NOCIL (NSE:NOCIL) Q2 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to NOCIL Limited Q2 FY 'twenty seven Earnings Conference Call. This conference call may contain forward looking statements about the company, which are based on beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participants' line will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. V. S. Anand, Managing Director from NOCIL Limited. Thank you, and over to you, sir.

0:51 Thank you, Hikra. Thank you, and good morning to everyone. I'd like to start by expressing my appreciation for your presence today. Joining me are Mr. P. Srinivasan, our Chief Financial Officer and our Investor Relations Advisers from SGA. I hope you have all received our investor presentation. If not, it's available in both the stock exchanges and on our company's website. When I look at the first half of this year, I believe the important point is that we have continued to make progress in a challenging business environment. We have had to navigate global uncertainty, supply side disruptions and competitive pressures. At the same time, we have continued to invest in strengthening NOCIL for the long term. Let me begin with a brief overview of our performance.

1:37 We concluded H1 FY 'twenty seven with revenue of $8.30 crores, a growth of 26% over the corresponding period last year. Volumes grew by 3%, supported by sustained demand across our key end markets. Domestic volumes registered single digit growth, aided by improved demand following the implementation of GST 2.0. Export volumes also recorded single digit growth, reflecting continued traction across international markets and the conversion of customer engagements into business opportunities. For quarter two, revenue from operations stood at INR $4.27 crores, registering a year on year growth of 33% and sequential growth of 6%. This was primarily driven by an increase in the average selling price.

2:25 However, volumes declined by 3% year on year and 7% sequentially due to temporary supply side constraints and logistical challenges arising from the geopolitical situation. While these disruptions impacted our quarterly volumes, our customer engagement and underlying demand remain healthy. We have addressed the supply side constraints, and we expect the affected volumes to recover in the second half. The quarter's performance also reflects the continued competitive pressures in the market, including the impact of import dumping. Our focus remains on balancing price and volumes while protecting our competitiveness. Let me now briefly touch upon the industry environment. Domestic tire demand continued to benefit from the consumption tailwind following GST 2.0.

3:13 At the same time, the industry faced higher raw material costs with crude oil prices rising during the quarter amid geopolitical tensions. This has had a bearing on input costs across the value chain. Looking ahead, a weaker monsoon and inflationary pressures could create some near term demand headwinds. However, the underlying industry fundamentals remain supportive, driven by healthy replacement demand, growth in OEM volumes and favorable long term growth drivers. We, therefore, remain positive on the industry's long term prospects while recognizing that the near term operating environment continues to be challenging. Coming back to NOCIL. I would like to highlight the progress we are making on our investments. Our brownfield PDQ expansion at DeHage is progressing towards customer approvals, which we expect over the coming months.

4:00 Work on our integrated specialty rubber chemicals project is also progressing as planned. These investments are important steps in strengthening our product portfolio and manufacturing capabilities and in positioning NOCIL for future growth. Looking ahead, we remain focused on deepening customer relationships, expanding our presence in domestic and export markets and pursuing new product opportunities. Coming to our financial year twenty seven outlook. As highlighted during our last earnings call, we had indicated a revenue range of INR 1,400 crores to 1,600 crores. Given our H1 performance and the current momentum, we remain confident of closing FY 'twenty seven towards the upper end of this range with EBITDA margins of around 10%. While the operating environment remains uncertain, our priorities are clear.

4:48 We will continue to focus on our customers, operational excellence, disciplined investments and financial discipline while building the capabilities required for sustainable long term growth. As part of our efforts to build a more cyclically resilient business and utilization of our cash chest, we've been actively exploring opportunities for inorganic growth in the chemical space, and we will keep you posted as and when there is any development on that in that space. With this, I now invite Mr. P. Srinivasan to provide an overview of our financial performance. Thank you, Mr. Anand, and good morning to everyone. Let's run through the Q2 and H1 FY 'twenty seven financial consolidated financial highlights.

