that will -- that I expect will continue to play pressure on prices of the selling products.

But raw materials, I expect there should be some relief as we go into the quarter and we should see some benefit. So -- and that's why we keep playing this judicious mix as to wherever we can retain the prices or move it up with increasing costs, we're able to do that and balance it with volumes where required. So I would expect that at least the raw material costs should give some relief going into the -- at least the second half of the quarter.

[Aditya Khetan, analyst]

Okay. So deterioration, we cannot expect at least from here, like in terms of gross and EBITDA spread, so this could be the bottom and there are chances if RM prices improve, you can also pass it on, so there could be some improvement in margins, is that's the case, sir?

[V. Anand, executive]

Yes. Yes, Aditya. Yes.

[Aditya Khetan, analyst]

Okay. Sir, my second question was on to the exports market. Sir, you mentioned that this quarter, the domestic market was weak, but exports volumes have picked up. But sir, when we talk to other chemical companies we are witnessing, so because of shortage of containers and weaker export market, so sir, how is it that we have shown that growth in volumes in export when even the containers are not available?

[V. Anand, executive]

Yes. So when I actually referred to the export market -- sorry, the domestic market, I didn't say that the demand was really weak. I mentioned that there is a pressure on prices. The domestic market continues to be robust, that's clearly our view. The export market, as I mentioned, we had kind of -- while the market per se there has not been that significant improvement, there are the challenges like you mentioned. But this has also been an outcome of the approvals that we've been getting in the last quarters and months.

[Aditya Khetan, analyst]

Okay. Sir, any sort of like improvement in product mix like our value-added mix also is now at 15%. So any sort of improvement in mix or like higher yield can lead to some better per kilo spreads, is that the case? Or it would be generalized like higher RM only could drive the per kilo spreads number?

[P. Srinivasan, executive]

Yes. So Aditya, the way to look at it is that we are building up alternative plans to improve our value-added portfolio. We are working on our growth plans on that also. That's what is going on. The results will not be seen immediately, but in the medium term, you can see those results being felt in the operations -- getting reflected in the operations.

[Aditya Khetan, analyst]

Okay. Sir, apart from our existing product basket of 23, sir, is there any new addition of products which we have commercialized?

[V. Anand, executive]

Yes. So we did, like we had mentioned in the accelerator space, we have done that. It was a localization. This product was majorly imported, but we have localized that and that's kind of also going to the tire sector. But the volumes are not very large in that. There are [ focused ] products in the pipeline that we're working on.

[Aditya Khetan, analyst]

Okay. Sir, just one last question. Sir, on to the capacity expansion. Sir, at what stage are we currently into the expansion phase in terms of percentage like how much portion has been completed?

[V. Anand, executive]

So we would be -- so we got the approval from the Board in March and I think if I want to put a percentage, probably 10% to 15%.

[Operator]

The next question is from the line of Nitesh Dhoot from Dolat Capital.

[Nitesh Dhoot, analyst]

So sir, on employee expenses, if you could give some colors on the front-loading that you just mentioned? And what can be the reduction as if you see last year's numbers, we saw a reduction only in Q4.

[P. Srinivasan, executive]

So I think we have to look at two things. One is the -- there is this actual valuation which we do for the retiral provisions, which is on a particular date. So whenever we get the valuation done, on that day, the liability gets recognized and reflected in the books of accounts. So the difference is, the change in the liability provisions gets reflected as an expense to the profit-loss account.

So if you see last year, and the last two years, if you see, 65% gets loaded in the first quarter, then you have 30% or 32% gets distributed over the next three quarters. It could be in the region of 20, 10 and 3 or 15, 10 and 5, something like that. So it's a periodical valuation, which we do with an actuary, and that's the requirement as per the Indian Accounting Standards.

[Nitesh Dhoot, analyst]

All right. Okay. That helps. Sir, second question is on the status on antidumping duties. I mean, if we are pressured in terms of margins and these may be below sustainable margins any antidumping investigations that might be on or something that you might be planning to file?

[P. Srinivasan, executive]

Study is going on. At this moment, we are evaluating various options. And at an appropriate time if we feel there is a material case in this -- there's a valid case in this as per the merits, we may not -- we may explore that option. But today, the study is going on. Nothing concrete has been finalized.

[Nitesh Dhoot, analyst]

All right. Okay. And one last question is on the airless tire technology introduced by Michelin, so thoughts on the same? And is it likely to have any change on the rubber chemicals consumption over a period?

[V. Anand, executive]

So it's still at a very nascent stage, Nitesh, and we do not expect any significant impact on account of that, but still very nascent, yes.

[Operator]

The next question is from the line of from [ Harshal Parekh ], Acuitus Capital.

[Unknown Analyst]

Sir, my first question is regarding China [indiscernible] commentary. So they continue to stick to their flexible pricing strategy in order to support the capacity utilization and which is indirectly impacting our utilizations as well. So sir, what are your views on the same, and how long can we sustain as per your views?

