NOCIL Limited (NOCIL) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Q1 FY '27 NOCIL Limited 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 involves risks and uncertainties that are difficult to predict. As a reminder, all participants' lines will be in the listen-only mode. And there will be an opportunity for you to ask questions. [Operator Instructions] 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.

Yes. Good morning. 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've all received our investor presentation. If not, it's available on both the stock exchanges and our company website. Let me begin by providing an overview of the company's performance for quarter 1 financial year '27. We started financial year '27 on a strong note with revenue from operations reaching INR 403 crores, reflecting an impressive 20% year-on-year growth, driven by growing volumes and increase in selling prices on account of increase in raw material costs. The company delivered a healthy 9% volume growth compared to quarter 1 financial year '26, driven by sustained demand across key end markets. Domestic volumes registered double-digit growth, supported by improved demand from the implementation of GST 2.0. Export volumes also recorded single-digit growth driven by successful conversion of ongoing customer engagements into business gains and continued traction in international markets. This balanced performance across both domestic and export businesses highlights our ability to capitalize on market opportunities, while strengthening customer relationships and expanding our global footprint. While we are encouraged by these results, we also remain realistic about the operating environment. Global markets continue to experience geopolitical uncertainties, supply chain disruptions and a competitive pricing landscape. On a sequential basis, revenue grew by a robust 22% over the previous quarter. Volumes, however, witnessed a moderate decline of 3%, primarily due to temporary supply side constraints related to utilities and logistical challenges arising from the ongoing geopolitical situation, which resulted in the postponement of certain order commitments. These challenges were operational in nature rather than demand-driven with underlying customer demand remaining healthy. We did see a temporary demand contraction in the non-tire segment due to lower production on account of a sharp increase in input costs and shortage of labor due to the cooking gas shortages during the quarter. We continue to work closely with our suppliers and logistics partners to normalize supplies and execute the pending orders, and we remain confident of recovering the deferred volumes in the coming quarters. With respect to the anti-dumping petitions filed with the Government of India, the central government has approved the imposition of anti-dumping duty on sulphenamides covering both CBS and NS on 20th June, 2026. On the product -- other product front, the PILFLEX 13, the Directorate General of Trade Remedies, DGTR, issued a positive final recommendation in June 2026. The implementation of the anti-dumping duty on PILFLEX 13 is now subject to the approval of the Government of India. The tire industry continued to witness healthy domestic demand during the quarter, supported by strong replacement demand and healthy OEM offtake across both the passenger and commercial vehicle segments, still aided by the implementation of GST 2.0 and ongoing infrastructure activities. While some moderation in demand is expected in the near term owing to seasonal factors and the progress of the monsoon, these are expected to be temporary in nature. The underlying industry fundamentals remain strong, supported by healthy replacement demand, continued momentum in OEM volumes and favorable long-term growth drivers. Accordingly, the overall demand outlook remains positive, and the industry is well-positioned to navigate the near-term challenges while sustaining its long-term growth trajectory. In the international tire markets, even if the overall volume showed a minor dip in the first half of the calendar year, mainly on account of lower OEM volumes, the replacement market held positive, reflecting healthy demand. Coming back to NOCIL. Trial production at our new TDQ plant in Dahej is coming along well with initiation of samples to customers. As approvals progress and commercial supplies ramp up over time, we believe this investment will further reinforce our competitive position in the market. Our new INR 130 crore investment in Dahej is also progressing well, and our teams have done a great job of keeping it on track in spite of the challenges and disruptions we've been witnessing on account of the war in the last few months. As we look to expand our product portfolio, our R&D and technology teams are working very closely with customers on new products, and we expect positive traction during the course of the year. Looking ahead, while we remain mindful of the uncertainties that continue to exist in the global environment, we are optimistic about the direction in which the business is progressing. We expect revenue for financial year '27 to be in the range of INR 1,400 crores to INR 1,600 crores this is the current pricing environment with EBITDA in the region of 10%. Our focus will remain on executing our strategy with discipline, driving operational excellence, expanding our product portfolio, deepening customer relationships and maintaining a prudent financial management. With this, I now invite Mr. P. Srinivasan to provide an overview of our financial performance. Following his remarks, we will be pleased to take your questions.

