Rating Rationale
January 10, 2022 | Mumbai
NOCIL Limited
 
Rating Action
Total Bank Loan Facilities RatedRs.200 Crore
Long Term RatingCRISIL AA/Stable
Short Term RatingCRISIL A1+
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings' ratings on the bank facilities of NOCIL Limited (NOCIL) continue to reflect NOCIL's healthy business risk profile marked by its leading market position in the rubber chemicals 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, exposure to competition from imports and risks associated with the ramp up of expanded capacities.

 

Revenue is expected grow by 35-40% in fiscal 2022 aided by a low base of fiscal 2021 along with revival in the demand from the global tyre industry, which contributes to around 65% of NOCIL’s revenue. Ramp up of newly added capacities, consistent price hikes taken while retaining competitive edge, focus on increasing share from export markets and benefits accruing from continued diversification of vendor base by global customers by following China+1 strategy will also drive the revenue growth over the medium term.

 

Operating profitability is expected to stabilise with correction in inflationary trend in raw material prices and will also be supported by improving capacity utilisation of its new capacities. Efficient cost control measures in the form of price hikes in light of current inflationary pressure from raw material prices as well as strong operating efficiencies will also benefit in safeguarding their margins over the medium term. 

 

Financial risk profile remains strong in the absence of any debt obligation. The company is expected to generate healthy cash surpluses over the medium term, which will further help in the sustenance of strong credit metrics.  Bank lines remain largely unutilised, and net cash accrual should be sufficient to meet capital expenditure (capex) requirements and support working capital.

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 chemicals industry in India (with over 40% market share) stand its established clientele. The company is also among the few players globally with a wide product basket of 22 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 good international presence. In fiscal 2021, exports contributed 34% 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 30% in fiscal 2019 to 34% in fiscal 2021, and is expected to further improve over the medium term.

 

Commercialisation of the new capacities, at a time when global customers are diversifying their vendor base away from Chinese specialty chemical manufacturers, will benefit NOCIL to ramp up its new capacities faster and gain market share in global supply chain of rubber chemicals in the medium term. Substantial increase in market share in rubber chemicals in the medium term will be key rating driver.

 

  • Robust financial risk profile:

Financial risk profile is robust, with net worth of Rs 1,284 crore as on March 31, 2021, and a debt-free balance sheet.  Given the company’s healthy business risk profile and improving exports, the cash accruals will remain sufficient to fund the working capital requirement over the medium term. Also, no major capex is expected to happen over the medium term. Hence, reliance on borrowings is expected to remain minimal. Liquidity is healthy, as reflected in unutilised bank lines of Rs.100 crores and liquid surplus of Rs. 115 crores (as on March 31, 2021). CRISIL Ratings believes that going ahead, any large capital expenditure in the future will be funded prudently, resulting in sustenance of a strong financial profile.

 

Weaknesses:

  • High revenue dependence on the tyre industry:

NOCIL derives almost two-thirds of its revenues 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 also resorted to large scale imports of tyres from China and South East Asian countries in the recent past, until an anti-dumping duty was levied on imported tyres in fiscal 2018. While this has led to pick up of demand for the domestic tyre manufacturers and augurs well for input suppliers such as NOCIL, its performance nevertheless partly remains exposed to the demand pattern of the automotive sector.

 

  • Competition from imports and risks associated with ramp up of expanded capacities:

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 significant injury to the domestic industry as a result of dumping by these countries, the Government of India has levied an anti-dumping duty on import of such products in April 2014. The benefits of the duty were available to the company till July 2019. The government stance post July 2019 has an impact on the operating profitability of NOCIL and remains a key monitorable.   

 

Considering the long-term demand potential from the domestic and global tyre industry, the company carried out capacity expansions in Navi Mumbai and Dahej. Although the capex is almost completed, ramp up of the facilities remains critical. With a slowdown in domestic demand, timeliness in receipt and supply of orders to new customers and geographies is crucial for ramping up the facilities.