[V. Anand, executive]

So I think we were kind of -- all of us are also playing around with words, right, when we say flexible pricing policy or judicious approach to pricing and volume. So at the end of the day, we work towards ensuring that we don't destroy value, but create value in the process. So we are also playing a similar game to ensure that we improve our utilization and that utilization is while creating value. So that's it. It's a balance that you pay product to product, customer to customer.

[Unknown Analyst]

Sir, I understand that, but my point was that how long then -- how long can we sustain from a China perspective? Because if we sustain for another say two to three years, then our EBITDA per tonne maybe depressed for that time frame?

[V. Anand, executive]

So I think, okay, my view is also that as demand picks up in the domestic market in China, also then we should see this alleviating to a certain extent, but that's a certain perspective, yes.

[Unknown Analyst]

Understood, sir. Sir, my second question was with respect to our capacity addition. So we are putting up 20% additional capacity, right, but our existing utilization is around 70%. So by when do we expect our existing capacities to be utilized fully?

[V. Anand, executive]

So we are -- so like what happens is when you say a 70% utilization, we are talking about the overall numbers put together. But when you take at a product level, there could be a different -- you would understand they could be at higher utilization, 90%, 95% and some could be also below 70%, so that's why these investments are for the products which are already at 90%, 95% in that range. And we expect that gradually this utilization will increase. And as we have seen it will keep moving up positively from quarter-to-quarter.

[Unknown Analyst]

Understood, sir. Sir, but the products in which our capacities are not fully utilized, like you mentioned, there are different products and these products have different capacities, what is our expectation on those products capacity utilization?

[V. Anand, executive]

Yes. So those are the ones, [ Harshal ], I was referring to, that they will all move up, and that's where the effort is. They will continuously move up in utilization.

[Unknown Analyst]

Understood, sir. And sir, one question on the power cost also. So historically, our power cost has been in the range of 8% to 10% of revenues. And with this new power capacities which you are put in, how much cost savings are you expecting in terms of percentage of revenues?

[P. Srinivasan, executive]

So if you may ask, I think we are saying 8% to 10% of revenue, again, it's a mix of the pricing at which it is being calculated. If you have a higher revenue base, then the power cost is even from that less than 7%, probably.

What we have seen is an absolute number, if you look at '23-'24 versus '22-'23, there is a 20% or 18%, 19% reduction in the power and fuel cost. We have made a significant achievement in that year. Now going forward, we are still working on to improve the efficiency parameters. We are also making an effort to put in the other source of energy like turbine or the green -- green energy, et cetera. So in all in all, we see if your number is X, probably we may are trying to target to 0.9x, then we may go to 0.8x, that's the endeavor, but that's something which we are constantly working on.

Only at the peak level, I think you'll see the real substantial benefits. But today, on a periodical basis, you will see some incremental benefits coming in.

[Operator]

[Operator Instructions] The next question is from the line of [ Muskan ] from B&K Group.

[Unknown Analyst]

I might be repeating the question. So I wanted to ask, are you witnessing any signs of improvement in the Europe market. Also is Chinese domestic market demand picking up or has it been stagnant?

[V. Anand, executive]

[ Muskan ], your voice was not very clear. Can you just repeat? I didn't get your question.

[Unknown Analyst]

Sure, sir. Sir, I'm asking, like, are you witnessing any signs of improvement in the Europe market? Also, is Chinese domestic market demand picking up or has it been stagnant?

[V. Anand, executive]

Yes, so the Chinese market is kind of -- we don't see any significant improvement kind of like more or less stable is what we see. European market, there has been a slight improvement, but clearly not something significant that to, but there is a slight improvement.

[Unknown Analyst]

All right, sir. Okay. Sir, my next question is that INR 250 crores CapEx in Dahej plant, can you know about what capacity are we planning and for like intermediate products and finished goods products, what's the individual capacity that you're planning to add?

[P. Srinivasan, executive]

[ Muskan ], the point here is we announced that it's about 20% of the current existing capacity. The split between the intermediates and the finished goods and the name of the finished goods will be disclosed in appropriate market. It's a [indiscernible].

[Operator]

The next question is from the line of [ Dhimant Shah ] from ITI Mutual Fund.

[Unknown Analyst]

Just coming to the -- some of the earlier questions which have been alluded, could you enumerate -- because if you see last couple of years in a summarized fashion, it still appears that there is some pricing pressure. So could you just allude to, does the normal grade still form an overbearing portion as against the specialty grade that we were to kind of ramp up over the years? That's question number one.

Question number two, between the vulcanizes and accelerators, do you think we have more proficiency rather capability to extract a higher value add in the -- in one of the categories?

[V. Anand, executive]

Yes, so if you look at our spread, then we're one of the few players into both these categories of products that you said accelerators and antioxidants. We are one of the very few players who still make both the upstream intermediates in-house. So that's quite a competitive advantage. And we see that -- so our proficiency to answer your question is equal and across the product segments.

