NOCIL Limited (NOCIL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the NOCIL Limited Q2 FY '26 Earnings 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 involve risks and uncertainties that are difficult to predict. [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 good morning, everyone. 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 on our company's website. We appreciate your continued interest and support as we navigate a complex and evolving global market environment. The quarter under review was marked by multiple external shifts, including the impact of the revised U.S. tariff structures, the rollout of GST 2.0 in India and intensified dumping pressure from international producers. Despite these macroeconomic disruptions, the company navigated the volatility, recording a 4% quarter-on-quarter growth in sales volumes. Quarterly revenue stood at INR 321 crores, reflecting a sequential decline due to softer price realizations, partially in line with easing raw material costs, but largely due to heightened competitive pricing pressure from imports. On the domestic front, we recorded a sequential volume growth during the quarter. However, pricing continues to remain under pressure due to the continued dumping. To address this challenge, as stated earlier, we have already filed antidumping petitions on select key products with the Government of India. We are pleased to share that the authorities have found merit in our submissions, have initiated detailed investigation and we expect the outcome of these proceedings in the coming months. On the export front, volumes for the quarter witnessed a decline, primarily impacted by the tariff situation from the United States, which led to a ripple effect across global trade flows, leading to uncertainties in international markets. Consequently, customer sentiment remained cautious and overall demand in key export geographies continued to be challenging. Now coming to the industry environment. The Indian tire industry continues to remain robust on the back of government's continued infra push and demand side interventions. The reduction in GST rates is expected to stimulate demand for vehicles and tires. The revised tax structure is also likely to provide a positive drive to the replacement market, further supporting overall industry volumes. On the international front, the global tire industry delivered a mixed performance across geographies. Established markets in the West remains subdued. Europe remains subdued due to weak demand and lower exports but witnessed a mild rebound from increased imports ahead of potential anti-dumping measures. The United States market was impacted by softer OE demand, though replacement demand remained stable. Additionally, tariff-related uncertainties weighed on the overall industry performance. In this evolving global environment, we remain focused on our strategic priorities to deliver sustainable growth. While the market environment continues to remain challenging, we are actively managing margin pressure through a judicious mix of price and volume strategies, operational efficiencies and various cost optimization initiatives that will generate meaningful savings in the near term. On the external front, while our exports push in the U.S. has been impacted by the recent tariffs, we view this more as a speed breaker and are positive of a workable way forward. We continue to push with our long-term engagement with customers. Our ongoing TDQ capacity investment at Dahej remains on track and we anticipate commissioning and trial production in H1 calendar year 2026. Looking ahead, while near-term challenges persist, we remain optimistic about the long-term growth trajectory and value creation for our shareholders through our strategic levers and disciplined execution. That's it from my side. I now invite Mr. P. Srinivasan to provide an overview of our financial performance.

Thank you, Mr. Anand, and good morning to everyone. Now let me -- let's run through the consolidated financial highlights. On the sales volume front, the volume for Q2 FY '26 was 138 on an index basis of 100, which was Q1 FY '20. Net revenue from operations for Q2 FY '26 stood at INR 321 crores as against INR 336 crores in Q1 FY '26. The reasons already explained by Anand in terms of price reductions. On a half yearly basis, the net revenue from operations stood at INR 657 crores vis-a-vis INR 735 crores in H1 FY '25. Volumes for Q2 FY '24 witnessed a 4% growth on quarter-to-quarter basis. Coming to operating EBITDA parameters. Operating EBITDA for Q2 FY '26 stood at INR 22 crores as against INR 31 crores recorded in Q1 FY '26 with EBITDA margin at 7% for Q2 FY '26. Operating EBITDA for H1 FY '26 stood at INR 53 crores as against INR 79 crores in H1 FY '25 with EBITDA margin ranging around 8.1% in H1 FY '26. Now coming to the operating PBT parameters or profit before tax. On operating PBT for Q2 FY '26 stood at INR 19 crores as compared to INR 23 crores in Q1 FY '26. Operating EBITDA -- operating PBT for H1 FY '26 stood at INR 42 crores as compared to INR 69 crores in H1 FY '25. On the taxation front, the deferred tax for H1 FY '25 was on account of LTCG long-term capital gain structure revision on certain assets and which was reduced to 14.3% from 23.3%. Accordingly, the company remeasured its deferred tax liability, recognized a credit of INR 14.8 crores or INR 15 crores under deferred tax expense in the previous year and other comprehensive income. Coming to profit after tax parameters or PAT. The profit after tax for Q2 FY '26 stood at INR 12 crores as compared to INR 17 crores in Q1 FY '26. Profit after tax for H1 FY '26 stood at INR 29 crores as compared to INR 69 crores in H1 FY '25, largely impacted by the business slump as well as the taxation credit of H1 FY '25. Operating cash flow improved during the period, reflecting management's focused efforts on improving working capital efficiency. With this, we would like to open the floor for question and answers.

