Buy NOCIL, target Rs 199: Prabhudas Lilladher

Prabhudas Lilladher has given a buy recommendation on Nocil with a target price of Rs 199.

Shares of Nocil traded at Rs 109.25 around 2:40 pm on 10 July, 2019. The brokerage has set a one-year horizon for the stock to hit the target price.

China Sunsine (CS) with market capitalisation of $400 million is a world’s leading rubber chemicals player with a production capacity of 172,000 tonne including 30,000 tonnes of insoluble Sulphur.


CS had a stellar CY18 led by high realization (up 11 per cent YoY) and increased volume (up 8 per cent YoY).

"Our analysis on CS Annual Report suggests that industry consolidation will continue considering China’s strict environmental norms, benefitting non-Chinese players like Nocil," said the brokerage.

However, sluggish near-term demand in domestic and Chinese market is a concern, and the brokerage cut Nocil’s Ebidta margin estimates by 200bps for FY20 to 23 per cent (FY19 27.8 per cent) due to sub optimal capacity utilisation.

The brokerage expects lower realisations for FY20-21E given benign raw material prices. However, it expects Ebidta margin to improve to 25 per cent in FY21E led by demand revival and operating leverage.

"Outlook for rubber chemicals remain bright over medium term given global tyre capex of $8 billion and high capacity utilization of more than 80 per cent. We reiterate buy on Nocil with a target price of Rs 199 (15 times PER FY21E; Rs 221 earlier)," said the brokerage.