nocil ltd Management discussions

Economic Overview

The year 2021-22 was an attempt of the Global Economies to inch towards resumption of normalcy and growth despite the continued disruptions due to the pandemic.

With the vaccination in place, the world expected to edge towards an endemic stage of this unprecedented crisis. It is worthwhile to note that the Indian Government conducted the largest vaccination programme in the world. This led to the revival in the domestic economy as most contributors to the economy started getting normalised. Owing to the successful implementation of the vaccination drives, several parts across the country started relaxing the COvID restrictions.

Indias GDP growth is around 8.9% for the year under review compared to a de-growth of 6.6% in the previous year. This after combination of growth in agriculture by about 3.9% is supported by a double- digit growth across Manufacturing and Services sector.

The recent COVID variant noticed in China, Hong Kong, Western Countries etc. if not controlled, may further hamper the GDP growth. The Global Economies continue to face challenges in terms of disruptions in supply chain resulting in higher input and freight costs, non-availability of necessities due to the growing inflation in most of the Countries.

The Russia-Ukraine war has brought in additional challenges, adding another bout of uncertainty to disrupt the revival. This has led to further inflationary pressures on account of rising crude, petrochemical, metal prices etc. Though crude oil is kept outside the sanctions, as of now, any further tightening in the form of trade or economic sanctions on Russia (being the third largest oil supplier) may lead to escalated energy, oil, metal prices etc. causing great concerns to oil importing countries like India.

Despite sanctions on Russia, the prolonged war situation continues unabated.

This has led to serious concerns on inflationary pressures across all economies of the world, India being no exception to this trend. As a result, we have started experiencing higher crude oil prices, rising downstream petrochemical prices which are inputs for the Rubber Chemicals Industry. This has led to interest rates hikes initiated by the Central Banks of Russia, U.K., India, USA etc.

Further, the World is facing supply chain issues as China (being a critical manufacturing hub across different industrial sectors) is presently reeling under COvID lockdown in several parts and coupled with the same, there are logistic issues as well.

The USD-INR cross rate continues to be in a volatile range until the conflict subsides, forex flows are regulated, and markets stabilise.

To summarise, the growth experienced in F.Y. 2021-22 was on the back of the de-growth in F.Y. 2020-21 due to lockdown imposed owing to onset of COVID. This growth momentum was expected to continue in F.Y. 2022 - 2023 as well.However, due to the war outbreak, the World at large is likely to experience set back in this growth momentum as per the latest report issued by IMF. In general, the Central Banks of the World will be required to do the challenging task of interest rate hikes to manage inflation vis-a-vis the growth momentum.

Rubber Chemical Industry:

Global Rubber consumption shows growth of ~9.6% during the CY 21 v/s de-growth of ~6.0% during the CY 20 as per the data released by the International Rubber Study Group (IRSG). On the domestic front, the rubber consumption showed a growth of around 23% in CY 21 as against the degrowth of 9% in CY20.

Rubber chemicals essentially follows a similar trend. In comparison, your Companys growth for CY 21 is around 30% more than 3 times the market growth thanks to availability of capacities and some de-risking adopted by some customers.

This was possible due to resumption of normal economic activity coupled with expansion plans of tire majors in place and with the China plus one strategy.

Your Company being the largest domestic manufacturer of Rubber Chemicals with its expanded capacities in place at the right time, is in a good position to take advantage of this opportunity

Industry Structure and Developments

As stated earlier, the Rubber chemical industry follows the trend of global rubber consumption.

The Domestic Tire industry, largest consumer of rubber after having experienced weak demand pattern for over 2 years managed to get a restriction of Tire imports into India. This led to the rapid improvement in their operating rates which became very necessary given the improvement in re-cycled Tires.

The Tire customers which indicated pick-up rates at the beginning of each quarter were in constant need for rubber chemicals. This led to a linear demand during the year barring some interruptions caused during the first quarter on account of second COvID wave.

Chemical Industry is intricately woven and any imbalance in demand-supply for a group of chemicals can threaten the manufacturing activities of several industries.

In view of the volatile situation more particularly from October 2021 onwards, supply chain is clearly the most critical aspect of any industry. Our Industry too faced such challenges and we have taken alternate steps to mitigate these challenges from time to time.