5:34 Sales volume, volumes for Q2 FY 'twenty seven was 135, taking a base of INR 100 crores as Q1 FY 'twenty. Revenue net revenue from operation for Q2 FY 'twenty seven stood at INR $4.27 crores, registering a growth of 33 on Y o o Y basis and 6% on Q o Q basis. For H1 FY 'twenty seven, net revenue from operations stood at $8.30 crores, registering a growth of 36% on Y o Y basis. EBITDA for Q2 FY 'twenty seven stood at INR 36 crores, registering a growth of 61% on Y o Y basis, while witnessing a degrowth of 20% on a Q o Q basis with margin standing at 8.4%. For H1 FY 'twenty seven, EBITDA stood at INR 81 crores, registering a growth of 54% on a Y o Y basis, while margin standing at INR 9.8.

6:26 Profit before tax PBT for Q2 FY 'twenty seven stood at INR 28 crores, registering a growth of 52% on a Y o Y basis, while witnessing a de growth of 24% on a Q o Q basis. For H1 FY 'twenty seven, PBT stood at 65 crores, registering a growth of 57% on a Y o Y basis. Profit after tax, PAT for Q2 FY 'twenty seven stood at INR 24 crores, suggesting a growth of 98% on Y o Y basis, while witnessing a de growth of 13% on Q o Q basis. For H1 FY 'twenty seven, PAT stood at INR 52 crores, registered growth of 76% on Y o Y basis. With this, we would like to open the floor for question and answers. Thank you very much. We will now begin with the question and answer session.

7:18 Session. The first question is from the line of Neeraj Kumaria from Annual Wealth Management Private Limited. Sir, a few questions. So first, on the volume growth side, like last quarter, you mentioned that for FY 2027, the top line assumption we have taken close to around 10% volume growth. So just going by that number, let's say for achieving this sort of numbers for FY 2027, for H2 FY twenty twenty seven, on an indexation basis, we need to do a volume at a rate of around 165.

8:05 So how confident are we in terms of achieving these numbers for second half? And if you can give some qualitative understanding about the volume growth from where this volume growth could accrue to us, that would be very helpful. Yes. Thank you, Neel. Yes, you're right about the indication we had given on the volume growth. And we're quite positive that we will be able to still stay in the 8% to 10% growth in terms of volumes. And I'm positive that from an index point that you touched, I would say, least in the 160 range should be there, 160 to 165. And just again, coming back to your to the additional point about the quality of the growth. So it's going to come from a combination of both domestic as well as the international markets.

8:54 And that's why we are quite positive. Perfect. And sir, just going by that indexation numbers, let's say, if we have been able to achieve this number for second half, this automatically ensures that, let's say, for FY 2028, this also ensures 10% volume growth. So is this a right assumption to work with even for FY 2028? Yes. I'd say that's a fair assumption to take, yes. Got it. So second question is like on the gross margin side and on the conversion cost side. Let's say, just going by the simple math, like if we have seen like what we have seen for H1, our gross margins run rate is close to around INR700 crores and our conversion cost run rate is close to around INR520 crores. So if we just subtract this, our EBITDA should be closer to around INR180 crores and here, I'm not taking the benefits of any operating leverage, which could accrue to us in terms of the higher volumes, which we are expecting for second half.

9:58 So in your opening remarks, you mentioned that we have been confident enough in terms of achieving INR 1,600 crores of top line with 10% margins. Aren't we conservative enough in terms of giving this guidance since the metrics are showing on a slightly upper end? Yes. So while yes, you're right, there is a bit of conservatism given the fact that typically from one quarter to the other, the environment is also evolving. So there is a bit of conservatism, but we will strive to really achieve more. That's for sure. Yes. Perfect. And sir, last question from my side. Sir, in terms of first quarter, we had issues with respect to power. Second quarter, we had an issue with respect to the shipping issues or the supply constraints and the other factors. So where are we currently in terms of addressing these factors?

