Axis Securities suggests this chemical stock should be bought, with the stock its top pick of the week

There has been strong demand for tire replacements in the domestic market as the economic recovery has started to gain momentum. Tire demand is robust in the United States and the Euro region, which will support exports, while overall demand is expected to increase by 7% in FY23, according to Axis Securities.

Sharing as its top stock pick, national brokerage and research firm Axis Securities said it maintained its buy rating on Nocil shares with a target price of 283 each. So far, the stock of chemicals has increased by more than 11% in 2022 (YTD).

“NOCIL has a capacity of 110,000 MT, currently it is operating at 75% capacity utilization. With the strong demand and adoption of the products, the company is confident to reach its peak usage by September 2023. Revenue is expected to grow at a compound annual growth rate (CAGR) of approximately 25 % over the next 2 years,” the note reads.

Many large global and domestic tire manufacturers are looking to reduce their reliance on China and are looking to tap into other supply chain partners in India.

“India, being a relatively smaller player in the rubber chemical industry, with NOCIL holding a dominant share in the Indian rubber chemical industry, the strategic shift will bode well for NOCIL’s long-term growth. Currently, China is the global supplier of rubber chemicals meeting 75% of needs,” Axis Securities added.

The brokerage expects the company’s ROE to grow from 7% to 17% in FY21-24E, driven by a PAT CAGR of 54% over the same period, as it continues to maintain its market share and capture strong replacement demand.

NOCIL Ltd., incorporated in 1961, is engaged in the manufacture of rubber chemicals which are used by the tire industry and other rubber processing industries. Rubber chemicals which additionally include antidegradants or antioxidants, accelerators and products for the non-automotive industry such as products.

NOCIL also manufactures prevulcanization inhibitors and post-vulcanization stabilizers. & is the market leader in rubber chemicals in India with around 40% market share and an established customer base

The opinions and recommendations made above are those of individual analysts or brokerage firms, and not of Mint.

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