Investors bullish on heg stock

and Japan. Because of the high cost and high tech productive process, there is a significant barrier for entry of new players in this field. Recently, China has been paring down its steel production capacity with its exports contracting at an average annual rate of 15% in the three years to 2018. Globally, the EAF process has a 45% market share in overall steel production, but it is only 6% in China. And as the steel production from the rest of the world increases to fill this gap, the share of Electric Arc Furnace in aggregate steel production will automatically go up significantly. China has been eliminating outdated low grade steel production capacities and hence closure of these inefficient and highly polluting blast furnaces are being replaced by environmental friendly Electric Arc Furnaces. Therefore, China’s steel industry is pushing for reforms for high quality development, rather than fast speed development. According to the World Steel Association, global steel production reached 1.81 billion tonnes for the 2018 year, up by 4.6% compared to the year of 2017. India’s crude steel production for 2018 was up 4.9%, to reach 106 million tonnes, replacing Japan to become the world’s second largest steel producing country.

But unfortunately, India’s per capita consumption of steel stands well below the global average, indicating huge unrealised potential for growth. Also the ongoing push for infra development and favourable demographics in India are steadily improving the macroeconomics for the Indian steel industry. Both HEG Ltd and Graphite India Ltd were darlings of the stock market during the last two years and had an extraordinary run in their stock prices. The recent weakness in prices of graphite electrodes has largely been due to heavy imports from China, sanctions on Iran and softening of steel prices in India and thus falling prices and high raw material costs have dented the HEG stock by nearly 50% in the last six months. But even if assuming that price realisation falls to USD 10,000 per tonne, the fair value of the HEG is higher than the current market price at Rs 2,195. The company is also undergoing a buyback offer of 3.41% of its paid up equity at a whopping price of Rs 5,500 per share. Many analysts and high net worth investors are very bullish on the HEG stock and are accumulating the scrip with a one-year investment perspective for an expected price appreciation of at least 40% from the current levels. Rajiv Kapoor is a share broker, CERTIFIED Mutual FUND Expert AND MDRT INSURANCE AGENT.