Liquidity: Strong

Liquidity is healthy. The entire fund- based facilities remain unutilised. Also, the capex of Rs 475 crore between fiscals 2019 and 2021 was funded via accruals and no major capex are announced over the medium term. Hence, reliance on borrowings is expected to remain minimal.

Outlook: Stable

CRISIL Ratings believes NOCIL will maintain its robust financial risk profile with a largely debt-free balance sheet over the medium term. Furthermore, continued strong market position should help ramp up the 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 sustained basis and
  • Sustenance of robust financial risk profile and material build-up of liquid surpluses

 

Downward factors:

  • Weaker than expected operating performance leading to operating profitability below 15% on a sustained basis
  • Increase in debt on account of more-than-expected debt-funded capex / acquisition or dividend payout

About the Company

NOCIL, part of the Arvind Mafatlal group, is India’s largest rubber chemicals manufacturer. The promoters held 33.88% stake in the company as of September 30, 2021, and the remaining stake was held by public and others, including mutual funds and insurance companies.

 

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 due 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

 

For the six months ended September 2021, the company's operating income was Rs 720 crore and PAT was Rs 77 crore against Rs 328 crores and Rs 29 crore, respectively, in the corresponding period of the previous fiscal. (Figures are not comparable on account of the pandemic-induced lockdowns in H1FY21).

Key Financial Indicators

Particulars

Unit

2021

2020

Revenue from operations

Rs.Crore

923

846

Profit After Tax (PAT)

Rs.Crore

86

131

PAT Margin

%

9.3

15.5

Adjusted debt/adjusted networth

Times

0.00

0.00

Current Ratio

Times

3.15

2.96

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs.Crore) Complexity Level Rating assigned with outlook
NA Cash Credit* NA NA NA 90 NA CRISIL AA/Stable
NA Letter of Credit & Bank Guarantee NA NA NA 30 NA CRISIL A1+
NA Letter of Credit & Bank Guarantee@ NA NA NA 30 NA CRISIL AA/Stable
NA Letter of Credit & Bank Guarantee** NA NA NA 35 NA CRISIL A1+
NA Proposed Cash Credit Limit NA NA NA 10 NA CRISIL AA/Stable
NA Proposed Letter of Credit & Bank Guarantee NA NA NA 5 NA CRISIL A1+

*Fully interchangeable with non-fund based working capital limits

**Fully interchangeable with fund based working capital limits

@Interchangeable with Rs. 30 crore fund based limits and forward of Rs. 5 crores

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

PIL Chemicals Limited

Full

Subsidiary

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 100.0 CRISIL AA/Stable   -- 30-11-21 CRISIL AA/Stable 19-08-20 CRISIL AA/Stable 28-06-19 CRISIL AA/Stable CRISIL AA/Stable
Non-Fund Based Facilities ST/LT 100.0 CRISIL A1+ / CRISIL AA/Stable   -- 30-11-21 CRISIL A1+ 19-08-20 CRISIL A1+ 28-06-19 CRISIL A1+ CRISIL A1+
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Rating
Cash Credit* 90 CRISIL AA/Stable
Letter of credit & Bank Guarantee 30 CRISIL A1+
Letter of credit & Bank Guarantee** 35 CRISIL A1+
Letter of credit & Bank Guarantee@ 30 CRISIL AA/Stable
Proposed Cash Credit Limit 10 CRISIL AA/Stable
Proposed Letter of Credit & Bank Guarantee 5 CRISIL A1+

*Fully interchangeable with non-fund based working capital limits

**Fully interchangeable with fund based working capital limits

@Interchangeable with Rs. 30 crore fund based limits and forward of Rs. 5 crores

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Chemical Industry
CRISILs Criteria for Consolidation

Media Relations
Analytical Contacts
Customer Service Helpdesk

Pankaj Rawat
Media Relations
CRISIL Limited
B: +91 22 3342 3000
pankaj.rawat@crisil.com

 


Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
naireen.ahmed@crisil.com


Anuj Sethi
Senior Director
CRISIL Ratings Limited
B:+91 44 6656 3100
anuj.sethi@crisil.com


Gautam Shahi
Director
CRISIL Ratings Limited
B:+91 124 672 2000
gautam.shahi@crisil.com


Sanjana Ghosh
Senior Rating Analyst
CRISIL Ratings Limited
D:+91 22 6172 2919
Sanjana.Ghosh@crisil.com
Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com


 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper/magazine/agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL Ratings. However, CRISIL Ratings alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites and portals.


