Rating Rationale
October 30, 2023 | Mumbai
NOCIL Limited
Ratings reaffirmed at 'CRISIL AA/Stable/CRISIL A1+'; Rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.600 Crore (Enhanced from Rs.500 Crore)
Long Term RatingCRISIL AA/Stable (Reaffirmed)
Short Term RatingCRISIL A1+ (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AA/Stable/CRISIL A1+’ ratings on the bank loan facilities of NOCIL Ltd (NOCIL).

 

The ratings 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 minimal debt. The strengths are partially offset by high revenue dependence on the tyre industry and subdued global environment.

 

NOCIL recorded a y-o-y growth of 3% in turnover at Rs 1,615 Crores in fiscal 2023 largely aided by stable domestic demand (domestic volumes witnessed growth of ~5% in fiscal 2023) and higher realizations. Export volumes however de-grew by ~21% in fiscal 2023 largely owing to economic slowdown and decrease in latex production within the Southeast Asian market. The company recorded operating income of Rs 397 crores in Q1FY24 with sales volumes degrowth of 12% due to recessionary trends and subdued demand from the European market. Consistent price corrections in line with raw material costs 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 margins declined to 15.6% in fiscal 2023 from 18.2% in fiscal 2022 mainly on account of an increase in utilities costs due to higher energy costs which prevailed throughout the year. The company is able to pass on raw material price increases, albeit with a lag to contract customers, which enables the company to sustain gross margins. Operating Margins are expected to remain range bound at 14-16% over the medium term on account of elevated energy costs and high competition.

 

The financial risk profile remains strong in the absence of any long-term 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 unutilized, and net cash accruals should support capital expenditure (capex) requirements.

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 ~40% market share) and its established clientele. The company is also among the few players globally with a wide product basket of 20+ 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 a good international presence. In fiscal 2023, exports contributed 31% 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 26% in fiscal 2018 and is expected to further improve over the medium term.

 

  • Robust financial risk profile: Financial risk profile is robust, with net worth of Rs 1,549 crore as on March 31, 2023, and nil debt on the balance sheet as on 31st March’2023.  Given the company’s healthy business risk profile and improving exports, the cash accruals will provide strong support to fund the working capital requirement over the medium term. Liquidity is healthy, as reflected in low utilization levels of bank lines. CRISIL Ratings believes that going ahead, any large expansion in the future will be funded prudently, resulting in the 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 Southeast Asian countries in the recent past, until an anti-dumping duty was levied on imported tyres in fiscal 2018 and is still continuing. 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 susceptibility to volatility in raw material prices.: 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 underutilization at the foreign competitors end, nearby markets including India remain vulnerable to aggressive dumping which was witnessed in second half of fiscal 2023. This aggressive pricing will remain monitorable in the future.

 

High proportion of raw materials such as aniline, benzene and other chemicals of NOCIL are linked to crude prices and thus the profitability of the company remains susceptible to the volatility of the same. The company is able to pass on raw material price increases, albeit with a lag to contract customers.

Liquidity: Strong

Liquidity is healthy with an average of 12% overall bank limit utilization for 12 months ended August’2023 and cash surplus of 232 crores as on 31st March’2023. The company has also enhanced its bank loan facilities to support the increasing working capital requirements.

Outlook: Stable

CRISIL Ratings believes NOCIL will maintain its robust financial risk profile with a largely debt-light balance sheet over the medium term. Furthermore, a 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 a sustained basis.
  • Sustenance of robust financial risk profile and healthy liquid surplus.

 

Downward factors:

  • Weaker than expected operating performance leading to operating profitability below 13% on a sustained basis.
  • Sharp Increase in debt on account of more-than-expected debt-funded capex / inorganic growth or dividend pay-out.

About the Company

NOCIL, part of the Arvind Mafatlal group, is India’s largest rubber chemicals manufacturer. 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

 The company recorded Rs 397 crores of operating income in Q1FY24 with an operating margin of ~14%

Key Financial Indicators

Particulars

Unit

2023

2022

Revenue from operations

Rs crore

1615

1569

Profit after tax (PAT)

Rs crore

149

176

PAT margin

%

9.2

11.21

Adjusted debt/adjusted net worth

Times

0.00

0.00

Current Ratio

Times

5.14

3.24

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of the
instrument		 Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs. Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Cash Credit* NA NA NA 85 NA CRISIL AA/Stable
NA Cash Credit* NA NA NA 50 NA CRISIL AA/Stable
NA Cash Credit* NA NA NA 10 NA CRISIL AA/Stable
NA Cash Credit* NA NA NA 5 NA CRISIL AA/Stable
NA Working Capital Demand Loan NA NA NA 75 NA CRISIL AA/Stable
NA Proposed Working Capital facility NA NA NA 25 NA CRISIL AA/Stable
NA Letter of credit & Bank Guarantee NA NA NA 50 NA CRISIL A1+
NA Letter of credit & Bank Guarantee@ NA NA NA 100 NA CRISIL A1+
NA Letter of credit & Bank Guarantee NA NA NA 155 NA CRISIL A1+
NA Letter of credit & Bank Guarantee** NA NA NA 45 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

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 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 250.0 CRISIL AA/Stable   -- 05-08-22 CRISIL AA/Stable 30-11-21 CRISIL AA/Stable 19-08-20 CRISIL AA/Stable CRISIL AA/Stable
      --   -- 10-01-22 CRISIL AA/Stable   --   -- --
Non-Fund Based Facilities ST 350.0 CRISIL A1+   -- 05-08-22 CRISIL A1+ 30-11-21 CRISIL A1+ 19-08-20 CRISIL A1+ CRISIL A1+
      --   -- 10-01-22 CRISIL A1+ / CRISIL AA/Stable   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit& 85 HDFC Bank Limited CRISIL AA/Stable
Cash Credit& 50 Axis Bank Limited CRISIL AA/Stable
Cash Credit& 10 ICICI Bank Limited CRISIL AA/Stable
Cash Credit& 5 IDFC FIRST Bank Limited CRISIL AA/Stable
Letter of credit & Bank Guarantee 50 ICICI Bank Limited CRISIL A1+
Letter of credit & Bank Guarantee# 100 Axis Bank Limited CRISIL A1+
Letter of credit & Bank Guarantee 155 HDFC Bank Limited CRISIL A1+
Letter of credit & Bank Guarantee@ 45 IDFC FIRST Bank Limited CRISIL A1+
Proposed Working Capital Facility 25 Not Applicable CRISIL AA/Stable
Working Capital Demand Loan 75 Citibank N. A. CRISIL AA/Stable
& - fully interchangeable with non-fund based working capital limits
# - Interchangeable with Rs. 30 crore fund based limits
@ - fully interchangeable with fund based working capital limits
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

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