NOCIL is one of India's largest rubber chemical manufacturers. Its products are mainly used in the production of automotive tyres. Though rubber chemicals only make up 3-4% of the total cost of a tyre, they are extremely critical in the production process. The barriers to entry in the industry are extremely high with most tyre manufacturers using the same suppliers for decades on end. That said the Indian rubber chemicals manufacturers did have some competition from cheaper Chinese companies on account of dumping by China. This has since abated after India imposed anti dumping duties on China.
NOCIL has a long and storied history as a rubber chemicals company and a solid R&D team. Its management has shown resilience and ability to cope with external economic shocks and navigate the company over decades of changes in India. Currently it is debt free, generates copious amounts of free cash flow and trades at less than 12x earnings. We estimate that revenue and earnings growth will be in the region of 10-15% over the next five years.
The stock makes part of our investment fund ACATIS India Value Equities (ISIN: DE000A141SG1)
Further information about the fund can be found here.
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Photo: Siddharth Mehta-Thomas