Though China accounts for about 80% of Worlds Rubber Chemical production, it only consumes about 35% of the same resulting in exportable surplus, which makes it possible to dump it into nearby markets, including India. To counter the same, necessary applications were made before the Director General of Trade Remedies (DGTR) for seeking anti-dumping duty protection to ensure level playing field in some of the main products.

Business Outlook: Opportunities & Threats Opportunities:

The normalisation of the Indian economy will enable the replacement Tire market to operate at a higher rate and your Company being a major supplier to Tires will benefit out of the same. The import restriction on various classes of Tires into India will help the domestic Tires operating rates. Since Tire industry constitutes 65% of the Rubber Chemicals consumption, any improvement at their end will benefit your Company besides other non-Chinese players in this industry.

Given the concentration of Rubber Chemicals capacity in China along with the associated uncertainties, there has been some sense of de-risking amongst Global Tire majors about over-dependence on a single source country. With the recent interruptions due to the new variant of COVID in some parts of China, further de- risking of this source will present an additional opportunity to your Companys outlook.

It may be noted that your Company is not only seen as a dependable and quality supplier, but also a player that offers almost a complete range of Rubber Chemicals. Moreover, your Companys strong R&D capabilities are considered a very important strength by these Tire majors.

By virtue of its long association with most international Tire majors, your Company also enjoys a preferred-supplier status with their Indian operations. With increasing presence of these players in the Indian market, your Company stands to gain significant leverage as a domestic supplier to these Plants as well. There are opportunities for expanding business in certain specialty chemicals and high value chemicals, where some customers are conducting advanced pre-commercial studies. This development augurs well for us. Your Company is taking all the necessary steps for meeting these increased requirements.

In line with the future trend of rubber growth over in the coming years, Auto Sector growth and Tire industry growth, your Company has a vision to enhance its presence in the global space. Based on the demand outlook, further expansion in the field of rubber chemicals by the Company is an additional opportunity through which we can consolidate in the Global Rubber Chemicals space. With capacities in place, any additional requirements in EU market on account of the prolonged war situation may help the Indian manufacturing industry.

At the same time, we also continue to be selective in the choice of target customers and markets.


The Rupee traded in the wide range of Rs 73.75 -77 per USD. The Company largely continued to mitigate the risk of this volatility through a judicious mix of natural hedge and other tools in the form of forward/ option contracts.

Our Competitors have for long been dumping their products in the Indian market at low prices. The possibility of Competitors pursuing an irrational pricing approach cannot be ruled out. This may create pressure on our margins.

Sentiment-driven currency changes can also impact domestic prices and profitability.

Though the Country is expecting a normal monsoon this year, any shortfall may lead to fall in the rural demand thereby unfavorably impacting some user segments.

Risks & Concerns:

The prolonged war situation leading to inflationary pressures and surge in the crude oil prices and its downstream petrochemical prices, continued supply chain disruptions on account of COvID variants, logistics related issues, trade tensions between Russia and other countries etc. are all concern areas.

Any disruption in the economic activities can impact the markets either at raw material manufacturers, customers or operational sites partially may impact the business prospects.

Operating & Financial Performance for the Year

The Financial Statements comply in all material aspects with Indian Accounting Standards (Ind AS) notified under Section 133 of the Companies Act, 2013 (the ‘Act) [Companies (Indian Accounting Standards) Rules, 2015] and other relevant provisions of the Act.

During the year under review CRISIL & CARE have reaffirmed ratings as CRISIL AA & CARE AA respectively (Double A) (Stable) for long term Bank Facilities (Term loan as well as Fund Based facilities) and CRISH A1+ & CARE A1 + respectively (A One plus) rating for short term Non-Fund Based Bank facilities.

Despite the challenges faced by the Industry due to lockdown in the first quarter on account of 2nd COvID wave, the Companys performance on the domestic sales volumes, registered a growth of over 16% for the year. On the export business front, despite stiff competition, especially from China, your Company successfully exported to strategic accounts with wide range of products and thus achieved a growth of 17% as against the Global Rubber consumption growth of 9.6%.

During the year under review some Plants were forced to operate at sub-optimal volumes in view of the supply chain crisis for partial period. Further the unprecedented price increases in respect of its major inputs which started from the second half of the previous year continues to be volatile and the inputs are at higher levels. Fortunately, due to timely corrections in our finished products to equate the input costs increase coupled with optimisation of costs due to improved capacity utilisation led to improvement in margins. As a result, the EBIDTA margins increased during the year.

