Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AA/Stable/Crisil A1+’ ratings on the bank facilities of NOCIL Ltd (NOCIL).

 

The ratings continue to reflect NOCIL's healthy business risk profile marked by its dominant market position in the rubber chemical industry in India and established clientele, as well as robust financial risk profile marked by nil debt. The strengths are partially offset by high revenue dependence on the tyre industry and vulnerability to competition from imports and volatility in raw material prices.

 

NOCIL recorded a y-o-y de-growth of ~11% in operating income to Rs.1,443 Crores in fiscal 2024 primarily impacted by challenges owing to dumping by China leading to sharp decline in realizations of around 8%. The dumping continued during the first half of fiscal 2025 wherein the company witnessed a moderation in operating income by ~2% to Rs 735 crore. Revenue witnessed a degrowth despite a volume growth of over 10% during the period owing to continuing decline in average realization amidst slow global demand and imposition of trade restrictions by USA, leading to dumping of Chinese rubber chemicals in India. Incidentally in the global rubber chemical space, India is amongst the key regions with China being the market leader. Going ahead, revenue is expected to grow in low double digits driven by growing volume as the company continues to focus on increasing share in export markets amidst diversification of vendor base by global customers by following China+1 strategy.

 

The operating margins moderated to 13.4% in fiscal 2024 from 15.6% in fiscal 2023 mainly on account of softening of realization. The operating margins further moderated to 10.7% in the first half of fiscal 2025 owing to logistical challenges faced by the company along with modest realisation. The operating margins shall bounce back and remain range bound at 14-15% over the medium term on account of operating leverage gains coupled with various cost rationalization measures adopted by the company along with correction of logistics expenses as the freight cost shall normalize.

 

The financial risk profile remains strong in the absence of any long-term debt obligation. The company is expected to generate healthy cash surplus over the medium term, which will further help in sustenance of strong credit metrics. Bank lines remain largely unutilized, and net cash accruals should support capital expenditure (capex) requirements. The company does not have debt laden capex in pipeline and liquidity is expected to sustain over the medium term.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of NOCIL and its wholly owned subsidiary, PIL Chemicals Ltd.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Healthy business risk profile: NOCIL’s healthy business risk profile is marked by its leading market position in the rubber chemical industry in India (with ~40% market share) and its established clientele. The company is also among the few players globally with a wide product basket of 20+ rubber chemicals. Furthermore, it has been able to maintain healthy relationships with major domestic and global tyre manufacturers for over 40 years, backed by its ability to meet their stringent quality requirements. NOCIL, therefore, has a good international presence. In the first half of fiscal 2025, exports contributed 35% of the total revenue. Increasing share of business from overseas customers and change in global sourcing scenario to include China+1 strategy is resulting in increase of share of exports, which improved from 26% in fiscal 2018 and is expected to further improve over the medium term.

 

• Robust financial risk profile: Financial risk profile is robust, with net worth of Rs 1,695 crore as on March 31, 2024, and nil debt on the balance sheet as on March 31, 2024. Given the company’s healthy business risk profile and improving exports, cash accruals will provide strong support to fund the working capital requirement over the medium term. Liquidity is healthy, as reflected in low utilization levels of bank lines. The management has indicated a conservative stance towards leveraging and Crisil Ratings believes that going ahead, any large expansion in the future will be funded prudently, resulting in the sustenance of a strong financial risk profile.

 

Weaknesses:

• High revenue dependence on tyre industry: NOCIL derives almost two-thirds of its revenue from the tyre industry. The commercial vehicle (CV) industry, which contributes a sizeable proportion to tyre demand in value terms, is the most cyclical, and resorted to large scale imports of tyres from China and Southeast Asia in the recent past, until an anti-dumping duty was levied on imported tyres in fiscal 2018. While this has led to pick up in demand for the domestic tyre manufacturers and augurs well for input suppliers such as NOCIL, the company’s performance partly remains exposed to the demand pattern of the automotive sector.

 

• Competition from imports and susceptibility to volatility in raw material prices: The domestic rubber chemicals sector faces steep competition from imports primarily from China, and Korea. These players have an advantage of large capacities and government support. In view of underutilization at the foreign competitors end, nearby markets including India remain vulnerable to aggressive dumping which was witnessed in second half of fiscal 2023. This aggressive pricing will remain monitorable in the future.

 

High proportion of raw materials such as aniline, benzene and other chemicals of NOCIL are linked to crude prices and thus the profitability of the company remains susceptible to the volatility of the same. The company is able to pass on raw material price increases, albeit with a lag to contract customers.

Liquidity: Strong

Liquidity was healthy with nil utilization of bank limit for the 12 months ended September 30, 2024, and cash surplus of over Rs 370 crore as on that date. . The cash surplus includes investment in high-rated non-convertible debentures. The company’s liquidity is also supported by nil debt repayment obligations.

Outlook: Stable

Crisil Ratings believes NOCIL will maintain its robust financial risk profile with a largely debt-light balance sheet over the medium term. Furthermore, a continued strong market position should help ramp up enhanced capacities.

Rating sensitivity factors

Upward factors

• Significant and sustained improvement in scale of operations, backed by increased share of exports and value-added products, leading to sustained increase in global market share along with steady profitability margin over 18%-20% on a sustained basis.
• Sustenance of robust financial risk profile and healthy liquid surplus.

 

Downward factors

• Weaker than expected operating performance leading to operating profitability below 13% on a sustained basis.
• Sharp Increase in debt on account of more-than-expected debt-funded capex / inorganic growth or dividend pay-out.

About the Company

NOCIL, part of the Arvind Mafatlal group, is India’s largest rubber chemical manufacturer. The company follows an integrated approach wherein it manufactures intermediates as well as a wide range of final products across two manufacturing facilities in Navi Mumbai and Dahej. NOCIL manufactures four categories of products:

 

• Accelerators: These help increase the speed of vulcanisation to improve productivity.
• Anti-degradants/anti-oxidants: These are the ingredients in rubber compounds that deter ageing or inhibit degradation caused owing to oxygen attack of rubber products, thereby enhancing their service life.
• Pre-vulcanisation inhibitors: These help prevent premature vulcanisation of synthetic and natural rubbers during processing, thus reducing scrap.
• Post-vulcanisation stabilisers: These improve the thermal stability of cross links in rubber products.

 

 The company recorded Rs 735 crore of operating income in the first half of fiscal 2025 with an operating margin of 10.7%.

Any other information: Not Applicable