10:57 And can we see the benefit of the captive power boilers, which we have put up accruing to us with respect to the higher volumes, which we are expecting for second half? Thank you. Yes, yes. That should start kicking in, in the second half. And coming to the point about some of the challenges we had, they have been addressed. As we speak, they addressed, and we expect that the volume should start picking up from a production point of view, too. So and also the point about the turbines and all that, the full utilization of it will come into play as we increase the volumes in the coming months. The next question is from the line of Aditya Khetan from Smith Institutional Equity.

11:56 Sir, just a couple of questions. Sir, on to the volume guidance, like you mentioned to the earlier participant, so when we look to today's environment, oil prices are at record high, volatility is there, geopolitical uncertainties are still lingering around. Even tire volumes growth has been moderated by some of the good credit rating agencies from 8% to 4%, 5%. What is that optimism which is driving us for the stronger volume growth in H2 versus H1? First. And second question, like when we look also your conversion cost over the last few quarters, like we were replacing some lower power cost control on freight. But that benefit is also now going away.

12:41 We are replacing some 10 to INR 20 per kg jump in conversion cost also. So what is the outlook over there? Like will this come down as and when freight prices normalize? Or like this would continue to stay? Yes. So on the volume front, like you rightly said, there has been a bit of a moderation in terms of also the market expectation. But what we have also considered, we have factored that in, in terms of the volumes, but we also see that quite a few opportunities in the international markets are also fructifying. And these things will also kind of contribute to mitigate some of those effects. But there is quite positive that, that 8% to 10% will come from a combination of both these efforts.

13:31 Coming back to the conversion costs, I'll just begin and then maybe Srini can also please comment. Yes, so it's combination of the fact that we have had significant increase in fuel costs, which have played out a role, both in terms of coal as well as from a point as well as gas. And also our freight costs, not only domestic, but also sea freight, you know the situation is quite kind of spiral to quite high level. And these are also playing out. Srini, anything else that you would like to add? So I think one of the things which we saw in this quarter is we saw in this half year, basically, the utilities cost has significantly increased both the coal, gas rates, etcetera. So that has an impact on the conversion cost, direct relation to that as also Seafreight.

14:27 And also since we had some supply set challenges, so we had some leveraging all those leveraging benefits, which we should normally should have, that didn't accrue. So probably in second half, we'll get all those things coming in. Got it. Sir, you mentioned like the international volumes will see an uptick. So largely an international volumes also include a portion of the specialized rubber chemicals also. So how will that move up? So will that also move up? Or like that would remain flat only? It would be in similar ratios. I don't see any significant jump in that, Alethia. Got it. Got it. Okay. Sir, my next question is on to the antidumping duty time.

15:14 Sir, recently, it would be like we had also filed for antidumping duty on four ADP. I suppose, sir, if duty is imposed, that would correct the value chain of PX-thirteen also, that's a good move. So sir, suppose if the duty is imposed and also factoring the self anonymized duty, if suppose like on four eighty, would be the additional quantum of percentage margins, which NOCIL can additionally get? Just a ballpark number I'm asking also are there are there also a range would help, sir, on that side, like just a range number also, if you can give. So one is on four eighty, would like to clarify, it's an intermediate of the precursor to PILFlex 13.

15:59 PILFlex 13 anti duping routine recommendation, unfortunately, could not be notified or did not get accepted with the central government. So it all even if you have a duty protection, what will happen is indirectly, it may make the other domestic producers, if you'll get notified, their cost of production of will go up because there is an anti dumping duty on four eighty ba. But it may need not result at a higher price for because the import is still outside anti dumping zone. What it may give, if a dollar rate happens, we don't know what will happen eventually after three months. So it all depends to see what is the final outcome. But assuming there is a situation, there is an anti dumping duty gets notified, probably, probably we may get the domestic other domestic players will have some difficulty in production or they have to produce at a higher cost. So all three will be competing with the imports. That is what we are looking at it. It remains to be seen at what price and what are the effects of it in the marketplace. That's on one point.