About CRISIL Ratings Limited (A subsidiary of CRISIL Limited)

CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set the standards in the credit rating business. We rate the entire range of debt instruments, such as bank loans, certificates of deposit, commercial paper, non-convertible/convertible/partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 33,000 large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including ratings for municipal bonds, partially guaranteed instruments and infrastructure investment trusts (InvITs).
 
CRISIL Ratings Limited ('CRISIL Ratings') is a wholly-owned subsidiary of CRISIL Limited ('CRISIL'). CRISIL Ratings Limited is registered in India as a credit rating agency with the Securities and Exchange Board of India ("SEBI").
 
For more information, visit www.crisilratings.com 

 



About CRISIL Limited

CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations.

CRISIL is majority owned by S&P Global Inc, a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.


For more information, visit www.crisil.com

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK


CRISIL PRIVACY NOTICE
 
CRISIL respects your privacy. We may use your contact information, such as your name, address and email id to fulfil your request and service your account and to provide you with additional information from CRISIL. For further information on CRISIL’s privacy policy please visit www.crisil.com.



DISCLAIMER

This disclaimer is part of and applies to each credit rating report and/or credit rating rationale (‘report’) that is provided by CRISIL Ratings Limited (‘CRISIL Ratings’). To avoid doubt, the term ‘report’ includes the information, ratings and other content forming part of the report. The report is intended for the jurisdiction of India only. This report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the report is to be construed as CRISIL Ratings providing or intending to provide any services in jurisdictions where CRISIL Ratings does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this report does not create a client relationship between CRISIL Ratings and the user.

We are not aware that any user intends to rely on the report or of the manner in which a user intends to use the report. In preparing our report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the report is not intended to and does not constitute an investment advice. The report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind to enter into any deal or transaction with the entity to which the report pertains. The report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Ratings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold or sell any securities/instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL Ratings assumes no obligation to update its opinions following publication in any form or format although CRISIL Ratings may disseminate its opinions and analysis. The rating contained in the report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the report should rely on their own judgment and take their own professional advice before acting on the report in any way. CRISIL Ratings or its associates may have other commercial transactions with the entity to which the report pertains.

Neither CRISIL Ratings nor its affiliates, third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively, ‘CRISIL Ratings Parties’) guarantee the accuracy, completeness or adequacy of the report, and no CRISIL Ratings Party shall have any liability for any errors, omissions or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the report. EACH CRISIL RATINGS PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Ratings Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. Public ratings and analysis by CRISIL Ratings, as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any), are made available on its website, www.crisilratings.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about ratings by CRISIL Ratings are available here: www.crisilratings.com.

CRISIL Ratings and its affiliates do not act as a fiduciary. While CRISIL Ratings has obtained information from sources it believes to be reliable, CRISIL Ratings does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and/or relies on in its reports. CRISIL Ratings has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL Ratings has in place a ratings code of conduct and policies for managing conflict of interest. For details please refer to:
https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html.

Rating criteria by CRISIL Ratings are generally available without charge to the public on the CRISIL Ratings public website, www.crisilratings.com. For latest rating information on any instrument of any company rated by CRISIL Ratings, you may contact the CRISIL Ratings desk at crisilratingdesk@crisil.com, or at (0091) 1800 267 1301.

This report should not be reproduced or redistributed to any other person or in any form without prior written consent from CRISIL Ratings.

All rights reserved @ CRISIL Ratings Limited. CRISIL Ratings is a wholly owned subsidiary of CRISIL Limited.

 

 

CRISIL Ratings uses the prefix ‘PP-MLD’ for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011, to comply with the SEBI circular, "Guidelines for Issue and Listing of Structured Products/Market Linked Debentures". The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on CRISIL Ratings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: https://www.crisil.com/en/home/our-businesses/ratings/credit-ratings-scale.html