NOCIL Ltd Q3 FY2025 Concall Summary

Key Takeaways

• Volumes fell 10% QoQ on imports and destocking: Customer production cuts and aggressive priced imports from China, Korea, Thailand and the EU drove the drop, which management calls a temporary blip.
• Pricing pressure intensified, not eased: Management had expected pricing to bottom out last quarter, but further erosion occurred; antidumping investigations are now underway for a couple of products.
• Value addition per kg held steady: Through a judicious pricing and volume mix, selling prices were adjusted commensurate with input cost drops, preserving value addition on a net-to-net basis.
• China Plus One traction is building: Product site approvals, samples and commercial lots are progressing with global customers, and US tariffs on Chinese rubber chemicals are driving increased inquiries.
• What to watch next quarter: Whether volumes recoup as promised, any early signals from the antidumping investigation, and the pace of operating leverage recovery as utilization ramps.

Volume & Demand Environment

• The 10% QoQ volume drop: Driven by lower customer production, which management views as transitionary, and aggressive priced imports from China, Korea, Thailand and the EU that significantly impacted domestic prices.
• Tire demand split: Replacement and export demand showed a positive trend, while OEM demand is slowing; an expected ramp-up in infrastructure spending should benefit the commercial vehicle segment and drive tire demand in both replacement and OEM.
• Domestic non-tire sector: Well-penetrated presence is driving growth, largely from auto components, engineering goods and other applications.
• Global context: CY24 showed marginal de-growth in global rubber consumption versus CY23; NOCIL's performance was slightly better than the global trend.
• The import dynamics in a downturn: When demand moderates, domestic suppliers suffer because import shipments are already committed and must be cleared; conversely, when demand suddenly picks up, the domestic player is the beneficiary.

Srinivasan: "whenever the production activity is moderated during the quarter because of the demand schedule, the way it is operating, the business is operating, the local player will generally suffer because the import is already committed. The shipment has already come to the country, he has to clear it. So therefore, the domestic suppliers will go through that crisis. Conversely, in a situation when the demand suddenly picks up, the domestic player will be the beneficiary."

Pricing, Imports & Antidumping

• Pricing pressure intensified: Management had believed at the last call that pricing was close to bottoming out, but further pressure on prices played out the other way.
• Antioxidant imports surged: In October, a significant increase in antioxidant imports occurred as the price drop created an incentive for domestic players to import and capture the pricing delta.
• Antidumping investigations initiated: NOCIL has moved on the antidumping duty front, with investigations initiated for a couple of products and now underway; the investigation will conclude in 9 to 12 months, with recommendations to follow thereafter.
• Quality parity with Chinese products: NOCIL's antioxidant quality is comparable to Chinese products; management would not claim superiority or inferiority.
• Market share with large tire customers: A large share with all tire customers continues to be with NOCIL due to supply reliability and local support.

Anand: "with at least our view at the last call was that we're close to bottoming out and we should not see significant further erosion. But it has -- we did see it play out the other way that there has been further pressure on prices."

China Plus One & Export Opportunities

• China Plus One traction: Product site approvals, samples, commercial lots and larger bulk lots are progressing; this is not limited to Japanese companies, and some have already flowed into current numbers while others are at different stages.
• US market opportunities: The US has ADD on China for rubber chemicals, and tariffs on Mexico and Canada present opportunities; inquiries are increasing on that front, though management is keeping fingers crossed on how the whole thing develops.
• Export growth: YoY export growth was driven by strategic customer engagement and product approvals expanding global reach.
• Global supply concentration: Other supplying markets like Korea, plus players in India or Europe, lack intermediate manufacturing capability and should be considered as influenced by China.

Anand: "some of them do present opportunities which are there. We see some inquiries also increasing on that front. But I would really kind of, let's say, keep my fingers crossed on how the whole thing develops, Muskan. Yes. But there will be opportunities, I at least think."

Operational Performance & Margins

• Value addition per kg preserved: On a net-to-net basis, there was no dip in value addition per kg; selling prices were adjusted commensurate with input price drops through a conscious and selective management of volume and pricing mix.
• Expenses tied to manufacturing activity: Operating expenses are based on manufacturing activity, not sales volume; fixed costs are largely constant and production levels were already high, so cost softening did not materialize with the volume drop.
• Sub-optimal operating leverage: The company is currently at sub-optimal operating leverage; as utilization ramps, optimization benefits will flow into operational performance.
• Cost position versus peers: Power cost, depreciation and interest are all lower compared to peers.
• Margin comparison with China Sunsine: China Sunsine operates at much higher scale and receives government subsidies on exports; NOCIL's margin per kg is marginally better than China Sunsine.
• Cost initiatives underway: Steam utilization and efficiency improvements, turbine stabilization benefits, and process yield initiatives are all expected to deliver benefits in the next few quarters.

Capacity Expansion & Diversification

• New capacity expansion announced: Investments announced to further expand capacities in rubber chemicals, for a specific product where NOCIL is already completely out on capacity.
• Phased approach: The company will first debottleneck existing capacity to get additional volumes, then look at brownfield expansion; the new product will come on stream only in the second half of next year.
• Diversification beyond rubber: Management is actively looking at areas beyond rubber, including adjacencies based on similar chemistries or expertise; both rubber chemicals innovation and diversification are underway.
• R&D innovation: R&D and application teams are working on value-added products for launch.
• Operational efficiencies: High focus on operational efficiencies, with a stabilized cogeneration turbine and enhanced renewable energy sources.

Guidance & Commitments

Key Metrics