[Operator Instructions] The first question comes from the line of Nirav Haresh Jimudia from Anvil Wealth.

Sir, I have a few questions to ask. Sir, first is on -- you mentioned that despite of all those challenging environments, we were able to grow our volumes sequentially by 4%. So just wanted to understand from you that now how are you seeing the things going forward from here in terms of the volumes part predominantly, the measures what you mentioned in terms of the cut in GST on tires in the domestic market and also from the viewpoint of exports where U.S. tariffs and other global factors are impacting the volumes on the export side. So if you can just touch upon both the aspects and help us understand from which of the quarters possibly we could start seeing the meaningful growth in the volumes?

Yes. Thank you, Nirav. Yes, you're right about the growth in the domestic volumes. I think -- so I see that there should be a consistent trend on the domestic volume growth. There could be a bit up and down from one quarter to the other. But from a medium to long-term point of view, we see that we should be able to maintain and slightly creep up our market share as we go along in the next few quarters. Demand side, I'm quite positive that it should stay quite robust on that front. As far as exports are concerned, I see it to be a bit choppy at least for the next few months. But then clearly, medium-term growth will be there. Maybe one quarter or the other, we could see some seasonal trends playing out. But otherwise, based on the engagement with customers, I'm quite positive that the long-term trajectory will continue to stay. Coming to the U.S., yes, it's -- we were positively growing in the U.S., and this has kind of been a bit of a holdback for the time being. I look at it from that point of view. But then we're also looking then to increase our focus in some of the other markets and also talking to see how we can increase volumes in some of the other geographies. So that's how I see the overall domestic and international market volume situation.

Correct. Sir, you mentioned that our continuous engagement with...

I'm sorry to interrupt you, Mr. Nirav, but your voice sounds airy. Can you please speak through a handset?

Sir, just to touch upon the point you mentioned that we are in continuous engagement with the customers. And this we have been seeing probably from last 3, 4 quarters that our engagement with the customers have been continuously growing up. So when we see ourselves with the other players in the industry and probably China, from the engagement point of view, is pricing the foremost thing based on which they take their decisions in terms of shifting the volumes to probably NOCIL or any other player or is there any strategic point also where they look upon where they start giving us those incremental volumes and we start seeing those capacities build up for us?

Yes. The good part is over the years, also with these customers, we have had this long-term trust and engagement, which kind of gives us a good place at the table. While I think to specifically answer the question on how do we get whether a price or a volume advantage, again, it will depend from customer to customer. But clearly, from a price point of view, some customers don't expect us to be the cheapest always, but at least you have to be in the competitive range. And where we have lower volumes, there is clearly an opportunity to keep pushing up the volumes. So it's a combination of both, Nirav.

Got it. Sir, second question is on the market for rubber chemicals in India. So if you can just help us understand what is the domestic market today for rubber chemicals? And how much are the imports coming to India? And if possible, if you can just differentiate between the countries from where the majority of the imports are coming to India?