17:02 Secondly, on the sulphuramide thing, are it's not comparable in the sense because today, the import data is just not available. So we are unable to really quantify what is the exact benefit. We do factor in our pricing decisions, some quantum of it. But how much the imports are undercutting, what are they pricing, none of us are aware have information to that. Okay. Sir, just one last question, if you may allow. Sir, have you witnessed any sort of new capacity additions outlined by Chinese players, which could materially see sort of further higher competition from imports? Any sort of new capacity additions like in the global pipeline you had witnessed?

17:51 Nothing in the last few months apart from those ones that were already announced or getting on stream earlier. The next question is from the line of Nitish Tooth from Anandrati Institutional Equity. My first question is on the realizations, which I see is up by about 36% year on year. So can you give some color on how much of this increase also comes in from the ADD on CBS and NS?

18:40 And how much is from the passing of the higher cost there? So is there any element of the ADD benefit at all? This is what I'm trying to understand. It's not significant of that because the ADT is only on sulphonamides. So it's not significant. Some portion is there, but I think we cannot quantify the exact number. Okay. Because there's INR 100 increase in realizations and when we look at the increase in the EBITDA spread in the last couple of quarters, it's hardly INR 13. So if there is any element of ADT, then it means that the rest of the part, I mean, structurally, the steady state margins without ADT is becoming even weaker.

19:30 If I may come in, basically, you have to look at two parts. If you see our annual report, 60% of our business is antioxidants. And what we are talking about, ADD sulphuramate, which is a small portion. It is not as high as 60%. That's number one. So whereas what we are seeing in the price increase is a reflection of cost increase also. So and that is factored in the delta increase. What I think one of the participant had raised a question on that value addition. That shift has happened during this year. So basically, the run rate has improved over as compared to the previous years. So that being the case, I think that includes a portion of the delta over the price and the cost as well as some element of ADD. We cannot quantify the exact quantum at this stage.

20:20 Okay. Okay, sir. And so second, on the inventory part of it. So what I see is that there's about INR 57 crores of inventory build that has flowed through the first half. Now I mean, if the input prices, I mean, I understand that this would have been at a higher cost structure, right? So now the input prices were to fall, what is the risk of reversal on that side? So first of all, we normally evaluate our working capital situation based on as a percentage of sales. In March 'twenty five or thereabout, we were about 30% plus or 32% plus.

21:05 Now we have brought it down to around 25%. So that's one thing we have made an effort to improve the working capital cycle. Secondly, as it stands today in the inventory is a rolling thing. It is maximum there for maybe next forty days or next sixty days thereabout. As of this date, there is no significant effect in the next quarter. And also to kind of further add to what Sridhi said. Yes, so I think the key is also kind of managing inventory to an extent that you're not speculating too much and caught in a situation where like what happened also, I think from the first quarter to second quarter, there was a bit of a drop in prices before it again went back up. So yes, we'll have to be very aware of that situation and really plan very, very intricately. So that's what we're doing to ensure that we have the optimum inventory to for production and supply reliability.

22:01 Yes. No, I mean, rightly because the way we look at is that we have a tall task on the volume growth side for the second half, almost 16% growth is what we have to deliver. And if there is a reversal on the inventory side, I think we might end up missing our EBITDA guidance is for sure in that case. So that is why I just wanted to clarify. Sure. And lastly, sir, on the TDQ plant. So your presentation says that it's delivered ahead of schedule, but it doesn't appear to have been capitalized. So when will it be capitalized and how much increase in depreciation we see? And what return does it earn without the antidumping duty protection now?

22:49 So two things. The capitalization is we are waiting for the customer approvals, some tire transfer customer approvals are pending. Once we receive that, we will be capitalizing it hopefully in this quarter of Q3. The annual depreciation charge, which is typically INR $2.20 crores, maybe about INR 1 crore a month or 3 crore per quarter. Understood. So, sir, thank you so much for answering the questions. Wish you the best for the coming quarters. Thank you, Ritesh. Thank you. The next question is from the line of Ravi Mehta from OneUp.