Thank you, Mr. Anand, and good morning to everyone. Now let's run through the consolidated key financial highlights. The sales volume for Q1 FY '27 was 145 index, taking a base of 100 as Q1 FY '20. Revenue: The net revenue from operations for Q1 FY '27 stood at INR 403 crores, registering a strong growth of 20% Y-o-Y from INR 336 crores in Q1 FY '26, and 22% Q-o-Q from INR 330 crores in Q4 FY '26. Volumes, as Anand stated, volumes recorded a healthy 9% Y-o-Y growth in Q1 FY '27 compared with Q1 FY '26, while we witnessed a moderate 3% sequential decline compared to Q4 FY '26 due to temporary supply side constraints and other logistics issues. On the operating EBITDA performance, EBITDA for Q1 FY '27 stood at INR 45 crores, registering a strong growth of 48% Y-o-Y from INR 31 crores in Q1 FY '26, and 115% Q-o-Q from INR 21 crores in Q4 FY '26. EBITDA margins for Q1 FY '27 stood at 11.2%, expanding by 210 basis points Y-o-Y compared to Q1 FY '26 and about by 480 basis points Q-o-Q compared to Q4 FY '26. Profit before tax, PBT for Q1 FY '27 stood at INR 37 crores, registering a strong growth of 60% Y-o-Y from INR 23 crores in Q1 FY '26, and 70% Q-o-Q from INR 21 crores in Q4 FY '26. Profit after tax for Q1 '27 stood at INR 28 crores, registering a strong growth of 61% Y-o-Y from INR 17 crores in Q1 FY '26, and 63% Q-o-Q from INR 17 crores in Q4 FY '26. With this, we would like to open the floor for question and answer.

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

Congratulations on a very good set of numbers. Sir, a few questions to ask. So sir, as you mentioned in your opening remarks that because of the supply side challenges, we could see a moderate dip in our Q-on-Q volumes by close to around 3%. So I presume that this quarter would have some benefit of the low-cost RMC also. So like moving into Q3 -- Q2, Q3, how do you see the EBITDA run rate, which we have achieved this quarter? So do you believe that this EBITDA run rate can be more of a sustainable number, which we should work with given the fact that any dip in the gross margins per kg could be compensated through the benefits of operating leverage, which we could see through higher volumes?

Yes. Thank you, Nirav. Yes. So while we -- like I mentioned in my speech, while there could be a bit of small adjustments in the EBITDA overall for the year with a combination of the volume growth also kind of kicking in as well as operating leverages, we expect to hover around 10% of EBITDA. Yes, that's our expectation.

And sir, what sort of volume growth we have assumed in this top line number, which you have mentioned?

Around 10%, yes.

Okay. 10% for the full year?

Yes.

Correct. Also, sir, like on the conversion cost side, what we could see that this quarter, our conversion cost on a sequential basis has gone up from INR 110 crores to INR 130 crores. One of the reasons could be the employee cost, which normally we have seen in first quarter of every financial year, there is an increase. But excluding that part, were there any non-recurring expenses which won't be repeated in quarters to come? So if you can just highlight this increase in the conversion cost, which has happened this quarter?