Yes. Nirav, as we understand when we are looking at the domestic rubber chemicals market, we generally look at barometer of natural and synthetic rubber consumption as the reference point to arrive at a possible demand because there is no direct data on rubber chemicals demand. But per se, we are looking at 80,000 to 85,000 tonnes of demand per annum, in which NOCIL share is about -- we normally target about 40% as a market share. Maybe we're hovering around 1-odd-percent here and there depending on the quarter-to-quarter and the pricing parameters and competition. While we say there is other domestic producers who are also occupying the space, but in their case, the penultimate intermediate raw material is sourced from imports. So per se, if you plug that also as import because they are also influenced by the intermediate pricing of the competition supplied by China or [indiscernible] or European Union, whichever source. So if I look at it, there is a 60%. But if we exclude that, maybe it oscillates between 20%, 40% or 25%, 35% depending on quarter-to-quarter situation to situation.

Got it. Got it, sir. Sir, also, you touched upon the several anti-dumping measures or the petitions being filed by the company at various levels with the government authorities. Sir, most recently, we have also filed an anti-dumping duty for one of the intermediates for the rubber chemicals. So is it possible to share that how much of those intermediates would be coming to India because possibly that would be going for the finished products. So if you can just touch upon that part, that would be very helpful.

So that intermediate, if it what we examined the situation for a particular injury period, I think the finished product made out of that intermediate was constituting 30% of the Indian demand. So hence, we thought it fit to look at that piece also.

Okay. So if I understood it correctly, let's say, out of the 80,000, 85,000 tonnes of market, that finished product is close to around 30% of Indian demand, right?

No, I think when I said -- when we say the intermediate which we filed for intermediate...

Of the finished product.

Of that particular finished product, that is -- in that -- suppose the finished product demand is 100, let's for assuming sake, so the competition we're sourcing the penultimate intermediate, the domestic competition we're importing the penultimate intermediate from China and EU and then we're converting into the finished product and that accounted for 30% of the demand. That's what I meant.

The next question comes from the line of Rehan Saiyyed from Trinetra Asset Managers.

I have 2 questions. First on the Dahej expansion and CapEx time line side. So I just wanted an update regarding the time line. Could you please share an update on the INR 250 crores Dahej brownfield expansion? So what portion of the CapEx has been incurred so far and when you expect the incremental capacities to start kicking in the commercial production? And just continuing with the second one. I want to ask regarding the inventory and working capital efficiency regarding the cash flow side. The cash flow indicates a strong working capital release this quarter. So could you elaborate on the specific operational improvements and market factors that drove this and whether such efficiency is sustainable going ahead?

So Rehan, this is Srinivas here. So on the Dahej CapEx, which we -- when we are speaking, I think we have already committed a lot of orders. The work, in my view, 75% to 80% work is already completed. So as we go in this quarter, that is October to December, maybe in January to March, we should be getting into -- I think Anand mentioned briefly that the trial production should commence during H1 CY '26, which means January to June. We are targeting somewhere during the middle of that period to target the trial production. That's number one. Second piece -- so that's where the CapEx stands at. Now coming to the second question, what was your -- the working capital…

Regarding the working capital.

Yes. The working capital improvement consists of 2 factors. I think one is there is an efficiency by -- if I may say, in terms of sales number of days, I would say, by 20%. That is definitely there because we have taken some corrective measures in terms of inventory management, better production planning, better forecasting and raw materials, et cetera. Secondly, the -- generally, the activity level of the pricing parameters coming down, there is also a proportionate working capital reduction. So it is a combination of 2. One is a 20% improvement in working capital parameters per se. And second is the combination of the prices and the cost coming down as compared to the previous year.

Okay. And is it sustainable going forward for second half?

Just repeat, please, I'll just hear it.

Like can I repeat my question again?

Please can you repeat yourself? You're not clear enough.

I'm saying that is it sustainable for second half?

