Oriental Carbon & Chemicals Ltd Research ReportCo.Update

Oriental Carbon & Chemicals (OCCL) manufacturers insoluble sulphur, an essential compound used as a vulcanisation agent in manufacturing tyres. It is a direct play on domestic and global tyre industry. Hence, with a steady state replacement market for tyres and increasing pace of radialisation, OCCL’s business prospects are firm. It operates in an oligopolistic market structure with only three credible players in the international market & OCCL being sole player domestically. Its global market share is ~10% (market size ~3,00,000 tonne) while domestic market share is ~55-60% (market size ~20,000 tonne). It operates in a business segment where asset turnovers are typically low (<1x). This, along with ~28% margins & ~90 days working capital cycle tend to lower RoCE to <20%. Given the present muted demand scenario as well as surplus capacity (~50,000 tonne) globally, there exists limited opportunity for OCCL to augment margins/return ratios.