So Nirav, Srinivasan here. Thank you for the question. So basically, there are a few things which is there. One is, in this quarter, as we witnessed the Middle East war crisis, we had logistic challenges. Obviously, the freight rates went up. So there was some increase on account of that, which if the economic situation stabilizes, so hopefully, these corrections will happen. But till the time the prices remains, you will see an inflated cost on that. Secondly, we generally, our commitments towards CSR is on the higher side in the first quarter, though it is -- at the end of the year, it evens out. But since the expenditure is already incurred, so there was some additional money spent on CSR. Thirdly, there were some challenges on the utilities front. We were all aware the gas prices went up significantly because of the Middle East crisis. Gas availability issue was there. The operational constraints were imposed by the regulatory bodies because we had to operate the plant at certain throughput rates. So based on that, some additional costs came in, in the utilities front. We also had a manufacturing improvement in volume terms. If you see in the stock change, there is a INR 45 crores related to the stock change. So that also played a role. And lastly, there were some maintenance issues at our plant. So that also had led to some corrections in some inflated costs, which we feel those things will get evened out. Because these are all one-off expenses. But I think this is the broad story which we can give reasons.

Correct, sir. Sir, if you can just quantify what could be the one-off costs, which won't be repeated in the next quarter, including the employee cost, which we have seen on a higher side this quarter?

So employee cost, I think will get stabilized. That will get -- hopefully will come down because generally the returns gets loaded in the valuations as and when the increments get rolled out. But as far as the utility cost, I think this is purely the pricing because as and when the oil prices stabilize, hopefully, the utility cost will come down. Some few crores will come down on account of this one-off maintenance costs, et cetera. That will be onetime expenses, which will not be repeated.

Got it. Sir, last from my side, like what we have seen that you mentioned that the approvals from the customers so far as the TDQ plant is concerned, we have started getting the samples approved from the customers. So in best of our understanding, when can we see the volumes coming from the TDQ plant materially for NOCIL? What could be those period? And can this improvement in volumes from TDQ plant can take our run rate to or the indexation to, let's say, 160, 165 in quarter 4 of FY '27. Can that numbers be workable, sir?

So the approvals are expected. So it takes typically about 6 to 8 months, right, which we've been talking, sometimes even lesser. So we should start seeing it start trickling in quarter 4, but more into -- going into quarter 1 of next year is when I see the numbers coming in. But I think we should start seeing those first things coming in quarter 4.

Correct. And what was the mix of export and domestic volumes in first quarter, if you can just share the mix?

In the first quarter, we see export is about 33%, roughly 33% and domestic 67%.

This is the volume part you are mentioning, sir, right?

Yes.

The next question is from the line of Praveen Kumar from Acuitas Capital Advisors.

I had a few questions. The first one was on the volumes. So while you have alluded to logistical challenges, et cetera, impacting volumes. But I think from a Q4 perspective, we were talking about Q4 to be a base for improvement from there. And also in terms of exports, we were expecting a double-digit kind of a volume growth expectation for the year. So versus that, if I look at your overall FY '27 volume, what you're talking about, about 10%. So has there been a, I mean, revision downwards internally due to the evolving geopolitical situation? Is that what is driving the overall volume growth expectation for FY '27? Or is it driven by reassessment on the domestic front, if you could throw some light on that?

Yes. So we -- like there has been some kind of small impact on the non-tire sector in the quarter, but not necessarily in the tire, and that's where we see still the robust demand continuing. And we have not kind of scaled down. We still see that for the full year compared to financial year '26, we should keep up the 10% growth rate. So I don't see that flagging. We have not kind of scaled down the numbers in any way as yet.

Understood. And on the antioxidants front, if I look at the import data on antioxidants, there seems to be an increase in import volumes there. And realization seem to on a Y-o-Y basis continue to contract on the antioxidant front. So in light of the fact that TDQ, that ADD was not approved by the ministry specifically, right? And you are putting up this -- I mean your TDQ volumes are up from this new facility. So how do you see this entire antioxidants piece playing out? If you can throw some light on that in light of all this development, continued dumping, continued foreign realizations and that ADD was not approved by the ministry.