Yes, yes. The efficiency will be maintained or it will -- we'll strive to improve further, but at least it will be sustained.

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

So just a couple of questions. Sir, first, excluding this U.S. tariff, the figure of 138 base figure, how much would that have been?

So Aditya, if I were to understand your question, in case -- if the U.S. tariff had not happened, what would this 138 number would that have been, right? Is that right?

Correct.

Okay. So I -- yes, I think I'm just kind of calculating through this. But yes, I think it would be about 140 to 142, yes.

141, 142 basically.

141, 142. Okay. Sir, like you mentioned in your opening comments regarding the heightened pressure from imports, most of the pricing decline has been factored in now or like you see more pain or there is left to like more factor in, in the coming quarters?

So I think, yes, I did -- I stuck my neck out a few quarters ago and said I think it's bottomed out and then I was wrong. So I'm going to be cautious again because -- okay, again, I feel it's kind of bottoming out because I'm looking at upstream raw material trends and assume that further deflation should not happen. But yes, I'm kind of, let's say, cautious optimism that it's kind of bottoming out, let's say that.

Okay. The current quarter numbers, when we look like -- so we are standing at a 10-year low, most of the operating leverage benefits. Second, on the lower cost, which we earlier highlighted like your lower power and fuel, lower conversion cost, nothing has been flown as on date. How do you see like things moving ahead? Is there a structural change in the business? Will this competition will remain like this only? And how should we look like -- is this a structural change or you see still like it is only a temporary and we could get back to that earlier spreads and volume figure?

Aditya, the basic challenge which we have been facing is, I think what is very important is we have been operating around 65% capacity utilization. When you have set up a plant for much higher capacity, you're not able to load the volumes. What is happening is we are seeing competition coming in different forms and different ways to outsmart each other. And this is one. The second challenge which we are seeing is the Western world also is seeing some sort of -- not a positive growth is generally a negative sentiment. So a lot of uncertainties is there. And therefore, it leaves -- I mean, it opens the door for very, very situational pricing or opportunistic situations, which some competitors are trying to take advantage. It still remains a mystery how they are able to manage it. Probably -- possibly -- I mean this is something -- it's not an allegation, it's a guess that there is some element of support from their end or from their government and that is enabling them to stay afloat. Whereas with these sort of benchmarks, what has been offered in the market, it looks highly unrealistic to survive so long and so deep in the market. But nonetheless, therefore, we were forced to get into these anti-dumping measures because the way things were going for the last maybe 8 quarters, we are forced, but we try to manage ourselves. But I think at a particular stage when the competition is so acute, you need to take some corrective actions, and that's why we took the corrective actions.

Let me just build partially to also continue on what you had asked, building on what Srini said. There is still scope for more operating leverages to come in. And I see that as the volumes improve, we will see that kicking in. But having said that, already quite a few of the measures are already showing up. We are seeing it in quite a few of the efficiency improvements. So you see it in some of the numbers. You must have noticed it, there is an improvement. So we are also seeing it on a per kilo basis that there is an improvement on account of these operational efficiency measures. And quite a lot of measures which had longer lead times and time to come on stream, we expect that to start also coming on stream by the last quarter of this year. And I'm hopeful that we'll see more of it.

Okay. Sir, also on your anti-dumping duty, like you had mentioned you expect positive traction. Just, sir, reconfirming some numbers. So is it on 4 or 5 products on anti-dumping duty, which we have filed? And any quantum or percentage figure you can give like how much incremental EBITDA we can add if this anti-dumping duty is imposed? Like how it was imposed in 2014, you mentioned some figures. Is that a similar figure or the quantum would be lower?

