Motilal Oswal has given Buy recommendation for NOCIL recommended buy rating on the stock with a target price of Rs 320 in its research rep with a target price of Rs. 320 in its research report issued on Nov 23, 2021
Motilal Oswal’s research report on NOCIL
The prices of Aniline, a key raw material for NOCIL, have shot up by 20% MoM in Nov’21 (up 44% QoQ and 149% YoY) due to a supply crunch and other reasons mentioned below. This could result in a normalization of margin for NOCIL (recorded a peak margin of INR55/kg in the no Anti-Dumping Duty environment in 1QFY22). As the price of Aniline increases, the ability of the company to pass through the entire increase subsides (as highlighted in Exhibit 2), resulting in a margin compression. -In the current environment, where: 1) the Centre has not accepted the Directorate General of Trade Remedies’ (DGTR) recommendation to impose ADD on one of its key products, PX-13; and 2) there exists a risk of increased dumping from China (China Sunshine would complete its expansion over the next 1-2 quarters), the stock may be under pressure in the near term.
Outlook
We maintain our Buy rating on the stock, given: a) the management’s confidence in achieving the optimal utilization rate of expanded capacity by 1HFY24 (we expect the same by FY24 – translating in a revenue/EPS CAGR of 26%/44% over FY21-24E), and b) relatively cheap valuation (at 15x FY24E EPS) after the recent correction.