Yes. So for TDQ, we are looking at both increase in volumes in the domestic market as well as in the international markets. And given the fact that it has a wide range of applicability, not only limited to tires, but also the non-tire sector, we see that there are sufficient opportunities to grow it in spite of the fact that we didn't get the anti-dumping. And like we had also mentioned earlier, we do keep having and structuring clients for different scenarios. So we still have a roadmap to continue to grow the volumes, both in the tire and the non-tire sector, albeit given the domestic as well as the international markets. Yes.

And how do you plan to counter this increased dumping on the antioxidants front and the falling realizations, if you could?

So we have not -- at least in the -- we've not seen a significant change in the import numbers because I also -- we have limited visibility on that. But that also -- I am -- we don't see a significant increase in influx on accounts of any of these anti-dumping changes that have happened.

Understood. And on accelerators, there was a, I think, recent announcement that one of your large Chinese competitor, China Sunsine was putting up additional capacity in one of the accelerators. So if you could throw some light on how that could impact pricing or volumes on that front?

Yes. So that was also one of the reasons that we had approached for the anti-dumping on the accelerators. So those capacities you are referring to was also the one of the intermediates to the main accelerators. And so we have a position both not only in domestic, but also with international customers on that front. And we are able to compete at this point with also the anti-dumping duty now that's in place.

Understood. And lastly, on the -- you have referred to the geopolitical situation and logistics impacting or pushing out volumes from this quarter. But do you see any improvement on that front in this current quarter, what you're seeing? Or do you continue to see uncertainty and if you could throw some light on that?

Yes. So there is continued uncertainty definitely on the front of raw materials. I think the -- you have to take those calls because it does keep moving up and down like it has happened in the last few weeks, depending on the geopolitical situation. But we're not seeing any significant impact on demand as yet. So we still see it as positive. But there is going to be this uncertainty on pricing of raw materials and availability is something that we'll need to keep a close watch on.

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

Congrats on a good set of performance. Just a couple of questions. Sir, in your opening remarks, you mentioned some INR 1,400 crores to INR 1,600 crores top line number for '27 and you also mentioned some 10% margins. So that comes out to INR 140 crores to INR 160 crores. Sir, when we look compared to '26, you are talking of 10% volume growth. So ideally, we are talking of around 30% to 40% pricing growth, that means. Just to know more on to the pricing part. So are we assuming like the war-related benefits of higher realization that would sustain going ahead? Or it is also the anti-dumping duty benefits coming in from the Sulphenamides Accelerator or the better product mix? Which are the factors which you're keeping in perspective of 30% to 40% annual realization growth?

Yes. So it's a combination of all, which is surely, like you mentioned, we'll have to get also realistic that there is expected to be some moderation. It will not be at the same levels as quarter 1, but there will be some moderation. And it is a combination of volume, also product mix, also coming from the fact that better price realization in the domestic market for accelerators and operating leverages that will come.

And sir, possible to quantify the inventory gains during the quarter? Any ballpark numbers would help.

Let me just check, but maybe not right away, we'll kind of come back to you on this after.

Got it. Sir, when we look -- so during the quarter, a 9% Y-o-Y growth. And you also mentioned like the non-tire segment that is more of a subdued as of now. But sir, when we look at the commentary of the India's largest so latex player, so they have stated that demand is quite good, and they have been also been able to take the price increase. Ideally, so whatever demand commentary they have given, so that looks good. But we are saying like it is more of a subdued. Anything, sir, you can correlate like.

So what I was mentioning also was it was kind of a transitionary element was temporary in nature, more because of the quite a few of our -- so again, when you speak about non-tire is multiple subsegments, right? It's not one, but there are multiple subsegments. And there's also a high dependency in those smaller companies on contract labor. And also when input costs went up, many of them also had to cease production for some time. So these things played out in the quarter, but it was more transitionary, and we expect that demand to kind of come back.

Okay. So the 9% like volume growth in this quarter on a Y-o-Y basis, sir, possible to like state like how much was from the tire side and non-tire side?

So like I mentioned, it was more skewed towards the tire sector, lesser on the non-tire side.