It's a little premature, matter is sub judice. Basically, investigation is going on. So we don't know where the -- what is the quantum of investigation and et cetera. However, we can -- one thing we can say, the interactions what we have been having and we had the other processes, which is going as per the anti-dumping rules, we find the response from the -- I mean the interaction has been positive. We are reasonably confident that we will get a favorable finding. But the quantum of finding, I don't think so -- I mean, I cannot predict today. Maybe we expect those findings to come out in the next 2, 3 months and following which the notification will come a little later. So this is where we stand. And as far as the number of products, which is 2 antioxidants and sulfonamides, 2 products of sulfonamides will be covered under this investigation.

The next question comes from the line of Nitesh Dhoot from Anand Rathi Institutional Equity.

So I wanted to check on the inventory situation. I mean, it looks like we've been able to exhaust our high-cost inventory. In Q1, you had indicated that a small portion of the higher cost inventory would potentially hit Q2. Are we now done with the inventory issues and procuring at competitive rates?

I think 90% or more than 95% is over.

Maybe some small thing will be there. It's an ongoing thing. In a falling market, what happens is because of the structure of the industry, we need some time to procure because India is import dependent on some of the raw materials. Therefore, we need to cover maybe 60, 70 days in advance, whereas if you have a situation of captive domestic production is equal to the demand, in which case, you can cover very late just in time. So that's an inevitable structure. And in case the prices remain flat, I think we are already through. But in case the flight falls further, which is unlikely, this is what we believe, then there could be some legacy perpetual -- small legacy. It will not be big, it will be a small quantum.

Right. So my second question is basically, if you could just break up the Q2 volumes between domestic and exports?

Yes. I think maybe, I would say, say about 2/3, 1/3, you can say, take a ratio. 2/3 domestic, 1/3 exports.

All right. And just on the volume outlook, maybe slightly repetitive there. But given the fact that we are minus 5% in H1, would we be able to close in at a positive volume number for the full year with the benefits led by GST, et cetera, coming in the domestic market? Any guidance that you can offer there?

Yes. I think clearly the plan was to grow much more stronger in the year. And -- but I'm quite positive that we should stay positive by the end of the year, end of the financial year.

Sure. And sir, just lastly, on the anti-dumping duty. So I mean, assuming that these duties come through, so will this also have -- other than the pricing, of course, I mean, will this also have a benefit in terms of our volumes improving as some of the Chinese goods might find it more expensive to enter through. So will it also help volume growth in any way?

Yes, it should support volume growth also, Nitesh.

The next question comes from the line of Harshil Parekh from Acuitas Capital.

Sir, my question was on the imports from Korean players. Basically, based on the [ EXIM ] data, in H1, there was a lot of dumping from Korean players in antioxidants at a price which is even below Chinese players. So is it temporary or far more structural in nature? So your inputs on the same would be very useful.

We are -- so yes, you're right. In a couple of the quarters, there has been pricing by Koreans who have -- actually players have been pricing it below Chinese also. And volumes have gone up on account of that. There has also been some benefit on the FTA that's playing out we see. So I think it's a combination of this that is playing out with the Korean imports.

But sir, our assumption was that we are the largest non-Chinese suppliers for these rubber chemicals. So does the Korean players have enough capacities to undercut us or even Chinese in terms of pricing?

So they are a single product, which they offer for the rubber chemicals is only this single product, which is an antioxidant. They're not into the entire basket of products. So actually, if you -- so compared to others, the portfolio of ours is offering much more, right, not only limited to one single antioxidant. And that's the difference between what we offer to tire customers compared to this single product that's being offered.

Understood. And sir, since it's a part of FTA, the anti-dumping investigations won't be applicable for Korean players. Is my assumption correct?

No, no. That's a separate -- antidumping duty is a separate duty besides the basic customs duty, whereas FTA is part of the basic customs duty.

The next question comes from the line of Sani Vishe from Axis Securities.

Sir, my question is kind of a follow-up on earlier discussion. So we have done a lot of hard work in terms of bringing in efficiencies and working on pricing and volumes wherever we can do. But going ahead, we are hoping for the anti-dumping duty, but what if the pricing remains like this? What if the ADD doesn't come, how do we plan to...