Graphite India Ltd
(BSE Code: 509488) (CMP: Rs.990.60) (FV: Rs.2) By Amit Kumar Gupta
Incorporated in 1962, Kolkata based Graphite India Ltd (GIL) is a subsidiary of Emerald Company Pvt Ltd that manufactures and sells graphite electrodes, carbon and graphite speciality products. It operates through three segments: Graphite and Carbon; Glass Reinforced Plastic Pipes; and Others. It offers a range of graphite electrodes with various diameter and power for AC and DC furnaces. It provides extruded graphite, molded and isostatically molded graphite, machined components of carbon and graphite, carbon graphite/bricks and carbon-carbon composites/brake discs. Its calcined petroleum coke, carbon electrode paste, graphite granules and fines and carbonaceous materials find application in aluminum, steel, ferro alloys and foundry castings industries. It also offers impervious graphite heat exchangers and graphite columns. It offer HCl synthesis and dry HCl gas generation units, H2SO4/HCl concentration and acid dilution cooling units, bursting discs, thermos-wells, glass fiber reinforced plastic pipes, joints and fittings, etc. Additionally, it generates and sells electricity through its hydel power plant to Karnataka power grid. During Q1FY19, GIL’s standalone operations reported a top-line of Rs.1777 crore (up 406.3% YoY, 46.6% QoQ), higher than our estimate of Rs.1537.7 crore. EBITDA was at Rs.1300 crore, higher than our estimate of Rs.995 crore while EBITDA margin was at 73.2%. PAT came in at Rs.858 crore v/s our estimate of Rs.662.7 crore. On a consolidated basis, its top-line was at Rs.1965 crore (up 403.8% YoY, 48.5% QoQ). EBITDA was at Rs.1436 crore while EBITDA margin was at 73.1%. PAT came in at Rs.957 crore. Graphite electrode prices fell to unsustainable levels in 2014-17 on account of subdued demand from EAF (electric arc furnace) producers, which led to a permanent shutdown of ~2,00,000 tonne globally (ex-China). Furthermore, ~3,00,000 tonne graphite electrode capacity was shut in China citing environmental concerns. The decline in graphite electrode exports from China coupled with shutdown of global graphite electrodes capacity vacated a substantial part of the global electrode market, tilting the graphite electrode demand-supply dynamics in favour of domestic players like GIL. The demand for graphite electrodes remained healthy on account of higher steel production through EAF. Even in China, steel produced through the EAF route rose sharply from ~6% in CY16 to ~9% in CY17. In the absence of any new capacity additions owing to limited supply of needle coke (a key raw material), we believe this demand-supply imbalance (in favour of demand) is likely to sustain in the near-to-medium term keeping graphite electrode prices healthy.
Strong demand for graphite electrodes from the EAF steel-making route amid supply constraints has led to a sharp rise in graphite electrodes prices, thereby resulting in healthy profitability. Given the healthy capacity utilisation levels of 100% in Q4FY18 and 98% in the current quarter, we have revised our capacity utilisation levels for both standalone as well as consolidated operations. As the operating environment continues to remain favourable, we expect
GIL’s top-line, EBITDA and PAT to grow at a CAGR of 46%, 55% and
Technical Outlook: The stock looks good on the daily chart for medium-term investment. It is making a higher high and higher low formation on the daily chart while consolidating at the upper end of its zone. The stock trades above all important moving averages like the 200 DMA level on the daily chart.
Start accumulating at this level of Rs.990.60 and on dips to Rs.920 for medium-to-long term investment and a possible price target of Rs.1250+ in the next 12 months.