[Unknown Analyst]

No. So vis-a-vis, let's say, China Sunshine and the others, do we have a slight advantage in terms of capability to both produce and have a cost advantage in one of these categories, particularly the accelerators?

[V. Anand, executive]

So what we have seen is we're quite comparable as far as our -- if you do a comparison with China Sunshine across the product category, it is largely the delta on the export subsidy that tends to kind of give them that additional pricing power. But from a manufacturing point of view, largely comparable.

[Unknown Analyst]

And going by the current expansion that a lot of domestic tire manufacturers have taken. Could you allude that, does their breakup still carry an equal market share for us, which means logically, the domestic offtake should meaningfully rise? And do you have some study as to -- do we have some advantage in terms of the landed cost at their doorstep. So do we stand at an advantageous position vis-a-vis imports or do you think there is no difference or whatsoever?

[V. Anand, executive]

Definitely, for domestic and quite a few of the international players also, there are advantages largely in the domestic market also in terms of -- and from a product portfolio point of view, to answer the question, whatever the plan of expansion, there is an equal opportunity for rubber chemicals in that. And we don't see [indiscernible] but we have clearly an edge on -- in terms of supply reliability and turnaround times, we are far more quicker compared to any of the imports and competition coming in.

[Unknown Analyst]

Perfect. And one last, if you could answer. In the current year, as you expand, but in the existing plant, do you think any meaningful big approval that was pending from the customer side would come through and kind of lead to further enhancement of our sales?

[P. Srinivasan, executive]

Yes. So that's -- there are -- it's not a start or a stop to the approvals. There are still more approvals coming in and they will continue to accrue to the volume buildup that was speaking about.

[Unknown Analyst]

No, my question was whether some meaningfully large approval which was pending from the customer side, do you see fruition of that in the ensuing year?

[P. Srinivasan, executive]

Yes, we do expect that.

[Operator]

The next question is from the line of Aditya Khetan from SMIFS Institutional Equity.

[Aditya Khetan, analyst]

Sir, what is the current capacity utilization? And sir, any guidance can be provided like to current capacity by when can it reach the peak utilization level?

[V. Anand, executive]

About 70% utilization. Peak utilization is not putting a finger, Aditya, on a specific quarter or a month. But we're quite positive this will keep getting ramped up from quarter-to-quarter.

[Aditya Khetan, analyst]

Okay. But sir, so in the next one to one-half years, can we assume that to reach at that peak levels?

[V. Anand, executive]

We should be there around that time.

[Aditya Khetan, analyst]

Okay. And sir, apart from the existing CapEx what we had announced for expanding the rubber chemical facility, any other source of new businesses? Like earlier also we used to allude to the fact that we are also looking some green chemicals and all. So apart from the existing CapEx, is there anything new, which the company is looking at?

[V. Anand, executive]

Yes. So there are quite a few greener, more lower energy-intensive products that we are continuously working on, there are quite a few in the pipeline, but they take their time and they are in different stages of testing and approvals.

[Operator]

[Operator Instructions] The next question is from the line of [ Ravi Mehta ] from [indiscernible].

[Unknown Analyst]

Just taking that last question, is a few green chemicals, what you said is in different stages of testing approval, these are related to rubber chemicals or these are non-rubber chemicals?

[V. Anand, executive]

These are related to rubber.

[Unknown Analyst]

Okay. And the application is similar?

[V. Anand, executive]

So yes, it goes into rubber applications, but it's -- there are kind of multiple applications based on different purposes.

[Unknown Analyst]

And one thing on the power side. So if the cogen turbine has come up, has it started contributing because we're not seeing any savings. So is it yet to flow through the numbers or on the cost savings side?

[P. Srinivasan, executive]

It will start flowing in from the quarter 2.

[Unknown Analyst]

Okay. It got commissioned recently, is it?

[P. Srinivasan, executive]

Yes, yes, it got commissioned in [ June ].

[Operator]

[Operator Instructions] The next question is from the line of [ Harshal Parekh ] from Acuitus Capital.

[Unknown Analyst]

Sir, what will be the revenue mix between exports and domestic for this quarter?

[P. Srinivasan, executive]

The quarter gone by it's about 34% is export.

[Unknown Analyst]

I'm talking about the revenue mix, 34%, I think is the volume mix, right?

[P. Srinivasan, executive]

Yes, it's volume mix. Yes.

[Unknown Analyst]

Can you share the sales mix also?

[P. Srinivasan, executive]

33% is volume mix, 34% is revenue mix.

[Operator]

[Operator Instructions] Ladies and gentlemen, as there are no further questions, we have reached the end of question-and-answer session. I would now like to hand the conference over to Mr. V.S. Anand for closing comments.

[V. Anand, executive]

Thank you. I'll take this opportunity to thank everyone for joining the call. I hope we've been able to address all your queries. For any further information, kindly get in touch with me or Strategic Growth Advisors, our Investor Relations Advisors. Thank you once again, and have a nice day.

[Operator]

Thank you. On behalf of NOCIL Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.