Summary of the financial performance of the Company is presented below:


(Rs In Crores)

Particulars 2021-22 2020-21
Revenue from Operations 1,571.31 924.66
Other Income 4.84 14.28
Total Income 1,576.15 938.94
Operating EBIDTA 282.90 126.93

During the year under review, the Company achieved a profit before tax of Rs 239.59 Crores as compared to Rs 104.18 Crores in 2020-21.

Pursuant to the SEBI (Listing Obligations and Disclosure Requirements), (Amendment), Regulations, 2018, the key financial ratios viz., Debtors turnover, Inventory Turnover, Current Ratio, Net profit (%), and Debt Equity ratios do not exceed the threshold of 25% or more as compared to the immediately preceding financial year. However, Operating Profit Margin (%), Return on Net Worth and Interest Coverage exceeded the threshold limits due to the reasons stated above.

Internal control systems

The Company has in place, adequate internal control systems and procedures covering all the financial and operating functions. These have been designed to provide adequate assurance to the Management regarding compliance with the Accounting Standards by maintenance of appropriate accounting records, monitoring the economy and efficiency of operations, protecting the assets of the Company from losses, and ensuring the reliability of financial and operational information through proper compliance with the statutory enactments and its rules and regulations. Some of the significant features of the internal control systems and procedures are as follows:

• Appropriate delegation of authority limits with responsibility for incurring Capital and Revenue expenditures.

• Approval and monitoring of Annual Revenue Budget for all operating and service functions.

• Procedure for approval of Capital Budget proposals and monitoring the expenditure on such acquisitions.

• Formulating and reviewing the annual and long-term business plans.

• A comprehensive Code of Conduct for ensuring the integrity of financial reporting, ethical conduct, regulatory compliances, and conflict of interest, if any.

• Review of the operations and financial plans in key business areas through monthly management meetings.

• Appointment of Internal Auditors to conduct periodical internal audits on operations, systems, internal control on financial reporting etc and issue reports to the management and the Audit Committee of the Board, regarding the adequacy and compliance with the internal controls and the efficiency and effectiveness of operations.

• An ERP system (SAP) connecting Plant, Regional Sales Offices and Head Office enabling the Management to evaluate and take decisions based on real time information systems.

The Audit Committee of the Board of Directors regularly reviews the findings of the Internal Auditors, adequacy of internal controls, Financial Controls, Compliance with the Accounting Standards, as well as recommends to the Board, the adoption of the Quarterly and Annual Results of the Company and appointment of Auditors. The Audit Committee also reviews the related party transactions, entered by the Company during each quarter.

Further, the Secretarial Auditors review on periodical basis through their own systems and check lists the status of compliance with respect to the Companies Act, 2013 and SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015, as amended and other SEBI regulations as may be applicable to the Company.

Material developments in Human Resources

Talented and skilled manpower is an important enabler for a Company to grow and maintain competitiveness. Human resources are considered as most important and valuable assets of your Company.

Focus was kept on acquisition, retention and development of necessary skilled manpower keeping in view our current operations requirement as well as the future business expansion and growth plans, particularly the Dahej Plant expansion project. Innovative incentive schemes are designed and implemented as a motivational and retention strategy.

Your Company continues to conduct employee trainings across several functions pertaining to Technical, Behavioral / General, Health Safety and Environment and ISO Standards. ‘Managerial Skill Development training programs are conducted to enhance the soft skills of potential managers.

A regular employee performance evaluation system is in place to evaluate the individual performances as well as determining their development needs and future potential.

Your Company has complied with all the regulations pertaining to Factory, Labour and other applicable laws and very cordial Industrial Relations are maintained with the recognised labour Union.

Cautionary statement

Certain statements in the Management Discussion & Analysis describing the Companys objectives, projections, estimates, expectations, or predictions may be ‘forward looking statements within the meaning of applicable Securities Laws and Regulations. Actual results may differ from those expressed or implied. Important factors that could make a difference to the Companys operations include raw material availability and prices, cyclical demand and pricing in the Companys principal markets, fluctuation in forex rates, changes in Government regulations, tax regimes, economic developments within India and the countries in which business is conducted, and other incidental factors.