Graphite In­dia Ltd

Money Times - - Best Bet -

(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

54% re­spec­tively.

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.

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