23:44 Just one clarification. When I do a math of absolute gross profit that you make per tonne, that's kind of holding on for last two quarters. Now in Q1, we have been told that there was some inventory benefit. In Q2, is it because of the ADD helping you to still maintain that if there was no inventory benefit? So that's how I'm trying to read it. Voice was a bit garbled somewhere. Is it better now? Is it better now? It was better towards the end, but again now it's a bit garbled. But just go ahead. Now if we can understand what you're trying to say. Just go ahead. I'm just saying the gross profit per ton seems to be pretty firm and sustained for last Q1 and Q2. In Q1, we were given to understand there were some inventory benefits, which may not be there in Q2. So is it the ADD on sulfonylides coming in, which is helping you to still maintain that gross profit on a tonnage basis? And is this a sustainable number given there are no inventory anomalies of gains or losses?

24:58 Ravi, I think there are two things. One is, as I said to the previous participant, that sulphuramide is not a significant portion of our overall basket, 60% in antioxidants. Whereas when we are looking at the gross margin, it includes complete basket mix. Having said that, there is some portion of antidumping duty in Q2. We are not denying that. That is definitely there. But I think not everything is towards antidumping. Secondly, the way things have evolved in the first six months, I think the market is at least the conditions, the market environment has changed better as compared to relatively as compared to the previous year. I think if you look at your run rate of INR 700 crores, currently, we are operating as compared to last year, we were probably operating at INR $5.20 or $5.25 crores per annum. So in that sense, there is a significant improvement. Not everything can be attributed to legacy cost or antidumping.

25:55 Some portion of market conditions also changed. It is yet to like you got only benefit for past part of the quarter and we can still see some benefit for the full quarter in Q3? Yes. So it was part of it for the last quarter. Yes. Okay. Cool. Thanks. Thank you so much. Thank you. The next question is from the line of Pawan from Nyan M. Walla Securities. Please go ahead. Hello. Thank you for the opportunity. Am I audible? Yes, you are. Please go ahead. Can you confirm your revenue expectation for this year?

26:43 We have given an indication of 1,400 to 1,600. And then like I said in my initial speech, we see it to the upper side of it, yes. So on upper side of 1,600, if I do a calculation for the H2O, where we expect a 16% volume growth, so do are we expecting close to 20% to 23% realized R and D growth for H2 from H1? Okay. I think what Mr. Anand's guidance was, we are looking at an index of 160 and above in terms of index in volume terms. And based on the current pricing, yes, you can see a possible exceeding the numbers, but it all depends on how the volume tapers out.

27:34 And today, based on the current pricing, yes, we can see it will be exceeding that INR 1,600 also. But today, we are on a conservative side because we don't know what is the fourth quarter going to be. So based on the current crisis, are the crisis are about the actual realization? So yes, so that's there is a marginal uptick, at least that we see for quarter Yes. And one last question. What is our CapEx expectation for FY 'twenty seven and FY 'twenty eight? '27 and '28 CapEx. So we have this INR130 crores, which was sanctioned by the Board, spend is there. And then there are some other maintenance CapEx also is there. So these are the two main things. Rest of all is nothing is foreseen.

28:28 For FY 'twenty seven, right? FY 'twenty seven and FY 'twenty eight, both together. So 130 crores, we have spent something. We are going to spend something over H2 and next year's H1. And also some routine CapEx, is always there, maintenance CapEx come in, that also comes in. It's not significant, but it will come. Okay. So you mean INR 130 crore will be taken H2 and FY 'twenty? Yes. Okay. Thank you. Thank you. To ask a question, please press star and one now. Ladies and gentlemen, as there is no question, I would now like to hand the conference over to the management for closing comments. Over to you, sir.

29:37 Thank you. Thank you, everybody, for your time, and I hope we have been able to address all your queries. For any further information, kindly get in touch with any one of us or strategic growth advisers or investor relations advisers. I'd like to end by wishing everyone a very happy and safe Diwali and a prosperous New Year. Thank you, and have a nice day. Thank you. On behalf of NOCIL Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.