Recommendation From Petrochemicals Sector

This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

MAKE IN INDIA' TO DRIVE NOCIL FURTHER

India's specialty chemicals industry is valued at USD 25 billion. The industry delivered 13 per cent growth over the past five years led by domestic consumption. Going forward, the central government's 'Make in India' initiative will facilitate growth in the industry and flow of foreign direct investment (FDI) to this sector will accelerate growth. The lower commodity prices will provide the much-needed support to margins while rising demand will facilitate volume growth. Crude oil is one of the basic raw materials for this sector. Being positive macroeconomic conditions based scrip like NOCIL will have traction in near term.

NOCIL offers basic organic chemicals. The company is engaged in the business of manufacturing and trading of rubber chemicals. Its manufacturing facilities include Navi Mumbai plant and plant at Dahej in Gujarat. NOCIL’s PIL Chemicals Limited subsidiary is engaged in processing of rubber chemical products.

On financial front, NOCIL’s revenue increased by CAGR of 8.22 per cent from FY12-FY16. The company’s EBITDA too rose by CAGR of 31.89 per cent from the past five financial years. Its net profit also boosted by 17.76 per cent from FY12 to FY16.

On yearly result front, NOCIL’s top line declined by 1.15 per cent to Rs 708 crore in FY16. On segmental revenue front, it earned 71 per cent from domestic, 28 per cent from exports and remaining 1 per cent from others during FY16. The company’s EBITDA increased by 23.04 per cent to Rs 139 crore in FY16 as compared to previous fiscal year. Its EBITDA margin expanded by 387 basis points to 19.69 per cent in FY16 on yearly basis. NOCIL’s bottom line also boosted by 37.06 per cent to Rs 78.26 crore in FY16 as compared to previous financial year. The company’s net profit margin expanded by 309 basis points to 11.06 per cent in FY16 on yearly basis.

NOCIL is enjoying virtually debt-free status with ratio of 0.07x times as of FY16. The company has ROE and ROCE at 17.69 per cent and 24.04 per cent in FY16.

On quarterly basis, NOCIL’s revenue increased by 3.64 per cent to Rs 193 crore in Q1FY17 as compared to the same period of the previous fiscal year. The company’s EBITDA too rose by 18.54 per cent to Rs 36.63 crore in Q1FY17 on a yearly basis. Its net profit also increased by 38.59 per cent to Rs 23.2 crore in Q1FY17 as compared to the same period of the previous financial year.

On valuation front, the share price of NOCIL is trading at PE multiple of 14.69x times as compared to peers such as Sudarshan Chemical Industries (30.43x), Vinati Organics (23.33x), Solar Industries (35.18x). The company’s PE multiple is also attractive as compared to industry PE multiple by 23.14x times. NOCIL has PB multiple of 2.63x times. The company is giving dividend of 1.57 per cent. Hence we recommend our reader investors to BUY the stock.